Even before COVID-19 forced large swaths of the economy to shut down, community banks and credit unions faced an immense amount of pressure. Competition from other local companies was great. Worse yet, these companies also faced stiff competition from larger financial institutions with a national presence and nearly unlimited resources. Consumer expectations were also rapidly shifting, with digital experiences becoming more important than ever.

COVID-19 has only accelerated these trends and exacerbated the challenges. To better understand what challenges community banks and credit unions face going forward, PaymentsJournal sat down with Ted Iacobuzio, Vice President and Managing Director of Custom Research and Consulting at Mercator Advisory Group. During the discussion, Iacobuzio explained how Mercator Advisory Group can help credit unions and community banks respond to the changing financial landscape.

PaymentsJournalHelping Community Banks and Credit Unions Stay Competitive in a Changing EconomyPaymentsJournal Helping Community Banks and Credit Unions Stay Competitive in a Changing EconomyPaymentsJournaljQuery(document).ready(function ($){var settings_ap20522550 = { design_skin: "skin-wave" ,autoplay: "off",disable_volume:"default" ,loop:"off" ,cue: "on" ,embedded: "off" ,preload_method:"metadata" ,design_animateplaypause:"off" ,skinwave_dynamicwaves:"off" ,skinwave_enableSpectrum:"off" ,skinwave_enableReflect:"on",settings_backup_type:"full",playfrom:"default",soundcloud_apikey:"" ,skinwave_comments_enable:"off",settings_php_handler:window.ajaxurl,skinwave_wave_mode:"canvas",pcm_data_try_to_generate: "on","pcm_notice": "off","notice_no_media": "on",design_color_bg: "111111",design_color_highlight: "ef6b13",skinwave_wave_mode_canvas_waves_number: "3",skinwave_wave_mode_canvas_waves_padding: "1",skinwave_wave_mode_canvas_reflection_size: "0.25",skinwave_comments_playerid:"20522550",php_retriever:"https://www.paymentsjournal.com/wp-content/plugins/dzs-zoomsounds/soundcloudretriever.php" }; try{ dzsap_init(".ap_idx_88673_2",settings_ap20522550); }catch(err){ console.warn("cannot init player", err); } });

Competition from both ends

The most direct strain on community banks and credit unions is competition. Iacobuzio noted that the competition is twofold. Small financial institutions must compete against an array of institutions with similar asset sizes. At the same time, these smaller institutions are facing competition from large banks and credit unions which operate on the national level. Armed with vast budgets, the larger institutions can offer discounts to lure customers away from small FIs, further raising the competitive stakes.

Faced with competition on both ends, only the strongest small financial institutions will survive, explained Iacobuzio. This was true even before COVID-19 began.  At one point, there were over 14,000 chartered banks in the country, but now that number has plummeted to a little under 5,000 banks. With the global pandemic forcing entire segments of the economy to shut down, the competition community banks and credit unions face has become more pronounced.

While this may seem like a grim situation, Iacobuzio pointed out that small institutions have many strengths. “They have deep roots in their regions,” said Iacobuzio. And “their customers tend to be extremely loyal.” The question is how to capitalize on these strengths. 

Digital offerings are the future

One of the most talked about trends in the payments industry is the rise of digital capabilities.