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    Lending | 4 min read

    In a Digital Age, Smaller Financial Institutions Must Offer… Lollipops?

    Recent bank failures have cast an unfair light on smaller financial institutions. The shuttering of Silicon Valley Bank, Silvergate Bank, and Signature Bank in March 2023 left many account holders across the nation toiling over one burning question: “How safe is my money?” In the days following the collapse, the top 25 banks in the nation saw an influx of deposits to the tune of $125 billion while the rest bid farewell to a collective $108 billion over the same time period.

    What motivates people to bank the way they do and where they do? It's not simply that some banks are too big to fail, although financial stability (and the likelihood of a bailout) does play a big role in the success or failure of today’s financial institutions. There are other factors that keep smaller banks thriving despite public scrutiny, but they must be tempered with a growing need for modernity. In this blog post, we’ll explore some of these factors, discuss ways small banks can make a bigger impact today, and find out what lollipops have to do with any of it.

    A Generational View of Trust and Lollipops

    Balance sheets have become nimbler in an age where money moves at the tap of a button. That can be challenging for banks wanting to hang onto deposits long term. With younger generations flooding the workforce and making their own financial decisions, there doesn’t seem to be much loyalty to a specific bank or branch. There’s only trust in the process that their money can be securely—and digitally—transferred from bank to bank.

    Scott Hildebrand, chief balance sheet strategist and head of financial strategies at Piper Sandler, talks further about the challenges of managing a balance sheet in a next-gen economy. He recently told Bloomberg: “[Younger generations] move money around on phones, they don’t even know the name of the bank they’re banking at. They’ll move it so quickly, but there’s very little loyalty.”

    Hildebrand compares that to the banking mindset of his father, who skewed more toward loyalty than trust. “A lot of loyalty in my father’s generation,” he says, “And very little trust. He gets a $2,000 check. He is going to a branch, he is going to make sure that money is in. He gets his lollipop, he says, ‘Hi,’ and he leaves.”

    Technology is making it easier than ever to bank on the go. Many demographics have become used to its convenience and will unlikely be willing to trade it, even for the sake of loyalty. As in-branch visits become less frequent, small banks need to find new ways to build loyalty by leaning into what gives them a competitive advantage over large institutions: Lollipops. Or, in today’s terms, the personal touches that make small banks beloved by their communities in the first place.

    Nurturing Loyalty and Strong Relationships

    Small banks are more than financial institutions. They’re familiar faces in the crowd. Trusted friends to community members—and valuable allies to local business leaders. Small banks are reflective of the areas they serve, and they have their fingers on the pulse of community needs.

    Like Bird-in-Hand, an Amish community bank, that opened in 2013. The bank’s CEO, Lori Maley, knew what the community needed and was unconcerned about operating in a post-recession financial landscape. In an interview with NPR, she talks about her bank’s unique impact, like special lending for Amish homes and farms. The branch itself offers hitching posts for account holders on horseback, and drive-throughs that accommodate horse-drawn carriages.

    Their knowledge of the community and willingness to meet its needs were a success, resulting in six branches and roughly $1 billion in capital.

    Delighting in a Digital Age

    Accommodating horses may not be right for every financial institution, but doubling down on transparency, personalization, and technology can help small banks and credit unions reinforce the trust they’ve built over the years and emphasize their commitment to serving the community’s best interests. Here are some ways to do that:

    Emphasize Stability, Risk Management

    Turbulent economies can be tough on banks, but a study from the St. Louis Fed in the wake of the 2008 financial crisis showed that community banks across the U.S. actually thrived.

    In a recent interview with Forbes, Williamstown Bank CEO Sharon Anderson said, “Small banks like mine manage our risk every single day. When we are examined, we spend hours showing how we model and manage interest rate and liquidity risk regardless of the rate environment.”

    Providing account holders with peace of mind that you can meet community needs in good times and in bad can go a long way toward establishing loyalty.

    Tap the Power of Personalization

    Small financial institutions are well-positioned to tailor products, loans, and services to their communities’ specific needs. Unlike large banks, which often employ one-size-fits-all solutions, community and regional banks take time to understand the unique circumstances of their customers. A personalized approach can help you tailor financial services to the goals and aspirations of your account holders—and drive long-term relationships.

    Embrace Modernity

    Modern banking hinges on the convenience of technology, and small financial institutions that aren’t leveraging it enough could be losing out. Do your account holders have to go to a branch to open an account, apply for a loan, or complete a mortgage application? Integrating digital tools can increase efficiency for staff while providing improved account holder experiences.

    Are you wondering what lollipops you’ll offer and how you can stand out in today’s lending landscape? Competing for customer loyalty is now a little easier with bundled technology from SWBC Lending Solutions and SWIVEL. Learn more about how you can surpass account holder expectations with a comprehensive digital payment platform and streamlined loan origination processes.

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    Tyreo Harrison

    As Executive Vice President, Lending & Insurance Solutions, Ty Harrison leads teams of lending and insurance professionals that are dedicated to delivering value-added programs, services and technology tailored to address the needs of lenders, loan servicers, portfolio managers, mortgage brokers, insurance agents and insurance brokers.

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