Opportunities for Community Banks Amidst Turbulent Economic Waters
2023 has been a turbulent year for the banking industry – and the economy as a whole. While many major economic indicators have remained positive, rapidly rising rates have had a significant impact on credit-dependent industries. For example, demand for mortgages has dropped significantly, while bank earnings have suffered due to factors such as net interest margin compression and duration mismatch. These challenges have seen community bank sentiment fall to record lows.
Amidst the negative headlines, however, there are opportunities that community banks can take advantage of to make themselves more competitive in the medium- to long-term against larger banks and non-bank financial institutions alike.
The significant layoffs in the tech industry earlier this year, along with the broader slowdown in hiring, mean that the pool of available talent is deeper and more affordable than in 2021. Additionally, return-to-office mandates have led many workers who relocated to more remote areas to quit their jobs instead of moving back within commuting distance.
As a result, community banks looking to build up their internal technology teams can hire high-quality talent that previously may have yet to consider taking a job at a smaller bank. Community banks that are willing to accommodate remote work arrangements – or have offices in cities that saw an influx of tech workers, such as Boise, Idaho – have an even greater opportunity to capitalize on this dislocation in the labor market.
When business slows down, the initial reaction for most organizations is to cut costs to maintain (or return to) profitability. For well-capitalized and confident businesses, however, slower times also offer an opportunity to embark on strategic transformation efforts.
In the case of community banks, today's slower business conditions provide an opportunity to start and execute digital transformation efforts that will better position them for the inevitable economic re-acceleration. These could include improving the digital banking experience, strengthening security protocols, modernizing payments, and building partnerships to offer services such as spend management.
Targeted SMB Lending
One of the biggest strengths community banks have is their connection to local communities and their ability to create lending products tailored to the needs of those communities. With lending conditions deteriorating and underwriting standards tightening, many small and midsize businesses struggle to get the credit they need.
Of course, maintaining prudent risk management standards remains of utmost importance, particularly given the increasingly flighty nature of customer deposits. However, developing and offering targeted loan products to these underserved businesses is an opportunity for community banks to reclaim market share while building goodwill among their communities – and contributing to their economic success.
Improved Business Credit Card Programs
One way banks can take advantage of higher deposit mobility and the opportunity to win SMB customers through lending is by improving business credit card programs as part of a digital transformation effort. Making it easy for business customers to issue new cards, take advantage of the power of virtual cards, set and enforce their spending policy, and minimize the need for reimbursements will make it easier for your bank to attract and retain new business deposits. A modernized credit card program is not only a benefit for your customers; it is a marketing asset that opens a new avenue for conversations with your community.
Torpago makes it easy for banks to upgrade their business credit card programs with cutting-edge technology through our Powered By solution. Developed based on years of work with small business credit card customers, Powered By provides banks with the tools they need to launch a market-leading business credit card offering without the costs and complexities of building the necessary software on their own. Request a demo today to learn more about how Powered By can aid your bank’s digital transformation efforts.