Between 1984 and 2011, the number of federally insured banks shrank significantly in the United States, with the majority of bank closures being those with less than $100 million in assets, according to the Wall Street Journal. Small banks are being gobbled up by larger banks, until the industry has reached an all-time low, with just 6,891 federally insured institutions in the United States at the end of 2013. Those small town banks that have withstood these changes have faced a need to adapt in order to remain relevant in the modern banking market.
SmallTown Bank Challenges
Community banks are facing unique challenges in the current market. First, small towns are not growing, on average. While there are some pockets of growth in rural America, the shift is for people to move toward urban centers, where business and economic opportunities exist. Between 1980 and 2010, half of the country’s rural communities lost a significant among of their population. A shrinking customer base makes income generation difficult.
In addition, these banks find that their population is aging. Younger families are moving towards the jobs and opportunities in more urban areas, while their regular customer base is getting older. This prevents these banks from feeling a push towards embracing new technology, and this is to their detriment.
So small-town banks are facing the need to maintain their branch network, which is an expensive proposition, with a shrinking customer base, low branch traffic and a lessening in the total number of transactions generated. This is creating a situation wherein the bank simply cannot succeed economically.
How SmallTown Banks Must Adapt
In order to adapt to these challenges, the community bank must learn to find opportunities in their niche. While rural America, as a whole, is shrinking, some parts are growing. In addition, there are under served areas that are in need of banking services. Banks need to learn to find these markets and tailor their services to them. Once a needy area or area of growth potential has been identified, then the bank needs to create a strategy that will allow them to become the dominate banking force in that area.
Technology is going to be essential to this change as well. Technology can help streamline the backend aspects of running a network of community bank branches. This can lower expenses and eliminate some paid positions within the bank, so the bank’s overall profit margin is higher. Offering customer’s technology to use on their end can also help retain the younger demographic while improving customer service to older banking customers. Customer-facing technology also keeps the bank’s name in front of the consumer at all times, helping keep customers happy with their local bank.
If these strategies do not bring enough income to remain afloat in a changing market, the bank may need to consider expanding, with caution, into metropolitan markets. Most rural markets are located near metro areas, and banks can expand into the suburbs successfully if they plan the expansion right. This strategy can, however, be dangerous, as marketing in a metropolitan area is significantly different than marketing in a rural area, but it may be the solution that today’s community banks need to consider.
Are the days of the smalltown bank at an end? Probably not, but these banks are going to need to adapt in order to survive. National and city banks are using technology to reach the rural customer. In order to remain competitive, the rural bank is going to need to make some changes as well.