CRM for community banks: An absolute must-have or a waste of money?

Karina Dalhunova

Karina Dalhunova

Karina Dalhunova

Karina Dalhunova

Karina is Banking Industry Analyst at ScienceSoft, an IT consulting company headquartered in McKinney, Texas. With an economics degree and 3+ years of writing experience in business and technology, Karina analyzes key digital challenges facing the banking industry. Within this role, she prepares well-informed articles describing the emerging trends in banking software development, such as mobile banking, chatbots, digital mortgage, blockchain and other technologies.

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Community banks have always positioned themselves as local providers with superior knowledge of customers’ needs. But this feature is no longer reserved for community banks only, as nationwide banks are coming with deeper pockets for innovative projects on customer relationship management.

Competition with megabanks threatens community banks

Known for their loan application consideration and customer-oriented service with a particular human touch, community banks have long been the life and blood of most counties throughout the U.S. But as the industry is getting consolidated and dominated by megabanks (giant banks with $100+ bn. in assets), smaller institutions have got in a tight corner. In fact, in 1995 megabanks controlled only 17% of all banking assets. However, these days their market share grew to 59%, which significantly aggravated the market position of local institutions – their market share plummeted from 27% to 11%. In particular, each of the four massive banks (JPMorgan Chase, Wells Fargo, Bank of America and Citigroup) have grown bigger than all U.S. community banks put together. In this highly competitive landscape, acquiring new customers and retaining current ones becomes rather challenging.

CRM for community banks

Bigger banks go customer-oriented, thanks to the technology they can afford

Although community banks may be physically closer to their customers, megabanks are currently heavily investing in technology to imitate proximity characteristic of local banks. The majority of bigger financial institutions are taking advantage of high-tech banking software for marketing, sales, customer support and more to handle the entire customer lifecycle. For example, JPMorgan Chase has collaborated with more than 100 fintechs to introduce innovative banking solutions to customers. Other major banks, such as Wells Fargo, Bank of America, Citigroup, Goldman Sachs and Morgan Stanley have similar investment strategies focused on collaboration with fintechs. Thus, to protect their market share, community banks should reconsider their current business processes and map out an effective customer-oriented strategy.

Why community banks should invigorate their customer-oriented service

Building a strong customer-oriented strategy is tricky, and just being local won’t work. It’s unreasonable to assume that a community bank knows its customers any better than bigger players could. Though smaller banks can obtain useful insights about customers thanks to their personalized service, megabanks are constantly getting closer, too. Without keeping up with bigger financial institutions in technological capabilities, community banks will lose their advantage over global players. All community banks’ efforts will be just informed guesswork if compared with megabanks’ intelligence. Instead of taking their exceptional knowledge of customers for granted, community banks should ask themselves:

  1. Do they have all needed statistical data for customer analytics (e.g. for a multi-dimensional analysis)
  2. Do they know their customers’ behavior in terms of channel usage or shopping preferences?
  3. Do they tailor financial products and services based on this knowledge?

Community banks can reinforce core capabilities with CRM

With a banking CRM, community banks can further enrich their knowledge on customers by consolidating all ever gathered insights in one place. A bank’s staff can access this database any time to get a complete customer profile with information about personal preferences and all latest transactions. As a result, employees can make only relevant offers based on historical behavioral data in customer profiles. Since the memory can play employees false, CRM will also help to establish systematic and timely communication to see into each customer relationship.  

Thus, with a banking CRM, community banks will get a chance to improve their core functions such as communicating, cross-selling and advising on financial products and services to their local community. For example, with a bank CRM system, the Pennsylvania-based Union National Community Bank with $536 mln. in assets managed to achieve $1 mln. in efficiency gains, prevented customer churn and increased revenue. But taking into account community banks’ limited budget for investment, the main challenge for any small financial institution is to choose the right functionality.

Basic CRM features?

Such features usually take only affordable investments since most of them can be covered out-of-the-box with limited customization. Although a bank CRM has a rich functionality and can potentially assist in a large number of financial services, community banks should first focus on the essentials so as not to end up underusing some features or stretching their budgets beyond reason.

That is why, at the very beginning, it might be better to get familiar with absolute must-haves such as customer profiling, mass marketing communication or basic sales workflows. Once adopted, a bank can look into expanding its CRM functionality with the advanced features suggested below.

Advanced CRM features?

Advanced functionality may bring additional value for a community bank, but in this case every penny counts, and adding extra features would take careful consideration of ROI. In general, CRM in banking can offer an attractive return on investment – around $8.70 for every dollar spent, as stated by Nucleus. But to estimate ROI for every particular case, a community bank should take into account its strategic priorities. 

With the help of CRM consultants, community banks can decide how to further customize their solution. Their choice can vary from customer segmentation or personalized marketing communication tools to specific workflows for cross-sales or customer retention.

On a final note

Community banks have one significant advantage over bigger banks. Because of the size, community banks often have fewer challenges with legacy infrastructure, data unification and collaboration between departments. Reinforcing these advantages with CRM technology, community banks have far more chances to succeed in customer acquisition and retention, reaching better cross-selling results while staying a customer-oriented, trustworthy financial institution for the local community. 

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