We frequently talk about the reliance of banks on their tech providers for new products. This interaction becomes more complex for community banks which frequently lack the deeper pockets of bigger competitors. But their size and physical presence within communities can be a competitive advantage. We discuss the community banker's secret weapon with my guest today on the podcast, Finastra's Steve Hoke. He's the vice president of product management for the consumer and small business lending.
We talk about how community banks are weathering the increase in competition among national banks and digital lenders and how that's impacting their marketing. Borrower acquisition is changing and some community banks have found productive partnerships with fintech firms.
Turning physical presence into a competitive advantage
The physical presence is still really important. It gives your customers an avenue for support regardless of whatever product they've bought. There's also still value in having a physical presence when it comes to customer acquisition and growth. When you look at online competitors, they're all looking to expand offline because the market for borrowers is finite online.
I was at a recent marketplace lending conference and Lending Club spoke about its customer outreach. The largest source of leads for the online-only lender was good old fashioned credit pre-screen letters that the company sends to people's home. After fintechs get growth from online, they hit a ceiling and need to turn to other channels.
Where community banks can find competitive advantage
I think community banks are largely well positioned to compete. They have a local presence with branches and name recognition. They have broad product sets: deposit accounts, lending products, and investing products, even if they're through affiliate relationships. They have great customer support. You can walk in, email and call -- think about that compared to online-only and large bank experiences. At a community bank, the person you're talking to on the phone can very well be the same person you'd talk to if you walked into a branch.
Community banks have a great foundation to build from -- it's just a matter of rounding that out with technology. That will keep them competitive with what consumers now demand from their financial providers.
What technology community banks look for most
When you look at what the average consumer requires for their technology needs, it's evolved quite a bit. Early on, it was to be able to log in, see your checking and savings accounts, and see how you're spending your money. Now, as the broader technology industry evolves, it's influencing what consumers expect for banking. That includes conversational banking, interacting with a bank over Alexa or Google Assistant.
Don't just give customers data on their spending behavior, like here's what you spent at coffee shops or utilities last month. It's about using that data to drive insights, turning them into actions like saving more and spending more smartly. This will strengthen the relationship between the consumer and her financial institutions.
Keeping up with national institutions
If there's one really big challenge for community banks, it's keeping up with national institutions on the marketing front. The classic example I like to give is Quicken Loan's Rocket Mortgage product. You can't turn on a sporting event without seeing an ad for this product.
When you look at the technology behind Rocket Mortgage, as a fintech, Finastra can provide that and more to our clients. But what Quicken Loans has been so successful in doing is branding the application experience and spending money getting mindshare around it. This is a challenge for local banks -- they can't outspend or match a large national institution dollar for dollar. It's really important for smaller institutions to be creative and intelligent with their marketing spend, looking for opportunities to get to the borrower when he's thinking about making a transaction.
Evolving borrower acquisition
Short term spend to acquire customers can only take you so far. Eventually, they need to be turned into profitable accounts. Local banks have a good foundation. They have a rich customer base and they can be smart about acquisition without giving away the farm.
We see our clients doing more around targeted marketing -- not just pre-screens with letters but with social media and paid online advertising. They're treating Facebook, Instagram and Twitter differently as different channels. They are working to be more sophisticated with the data they have on prospects. They're mining this data to see if they can add another account relationship when a customer is signing up for a loan. Data is driving a lot of behavior around customer acquisition.