The Race to Renaissance

Let’s talk about why so many community banks and credit unions are going out of business.  And what it will take to save yours.

Not so long ago, there were 40,000 community banks and credit unions across the United States, serving people and businesses in local neighborhoods. Local banks like yours didn’t need to worry about competing with each another, much less the giant multinational banks. Regulations protected your geographic turf, giving you a clear mandate to provide a needed set of everyday banking services within a specific radius. It was simpler time.

But of course, banking regulations have changed radically in the past 15 years or so with the introduction of speciality financial players, called money service bureaus, who are free to do business anywhere they like. Offering niche services across the country, they’ve steadily eaten away at the revenue of neighborhood banks.

Now instead of 40,000 community banks and credit unions, there are about 9,000. With every passing day, we lose one or two more. In the first quarter of 2020, 150 were acquired. At the pace they are disappearing, within just six years, only about 5,000 will remain. 

So, who will end up surviving? 

At Western Union Business Solutions, neighborhood banks and credit unions are our clients. Given our close relationships with these institutions, we’ve observed a thing or two about which ones are thriving in this new environment. We’d like to share what we’re seeing in the hope it can inform your strategy.

Here are a few essential things to know: 

It’s Time for an Awakening

It makes perfect sense that the executive teams of community banks and credit unions have held a certain mindset about the role of their institutions. This mindset is mostly based on the assumption that as long as you provide a sufficient array of banking services and solid customer service, you have a place in the market and a reason to exist. This assumption no longer holds true, and the faster it is tossed aside, the greater your chances of survival.

Being an all-in-one provider to a specific geographic niche no longer makes sense when more and more people are choosing to divide their loyalties among many niche national and multi-national providers. Now that the likes of Amazon, Google, Apple and PayPal have entered the financial market, it’s an unavoidable truth that local players can no longer assume they’ll get most of a customer’s business just for being the bank on the block. Customers need a bigger, clearer reason to choose you. 

Much like the deregulation of the telecom industry years ago, neighborhood banks need to carve out specific, non-geographically focused market positions. Tell a story beyond, ‘We’re in your community.’

Carve out a Niche

This probably means it’s time to take your bank from a geographic niche to a vertical niche of some kind. Community banks that are thriving have selected a sector to focus on exclusively, and tailored services to the needs of that market.

Case in point, Live Oak Bank has become the go-to bank for veterinary clinics across the country. The Pet Clinic in Omaha recently moved their business to Live Oak after considering major players like Well Fargo. The decision to choose Live Oak was based entirely on their deep understanding of the veterinary market with services to match.

Similarly, Christian Community Credit Union has carved out a niche working with 200 non-profits and NGOs across the country. John Hopkins Credit Union specifically services John Hopkins Hospital and John Hopkins University. 

Make Online International Services a Must-Have

Be everything to your chosen market segment. Without question, your niche will do some purchasing or investing globally. You will need to be their go-to for foreign exchange and international payments. Do not let that panic you – it’s the very reason Western Union Business Solutions exists. Working with us, it’s easy to offer your clients a global payments network and the advice they need for their international pursuits.

Do not make the mistake of thinking domestic banking services are enough. Don’t give your clients a reason to go elsewhere for essential banking services like international payments because they may just opt to take all their banking elsewhere.

Take a Brutally Honest Look at Your Bench Strength

Most likely your executive team was selected based on old market assumptions. It’s not that your team isn’t talented and amazing. But it’s absolutely vital to ask the hard question: Are they the best collection of people to navigate these rough, unchartered waters?

It’s possible they might have a tough time thinking beyond your current business model. They might push for the status quo. They might be unexperienced at pivoting an organization from one market focus to another. You need to honestly assess how they feel about major change. And, even if they are willing and excited to embrace something new, are they the right people to determine what that is? Are they the right people to implement a vastly different strategy?

The most resilient banks and credit unions bring executives into the fold from other industries – individuals with radically different points of view. They recruit from leading technology companies. They have Chief Innovation Officers and Chief Experience Officers. 

The reality is, the team that got you where you are today is unlikely to be the team that can deliver a renaissance. This is a painful truth that cannot be avoided.

The Time is Now

It’s daunting to tackle a major shift in strategy. It’s comfortable to say, let’s wait and see. Or, next year we can consider this. But with so many respected, long-standing financial institutions folding under the pressure of the market, waiting isn’t a safe option. 

There is cheerful news in all of this. There are many opportunities for specialized focus; many niches waiting to be addressed. The question is, which one will you choose?