Will the Future of Community Banking Include Banks?

Community banks—at least in my experience—provide banking services to the communities where their leaders and employees live and work. On the consumer side of the equation, they provide home loans, car loans, credit cards, and other deposit and electronic banking services. On the business side, they provide access to small business loans, deposit products, and cash management services. While banks generally, and community banks specifically, seem to provide a valuable service for their communities, the number of banks in the Unites States continues to decrease, in part due to lack of new banks and also due to industry consolidation through mergers. From 1992 to 2018, the number of banks in the US declined by over 61% from 13,935 to 5,406. In addition to this trend, non-bank entitieshave entered the industry in larger numbers and have put additional pressure on the banking industry to compete and stay relevant.

This article at Worldfinance.com makes an argument that I largely agree with. Community banks (more-so than large banks) fill a void by providing funding to small and medium sized businesses that are overlooked by bigger banks, either because they are not as profitable as larger businesses, or because they do not appear as viable, stable, or scalable as bigger businesses. This is where community banks flourish because they understand the local economy, opportunities, and what will work in the area. They also have a vested interest in seeing local business succeed. Consumer products, on the other hand, are becoming commoditized in the sense that technology has allowed many new players in the field for basic banking services. Because of the rise in non-banks providing financial services, what will the banking industry look like in another 10 or 20 or 30 years?

Brett King, a well-known and outspoken technologist who has been preaching for innovation in the banking industry for a number of years, and has written several bookspredicting changes in the industry, sees banking happening largely without branches in the future. Banking, according to King, will be imbedded in consumers’ everyday lives and tool and they won’t need to visit—or even identify with—a traditional bank. In order to succeed, banks will need to adopt this reality and provide “frictionless” banking where people can get banking services seamlessly and electronically, in a way that provides convenience.

I think there will be a niche for community banking for many years to come, but I agree with Brett King that the industry will continue to consolidate as a large number of banks will refuse to move beyond traditional banking to the way of the future.

What’s my Credit Score?

According to a recent report by Smartcredit.com, only 4% of people access their free credit each year. The government originally started requiring the three major credit bureaus—Equifax, Transunion, and Experian—to provide a free annual report every year to encourage credit education, reduce fraud and identity theft among consumers. Given the 4% utilization rate, it appears the effort may not be working according to plan. However, credit monitoring is big business as more and more players are entering the market for your financial management dollars. Here are five things to consider regarding personal credit management and your free report:

1. Annualcreditreport.com is the ONLY government sponsored site that offers a free annual report from each of the three credit bureaus. There are countless copycats and plenty of other legitimate providers, but make sure you know what kind of site you’re visiting before you invest money with a credit monitoring service.

2. This site (annualcreditreport.com) allows users to choose the method and timing of report orders. The reports can be ordered at the same time or staggered over the course of the year: user option. Also, the credit history report is free, BUT it does cost to get a FICO score as part of the order.

3. Once you order a report from one of the bureaus, it’s not free again for a full year.

4. Since the report is designed to promote awareness, it makes sense to use the report to familiarize yourself with the content of your report. If there are errors or fraudulent information on your history, there are ways to dispute the information and get the report corrected. It’s important to dispute the information immediately so when good credit matters—loan, insurance, and job application to name a few—your record will be correct and accurately reflect your history.

5. As identity theft and security breaches of personal information become more common, it is essential to protect identity and monitor fraudulent activity. All three of the main bureaus, and many other quality credit monitoring providers, offer ongoing protection in various forms. It would be very wise to use annualcreditreport.com as an introduction to your credit, and then find a service to help you monitor your credit and personal information moving forward. It is much easier to plan ahead and purchase protection than it is to try to pick up the pieces after you’ve been victimized by identity theft.

Member FDIC Equal Housing Lender

Back to Kasasa…Where does this fit into reality?

