IN THIS ISSUE
Take Back Your Community Bank
Branch Analytics and Profitability Review
ON THE WEB
  
ABOUT NOLAN
The Nolan Company is a management consulting firm comprised of highly experienced and exceptionally knowledgeable industry experts. As trusted advisors to our clients, we frame, simplify, and solve complex and multi-dimensional operational and technical challenges.
July 2015
Take Back Your Community Bank
Mike Meyer, Principal Consultant


As the consolidation trend continues among larger financial institutions, smaller local and regional banks are finding it harder and harder to remain profitable. Here's how community bankers can win clients over with a simpler, more personal style of banking.

 

Community and smaller regional banks face more challenges and threats than ever. Deposits have declined, and competition for customers and revenue streams is especially fierce. At the same time, new regulatory requirements have put an additional strain on already diminished resources.

 

Even customers themselves are changing. Recent data predicts that for the next several years, Baby Boomers will begin turning 65 at the rate of 10,000 per day. Among other things, this will decrease demand for products like mortgages, loans, and credit cards. Meanwhile, younger customers may begin moving away from rural communities to pursue opportunities in metropolitan areas---  and their bank accounts may move with them.

 

Another challenge is that larger financial institutions are able to invest significantly in technology and innovation.  These banks can commit resources to speed, mobility, access, and other customer conveniences through their products and distribution channels. In taking more products and services online, bigger banks are driving down the number of in-branch transactions. That means they're also creating a generation of customers who see little or no need to visit a brick-and-mortar bank.

 

The good news is that these trends don't necessarily spell doom for community and smaller regional banks. The Nolan Company's latest Bank Performance Survey shows that Efficiency Ratios (ERs) for community banks have essentially remained flat for the past few years----  which indicates that there is room for improvement.

 

While big banks with access to working capital appear to be investing in technology to drive convenience, they may be losing sight of fundamental consumer drivers like trust, confidence, and stability. If they focus too much on quick, impersonal transactions and "one size fits all" products, large financial institutions run the risk of creating a commodity marketplace----  one in which relationships are marginalized, and where there's no room for trust or loyalty.

 

This is where smaller banks can play to their strengths----  by maintaining existing long-term relationships, fostering new ones with younger generations within the same families, and providing truly personalized service. However, that's only part of the solution. Community banks need to allocate resources to business processes, products, and services that drive customer relationships and retention.

 

Given everything that's happening in the banking industry, there has never been a better time for smaller banks to strategize, prioritize, and mobilize to stay competitive. In this opportunity also lies a challenge: Community banks must be willing to re-think their business models with an eye toward identifying, understanding, and responding to the right customers.

 

By embracing and applying some fundamental concepts, community banks can create value, brand equity, and loyalty among people searching for a different kind of banking experience.

 

Start with a Remodel

Adapting to changing industry conditions and consumer trends takes stepping back and thinking strategically----  and even rethinking the business model. Resist the temptation to "keep up" with the bigger banks. Instead, look for opportunities to carve niches and create competitive advantages. 

 

  • Think Deeper, not Broader: In our experience some branches can create a significant drain on profitability. Rather than thinking about opening more branches, think about what you want your current branches to be.
  • Cross-train Your People: Commit to developing "universal tellers" who can perform multiple functions that create opportunities for relationship building.
  • Invest in Baseline Technology: Rather than staffing up or building branches, use available capital toward simple online capabilities that satisfy minimum customer expectations and automate basic transactions
  • Understand Your Efficiency Ratio: Drill down and evaluate lines of business, functions, and product groups to get a clearer picture of the factors that directly affect efficiency. 

 

Build a Bigger Image

When it comes to community involvement and presence, smaller banks have a big advantage. Any big bank can buy a billboard or hang a banner at a construction site. Community banks can sponsor little league teams, invest in technology for schools, and help small businesses in more tangible ways than simply underwriting loans. When the leaders and employees of a small bank are visible and active in their communities, they create more brand equity than a big bank can buy through advertising.

 

Work Backward

Review business processes in reverse----  starting with the ideal customer experience. Once you've defined the goal, design and modify your operations to help create a better customer environment.

 

Think Young

The marketplace is changing. Take time to recognize the trends and how they affect your people, process, and technology strategies. As demographics and expectations evolve, think about how your products and services can adapt.

Continue to nurture long-term relationships----  and look ahead for opportunities to serve younger family members.

 

Be a Tech Follower

Don't react to perceived pressures to keep pace with technology. Instead, let the bigger banks invest in new tools, and then wait until they've worked out the bugs. Then, you can take advantage of select "off-the-shelf" solutions that make sense for your customers.

 

Bring Back Personal Banking

Focus on customers who value face-to-face relationships, and give them incentives and rewards for interacting. Play up local decision-making and relationship-based lending. Take a creative approach to product development that can drive new revenue sources and counteract declining deposits. And create a warm, welcoming environment that sets your business apart from the cold, transactional retail banks.

 

Progressive community banks are focused on their efficiency ratios. They're staying lean and keeping ahead of negative trends that can affect performance. Strategically, bank leaders are evaluating the profitability of each branch and adapting service and customer experience models to build loyalty. At the same time, they're giving staff members more local authority----  and training them to serve as "universal tellers" who can perform multiple functions in response to emerging customer expectations.


Small banks are facing some rather big challenges. But those obstacles are not insurmountable. By thinking strategically and working smarter, community and regional banks can grow and thrive for years to come.

Share this Article
View our profile on LinkedIn
BranchAnalyticsNolan Service Offering
Nolan Branch Analytics and Profitability Review


Because there is a direct relationship between declining branch transactions and declining customer traffic, it's essential for institutions to take a close look at the current and projected performance of individual branches before closing or consolidating any facilities. In order to make well-informed, effective management decisions, it's important to start with a clear picture of the many variables that affect your individual branch operations. The Nolan Branch Analytics and Profitability Review brings these trends and conditions into view, then provides clear solutions to help you:       

  • Improve individual and system-wide branch performance
  • Enhance bank efficiency ratios
  • Reduce expenses
  • Increase customer satisfaction and retention
  • Attract new customers 

Learn more about our Branch Viability Assessment

2014 The Nolan Company