Community Banking - Consumer Choices
Customers choose community banks for a mixture of practical and emotional reasons that include more beneficial fee structures and rates, the fact that money is kept locally, the support they provide to small businesses, their local knowledge, and strong personal relationships. When customers are considering a switch to move or join a particular community bank, they visit the bank to get a better sense of whether the bank would be a good fit for their emotional and banking needs as described above.
Fee Structure & Rates
One of the reasons consumers choose community banks is because they provide a fee structure that is more favorable to customers.
- According to a survey by Pew Charitable Trusts, community banks are more likely to have fewer checking account fees compared to national banks and lower overdraft fees.
- Only 10% of community banks charge a checking account fee while this is a standard for national banks.
- Some community banks offer a free checking account to all customers while others waive fees if customers agree to receive only electronic bank statements.
- The median overdraft fee for small community banks is $32 compared to $35 for large national banks.
- Community bank customers applaud the fact that community banks have lower and fewer fees.
- On average, community banks also provide more competitive interest rates on loans and savings accounts compared to national banks.
Keeping it local
The chance to keep their money local by banking in a community banks is an emotional reason some customers choose community banks. The consumer decision to switch to community banks is rooted in both practicality and idealism.
- One consumer who switched to a community bank because she disagreed with some corporate investments of her previous national bank said "I feel like my voice matters more in a smaller bank".
- Community banks are solely focused on turning deposits into investments and loans within their community. Therefore, customers derive a sense of satisfaction knowing they are helping to meet needs within their community.
- Community banks are more likely to be involved in development projects or support that benefit the community.
- About 20% of the counties in the United States only have a community bank.
Small business support
Consumers who are small businesses choose community banks because of the ease of accessing loans compared to national banks. Also, community banks provide personalized support that greatly impacts small businesses.
- According to a 2015 Harvard Kennedy School report, more than 50% of small business loans come from community banks and 77% of agricultural loans.
- In rural areas of the United States, 82% of all agricultural loans come from community banks.
- Additionally, according to the Federal Reserve Bank of New York, 76% of small businesses were more likely to be approved for a loan from a community bank compared to 58% for national banks.
- Small and mid-level banks account for 25% of all bank assets in the United States while they account for more than 50% of small business lending.
- Comparatively, the largest 20 national banks account for 57% of all banks assets in the United States, however, they account for only 18% of small business lending.
- Community bankers provide valuable networking contacts to small business owners. Bankers often help their customers connect with local suppliers, customers and businesses.
- Community Bank NA details how strong relationships between one small business owner and his loan officer benefited the small business. In the early 2000s, the loan officer suggested that the business owner add flooding insurance coverage which paid off when the business was flooded in 2006 and 2011.
- According to the business owner in the case study mentioned above "If we hadn’t had the flood insurance Jeff suggested, it would’ve been a huge problem. "There’s not a week that goes by that I don’t think about that and what it meant to our company. He’s not only making sure we make our payments on time, but he’s looking out for the wellbeing of our entire company. He truly is a partner."
One of reasons consumers in the United States choose community banks is their local knowledge which makes it easier to work with them.
- Community banks are accustomed to evaluating risks within the community, therefore, their knowledge of the community plays a role in decision-making.
- Because of local knowledge, community banks are frequently able to approve loans that national banks would not be able to.
- Community banks are able to use their local knowledge to customize their products and services to meet the needs of their customers.
- Based on their local knowledge of loan applicants, community banks factor in the personal character of applicants when making lending decisions.
- Community banks are themselves small businesses within the community, therefore, they are more likely aware of or are facing the same challenges that small business owners are facing. This makes community banks more understanding.
Strong personal relationships
Another reason why consumers choose community banks is the emotional benefit of being able to form strong, lasting personal relationships with their customers.
- For lending decisions, there is a focus on the personal knowledge of a loan applicant in community banks.
- In community banks, it is not uncommon to work with the same person over a long time, which makes it easier to build and maintain lasting personal relationships.
- Community banks most often know their customers personally. According to one First Community Bank customer "The customer service team at FCB is great. They know me by my first name and always say hello! Great banking at First Community Bank!"
- Another First Community Bank customer said "My local branch is full of wonderful and super helpful people."
- It is not uncommon for community bank customers to be offered a cup of coffee when they visit their bank branch.
- Community banks employees take pride in serving their neighbors and friends. Compared to national banks, community bank employees form deeper relationships with their customers.
- According to the 2016 American Customer Satisfaction Index Finance and Insurance Report, community banks have the highest customer satisfaction ranking; 83% compared to 77% for national banks.
- Community banks also scored the highest in staff courtesy and helpfulness (91%) and the speed of financial transactions (88%).
- Customers are more likely to feel valued at community banks compared to national banks.
- One Community Bank NA customer was guided and encouraged by her branch manager through steps that enabled her family to get the credit scores they needed to own their own home. The customer found strength in the manager's optimism and guidance even though she had a bad credit rating and outstanding debt when she first discussed home ownership with the manager.
- According to the customer mentioned above "She knew how bad I wanted a house and everything we went through to do it. She put her own personal feelings into it to help me get through it. We’re never gonna leave Community Bank. They’ll be our bank for the rest of our lives."
When ready to switch to community banks or trying to decide which community bank to use, most customers visit community banks within their vicinity.
- Bank visits help customers decide if community banking is the best fit for their needs and which one to use.
- It is not hard for consumers to find community banks within their locality since there are more than 50,000 spread across the United States.
- Because personal relationships are part of the appeal that community banks offer to customers, they visit community bank branches to decide which one they can build a relationship with. Additionally, these visits help potential customers determine if the bank can meet their banking needs.
- It is important that community bank officers embody the spirit of their banks so they can appeal to potential customers.
In order to provide insights into how and/or why consumers choose community banks, we used a combination of industry and community bank sources. We started our search by looking for the reasons why customers select community banks. This search provided us with multiple sources that we cross-referenced to provide insights that were most commonly mentioned. We also found some relevant case studies and customer testimonials that illustrate the reasons these customers bank with their banks and have been included here. One of the sources included here is dated earlier than Wonder's recommended 2-year time frame. It has been included because of the value of information presented, with its relevance confirmed by other sources we used. Additionally, we checked to ensure that the assets of the two community bank sources used; Community Bank NA and Mid Penn Bank were between $100 million to $5 billion.