Since we launched Kasasa at First National Bank on May 9, 2011, we’ve had a great response from the community. Many of our existing clients are giving it a try and finding out this product is fantastic. We’re also seeing a good number of new faces coming through the doors at all of our branches to see what the buzz is all about.

I’ve also had a good number of friends, colleagues, and acquaintances say something like this in response to Kasasa: “Kasasa, yes, I’m still trying to figure that one out…”
Kasasa (i.e. rewards deposit accounts) does seem to fly in the face of everything a bank normally holds dear: we pay a modest rate of interest, don’t get too crazy with promotions and gimmicks, and don’t do anything that will make people wonder whether or not we really know how to take care of their money. In contrast, Kasasa pays a rate of interest most people would jump to have right now on a certificate of deposit, and we’re willing to pay it on a checking account. Kasasa is a word that sounds crazy and maybe a little gimmicky. And with the rates and the name, people may be wondering if we really know what we’re doing at First National.

The reality of the situation is that banking is changing. We are a small business, and we have to adapt to challenges just like any organization; lately it seems like we see a new challenge every time we turn around. For example, we are VERY heavily regulated, and the rules aren’t going to be loosening any time soon. Competition is also fierce as non-banks are starting to offer products we’ve offered for years. And, technology is changing the way everyone conducts business—including banking. We have more accounts and customers than we’ve ever had before at First National, but we have fewer and fewer people coming into our branches on a regular basis. As online banking, direct deposit, and smartphones become more and more prevalent, we are realizing we have to adapt in order to be successful and provide a relevant service you value.

Circling back to the original question, the reasons we offer Kasasa center around the ways we’re trying to adapt to our environment. If a customer meets three behavioral criteria on a regular basis he or she is rewarded with the high rate of interest and/or other rewards. These criteria are:

1) Debit cards – We earn money—interchange—whenever someone swipes a debit or check card. In addition, it costs us more money to process a paper check than it does to handle electronic transactions. If a client swipes her card a certain number of times (10) in a qualification cycle, then she meets this criterion.

2) estatements – It costs us money every time we generate and mail paper statements. It costs a LOT of money over time. Some estimates are that it costs more than $2/Statement mailed. In order to qualify for the account rewards, a client has to agree to receive statements electronically. The great thing is that this not only cuts costs, but also provides a couple significant benefits to our clients. First, estatements are environmentally friendly because they can be viewed online without having to be printed. Second, instead of having to wait on your statement in the mail, our estatements are accessible immediately after being generated through our online banking. In addition, the online banking site provides instant access to old statements so in essence you have an archive of statements at your fingertips.

3) The final qualification is to have one direct deposit or one automatic ACH (electronic) debit in a qualification period. One of our main goals in offering these new accounts is to develop clients who use us as their primary bank. We’d love to be the primary bank for all of our clients. Clients who have direct deposit or set up automatic ACH debits are more likely to use the account as their primary account. We’re trying to encourage that relationship.

Ultimately, in order for us to be a successful bank we need to adapt. Adapting in this case means embracing technology (debit cards/estatements/electronic transactions), cutting costs (estatements/debit cards), and growing relationships with clients so they use us as their primary bank (Direct deposit/ACH debits). This is a mutually beneficial development because we’re accomplishing our goals by offering superior products and meeting the financial needs of our local communities.
Hopefully, this helps a few of our Kasasa skeptics understand both the benefits and the reasoning behind the products we’ve introduced. It is possible for both sides to benefit in a situation like this.

I’d welcome your comments and feedback on any of this, and if you have questions about Kasasa and rewards accounts, feel free to respond.

