There are more than 4,000 community banks in the U.S. These financial institutions are the lifeblood of many communities, fueling the financial lives of residents and small businesses. Amid a shifting landscape, there’s a burning question on the minds of many, especially in regions where community banks operate as the sole provider of financial services: Can the community banking model survive?
The short answer is yes. The longer answer is yes, but …
Community banks are up against a lot of competition, especially as larger FIs and digital banks roll out new features and products that appeal to members of younger generations. However, community banks are not out of the race. They have an opportunity, and the ability, to modernize and appeal to these customer bases, too.
Take Civis Bank, rebranded as Thread Bank, for example. A nearly 120-year-old bank based in Rogersville, Tenn., Civis Bank was approached in 2021 by what is now the Thread Bank leadership team about a recapitalization effort. This effort was meant to transform the bank so it could reestablish itself as an innovator.
A transformation like this doesn’t happen overnight. In fact, it’s still ongoing, but the strides being made are steps in the right direction and serve as a prime example of innovation for community banks across the nation.
The backstory
Civis Bank found itself in a scenario much like many other community banks over the past decade. Various economic factors caused Civis Bank to shift from a well-capitalized FI to one that was ready to close its doors. That is, until it found the right partner.
The current leadership team had a vision to transform the community banking model to marry technology with brick-and-mortar roots. These roots, paired with the bank’s smaller geographic footprint and its limited investment in technology, made it the perfect candidate for deploying modern infrastructure to launch in-demand banking solutions.
In many ways, community banks have an advantage over larger FIs when it comes to modernization because they lack the investment in legacy tech stacks that stifle innovation. When deploying new infrastructure, there’s less to worry about in terms of compatibility, making it easier to launch new applications with the same customer experience consumers have growth to expect.
How to approach innovation in community banking
For a digital evolution to be successful, bank leaders must firmly believe in the community banking model. While deploying new technology to revitalize and expand reach is crucial, so is the premise of “remaining a community bank.” Community banks are often limited to serving their local communities, but in the digital world we live in today, they have every opportunity to continue to serve residents while adopting the digital capabilities that allow for broader geographic expansion. This enables the bank to grow and scale while maintaining a crucial role in its local economy.
The key is leveraging resources and capital strategically — especially when taking such a big risk — and making the right investments. For Thread Bank, this strategy is paying off. In addition, it’s critically important to keep the customer in mind. Customers should be at the center of every decision. Gone are the days when customers needed to travel to a physical bank or log on to a bank’s website.
While these resources are still available to those who prefer them, embedded “digital branches” allow community banks to meet more customers where they are. In this way, the core tenet of community banking — exceptional, personalized service — is strengthened through digital means. Embracing digital-first banking doesn’t sacrifice great customer experience, it expands that experience to customers beyond traditional geographic footprints and adds an extra layer of convenience in the process.
To make digital branches a reality, community banks need to invest in delivering a technology and risk-focused infrastructure along with various applications that meet customer demand while avoiding disruption. It’s about ensuring deposits, loans and payments are built around customers and partners to create a banking fabric that bolsters relationships.
Lastly, innovation can’t be achieved without the right talent. Transforming community banks involves people who understand how to bring new digital technologies to life, as well as those who understand how technology ties into the broader business. The best people for the job are those who are willing to challenge traditional paradigms while ensuring that regulatory safety and soundness remain paramount and a non-negotiable for the bank.
In the case of Thread Bank, hiring local young professionals and promoting others strengthened the bank’s legacy. In addition, establishing new relationships and bringing on an embedded banking team focused on driving the bank’s strategy — built upon creating scalability and resilience by identifying the right partners to further enhance digital offerings — paved the way for the bank’s next evolution.
As true economic engines, community banks need to rise to the challenge of offering new financial products and services that meet the needs of current and future customers. Success is about fully understanding and appropriately embracing risk as a means to responsibly push boundaries to ensure these FIs continue to thrive alongside their physical and digital communities for years to come.
Chris Black is CEO & president at Rogersville, Tenn.-based, fintech-enabled community financial institution Thread Bank and its holding company Thread Bancorp, Inc.
