Defining Your Community: Opportunities and Challenges Facing Community FIs Today

November 15, 2021 by Catherine Jennings

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I recently sat down with Scott Hildenbrand, chief balance sheet strategist at Piper Sandler, and George Ekdahl, SVP of new sales at Apiture, to talk about challenges community financial institutions face today and why the balance sheet and digital strategy go hand in hand.

In the current environment, institutions of all sizes have unparalleled liquidity, Hildenbrand said, as well as a difficult interest rate environment and limited loan demand. This creates new challenges for banks and credit unions to “manage the balance sheet in a productive and profitable manner while managing risk and dealing with this unbelievable amount of liquidity in the industry.”

A digital strategy can support a strong balance sheet while helping community institutions level the playing field with larger players, according to Ekdahl. And, digital banking is not just for multi-billion-dollar institutions, he added, indicating that a growing number of much smaller banks and credit unions are standing up direct banks to increase their reach easily and cheaply.

“Previously, if you wanted to move into a new community or a different affinity group, you had to raise a lot of money and build a brick-and-mortar branch,” he said. “Now you can take that money, and you can put it into a digital banking space or in your digital banking strategy—and you can hit a much broader spectrum much more quickly.”

The Covid environment represents a new opportunity for institutions to build on a sense of community they’ve established with new businesses through PPP loans. “They may have been banking with a big bank, and then through PPP, they had an experience that, for better or for worse, pushed them over to a new, smaller institution” Hildenbrand said. “And now they have the opportunity to keep that business and make them their primary financial institution.”

The average American family may have relationships with up to five different financial institutions—and four of the five may be losing money on that particular household, Ekdahl said. “The battle is really on to win and be the primary financial institution, whether it is consumer or commercial.”

Understanding what’s most important to consumer and business customers is paramount. And, digital banking provides access to tools and analytics that can help retain users and build loyalty in ways that are much more targeted than a physical branch presence will allow.

For example, a digital platform with personal financial management tools enables users to see an aggregate view of their accounts from different financial institutions. In addition to adding convenience for users, this aggregation gives financial institutions visibility into accounts held with competitors, enabling the institution to present strategic marketing offers – such as a new car loan with a competitive interest rate – when appropriate.

Digital banking can also improve the balance sheet by supporting self-service, cutting back on call center expenses by meeting users where they are. A strong support function built into online and mobile tools that handles most of the questions that users might call in or visit a branch for can have a major financial benefit—while also improving the user experience.

“Customer expectations have changed,” Hildenbrand added. “And people don’t necessarily care anymore who they bank with. They care what kind of opportunities they’re given and frankly, how easy it is.”