Member FDIC Equal Housing Lender

Picking a Bank isn’t as Easy as it Used to Be

I was at Barret Graduate School of Banking in Memphis, TN, last week. It was a great week and I met some fantastic people and instructors from around the country. I was also reminded of something over and over again as I interacted in classrooms throughout the week: picking a bank isn’t as easy at is used to be.
I started working in the banking industry in 2002 as a front-line teller. My initial trainer–and many banking associates after that–drilled into me that banks were all the same in terms of products and services, and the only variable we could control was superior customer service. An individual could visit any bank and expect to have the same options regardless of a bank’s size and sophistication. Sure, size mattered at times because rates were typically more competitive at larger banks, but any community bank could attract customers with the occasional CD special or loan offer. And I have always been told that community banks could use size to their advantage by emphasizing local service from local people who have a vested interest in their community.
I think we’re starting to see a seismic shift in the way people do banking. And that shift is starting to–and will continue to–give community banks more substantial ways to differentiate themselves. Years ago, banks offered checking, savings, and time deposit accounts. They offered home loans, car loans, and small business loans. More recently they started offering ancillary services like insurance, investments, and trust services. But that’s nothing compared to how technology has contributed to the products a traditional bank can offer today: online banking, bill pay, and now mobile banking for smart phones. Person to Person payment (think PayPal) is available at many banks, and bigger banks (Chase, most prominently) are starting to scan checks with smart phones. By this time next year, the biggest banks–and companies like AT&T and Google–will offer consumers the capability to use their phone to make payments instead of the now traditional credit or debit card. Some of this technology will become standard at every bank (i.e. online banking). Other products will probably fade as they are replaced by other, better options (the paper check??). And it matters because banks, especially community banks, will have to determine what fits their vision and their community. Limited budgets and unique markets will force banks to prioritize what they offer and how they offer it. And that will mean you the consumer will have choices to make. You may not be able to walk into a bank and get the product you’ve seen advertised at a different bank. The bank you choose may be the optimal combination of service, product mix, and technology. And, scary as it sounds, you may come to rely on your banker as an expert on technology, at least as it relates to banking.
I’m curious to hear your thoughts. Have you seen any products or services in the marketplace that interest you? That may be coming soon to a bank near you?? Thanks for the feedback.

If your odds were 1 in 30 How Daring Would you Be?

There is a 1 in 30 chance that you were a victim of identity theft in 2008. In addition, there is a 1 in 10 chance that you’ve already been a victim of ID theft at some point in your life. There are some other eye-opening statistics at the bottom of this post that I borrowed from spendonlife.com. It seems like identity theft is happening more and more often to more and more people. And, the thieves appear to be getting more and more creative.

I don’t want to bog you down with piles of numbers but here a few key statistics to help lay some groundwork. There are 307 million people and 232.4 million adults in America according to the 2009 US Census. Of those, (according to Javelin Strategy and Research) 50.2 million are using a credit monitoring service to keep track of their credit history. That leaves 182.2 million US adults who are NOT monitoring their credit. And finally, 10 million people were victimized by identity theft in 2008. There are too many numbers to really break down in one blog post, but my one overriding thought is that there are too many unassuming people out there who do not appear to be adequately protected.

The assumption I take away from this is that people look at ID theft protection as just another form of (unwanted and unnecessary) insurance. I know there are people who don’t necessarily think they need insurance and assume it’s a waste of money UNTIL they have a loss. Then, they’re true believers and wouldn’t ever be caught dead without it.

At the Bank, we offer identity theft protection. There are various levels of protection that can be relatively inexpensive. However, it is one of the products almost no one ever uses. Why is this? Do people not see value in identity theft protection? Is identity theft something that people don’t see as an imminent threat? OR, is there another avenue for identity theft protection (i.e. through a homeowners insurance policy) that provides better value? Given the statistics below that demonstrate the enormous cost to victims of ID theft (both time and money), the cost of protection seems like money well spent.

I would love some feedback on this topic so feel free to comment and let me know what you think about identity theft and people’s general response to it. If you’re bored by the topic feel free to let me know that as well, or throw out some other suggestions.

Thanks for reading.

IDENTITY THEFT STATISTICS (courtesy of spendonlife.com)

Victims
• There were 10 million victims of identity theft in 2008 in the United States (Javelin Strategy and Research, 2009).
• 1 in every 10 U.S. consumers has already been victimized by identity theft (Javelin Strategy and Research, 2009).
• 1.6 million households experienced fraud not related to credit cards (i.e. their bank accounts or debit cards were compromised) (U.S. Department of Justice, 2005).
• Those households with incomes higher than $70,000 were twice as likely to experience identity theft than those with salaries under $50,000 (U.S. DOJ, 2005).
• 7% of identity theft victims had their information stolen to commit medical identity theft.

Discovery
• 38-48% discover someone has stolen their identity within three months, while 9-18% of victims don’t learn that their identity has been stolen for four or more years (Identity Theft Resource Center Aftermath Study, 2004).
• 50.2 million Americans were using a credit monitoring service as of September 2008 (Javelin Strategy and Research, 2009).
• 44% of consumers view their credit reports using AnnualCreditReport.com. One in seven consumers receive their credit report via a credit monitoring service. (Javelin Strategy and Research, 2009).

Recovery
• It can take up to 5,840 hours (the equivalent of working a full-time job for two years) to correct the damage from ID theft, depending on the severity of the case (ITRC Aftermath Study, 2004).
• The average victim spends 330 hours repairing the damage (ITRC Aftermath Study, 2004).
• It takes 26-32% of victims between 4 and 6 months to straighten out problems caused by identity theft; 11-23% of victims spend 7 months to a year resolving their cases (ITRC Aftermath Study, 2004).
• 25.9 million Americans carry identity theft insurance (as of September 2008, from Javelin Strategy and Research, 2009).
• After suffering identity theft, 46% of victims installed antivirus, anti-spyware, or a firewall on their computer. 23% switched their primary bank or credit union, and 22% switched credit card companies (Javelin Strategy and Research, 2009).
• Victims of ID theft must contact multiple agencies to resolve the fraud: 66% interact with financial institutions; 40% contact credit bureaus; 35% seek help from law enforcement; 22% deal with debt collectors; 20% work with identity theft assistant services; and 13% contact the Federal Trade Commission (Javelin Strategy and Research, 2009).

Costs
• In 2008, existing account fraud in the U.S. totaled $31 billion (Javelin Strategy and Research, 2009).
• Businesses across the world lose $221 billion a year due to identity theft (Aberdeen Group).
• On average, victims lose between $851 and $1,378 out-of-pocket trying to resolve identity theft (ITRC Aftermath Study, 2004).
• The mean cost per victim is $500 (Javelin Strategy and Research, 2009).
• 47% of victims encounter problems qualifying for a new loan (ITRC Aftermath Study, 2004).
• 70% of victims have difficulty removing negative information that resulted from identity theft from their credit reports (ITRC Aftermath Study, 2004).
• Dollar amount lost per household averaged $1,620 (U.S. DOJ, 2005).

Perpetrators
• 43% of victims knew the perpetrator (ITRC Aftermath Study, 2004).
• In cases of child identity theft, the most common perpetrator is the child’s parent (ITRC Aftermath Study, 2004).

Methods
• Stolen wallets and physical paperwork accounts for almost half (43%) of all identity theft (Javelin Strategy and Research, 2009).
• Online methods accounted for only 11% (Javelin Strategy and Research, 2009).
• 38% of ID theft victims had their debit or credit card number stolen (Javelin Strategy and Research, 2009).
• 37% of ID theft victims had their Social Security number stolen (Javelin Strategy and Research, 2009).
• 36% of ID theft victims had their name and phone number compromised (Javelin Strategy and Research, 2009).
• 24% of ID theft victims had their financial account numbers compromised (Javelin Strategy and Research, 2009).
• More than 35 million data records were compromised in corporate and government data breaches in 2008 (ITRC).
• 59% of new account fraud that occurred in 2008 involved opening up a new credit card and store-branded credit card accounts (Javelin Strategy and Research, 2009).

Poll Results: Community Banks vs. Mega Banks

So after a long posting drought—busy fall, holidays—I’m back to share the results of the reader poll I put up in October.  I was trying to gauge how people felt about community banks products vs. the competition.  I attended a fall conference that claimed people prefer “mega” banks because of the perception they offer better products and platforms.  Based on my “conclusive” poll the results say otherwise.  Of the 18 people that responded, 10 (56%) believe community banks offer the same quality products as big banks.  Three others (17%) disagreed outright and another three (17%) said they are banking locally even though they are sacrificing product quality.  So, 10 favored community banks.  Six did not.  One other voter said that regardless of product quality she will never bank with those Wall Street giants.  The final participant didn’t care, just please cash her check.  While this is a very small sample size, it’s nice to see community banks are getting the benefit of the doubt.

Joe, a “Community Banking Today” reader, also commented on the poll and reiterated that big banks offered a lot of nice features that community banks did not.  I don’t disagree that in general big banks have the resources and technology to stay ahead of the curve.  However, I’m not ready to agree that community banks can’t match their pace.  Take First National Bank for example:  A three branch, $125 million asset community bank serving three counties in Northwest Ohio.  FNB has “real time” online banking, online bill pay with text and/or email alerts (all free), online applications for home loans, deposit and loan accounts, access to investments, ID Theft Protection products, and a variety of other banking services.  AND, we will be introducing a new website later this spring, we’ll be able to open the majority of our deposit accounts online, and we’ll be introducing deposit rewards accounts. 

While we—and other community banks—may not be on the leading edge of technology, we’re not running far behind, and we tend to adopt products and services after the experimental stage so you’re not getting an untested product that may or may not be around in the long run.  This debate will be an ongoing theme this year so I look forward to keeping you updated on our progress and adding more feedback along the way.  Thanks to those of you who participated in the poll and are regular readers. 

Poll Results:

Community Banks offer the same quality of products as a “Mega” bank	10 56%
Community Banks don’t have products and services I need	3 17%
I’m sacrificing products and services at a community bank but I want to bank locally	3 17%
I don’t care about products, I’ll never bank with those Wall Street giants	1 6%
I don’t care…just cash my check	1 6%

 

The Times they are A-Changin’

It is amazing to think about how much banking has changed in a relatively short period of time. I really started paying attention to banking when I started working at Madison Community Bank in 2002. This was my first experience with online banking. Even though online banking was supposedly created in 1994 (according to Wikipedia), it took a while for the rest of the banking world to adopt what has eventually become a banking necessity. In any case, online banking has really changed the way many people handle their everyday banking. While traditional methods of banking are still prevalent, other products and services have given people more options for managing their finances. Online banking provides instant access to bank accounts, online bill pay enables people to pay all their bills in one place online, E-statements allow constant online access to monthly bank statements, and mobile banking (via cell phone) gives people a way to do their personal banking from just about anywhere. In spite of all this technology, there is no substitute for a periodic review of your bank accounts including balancing your checkbook. While all of the online options mentioned above provide easier access to your information, it may also be easier to lose track of your daily finances since there are so many ways to conduct daily banking. And banks, while very good at what they do, are still fallible and so it is prudent to sit down and make sure your records match. Technology also creates issues with safety and security. Even though fraud and identity theft is a serious issue in the world today, online banking gives me the tools to closely track activity in my accounts because I notice much more quickly if something out of the ordinary is happening. In the past, access was much more limited and fraudulent activity was more difficult to detect. Even so, something as simple as balancing your checkbook gives you one more added measure of security to make sure activity in your account is as it should be. Accessing your bank accounts online on a daily or weekly basis is a great way to make sure your account is secure and is a great first line of defense against fraudulent activity. Banks, including First National Bank, also provide security products that add another layer of protection. Traditional checkbook balancing, while not flashy or new, is another important line of defense and is also essential to good personal banking and money management.