Top Technology Trends to Futureproof the Community Banks

What is a Community Bank?

Though there's no universal definition of what qualifies a financial institution as a community bank. One standard guideline is that community banks should have less than $10 billion in assets. The Federal Deposit Insurance Corp. (FDIC) describes community banks as having these characteristics:

• Locally owned and operated
• Small or regional
• Many are active small business lenders
• Financial services for everyday people in the community and local business owners

Community banks are mostly FDIC-insured. Also, they offer products like free or low-cost checking, high-yield savings, home or small business loans, and solid mobile-banking tools.

Top Technology Trends for Community Bank

Not all banking technologies are suitable for community banks because some may be too expensive, or some may have useless features. Community banks need to consider technologies that help streamline the lending process, offer better customer support, and reduce the risk of defaults. Below are the top community bank technology trends to look for in 2024:

Automated Decisioning

One of the most critical community bank technology trends is transitioning from manual decision-making to automated systems that can easily issue new debit cards and open new bank accounts. A modern loan origination system (LOS) can automatically approve or deny a loan application within minutes using historical data, advanced algorithms, and configurable rules. This task would typically take a loan officer a few hours to complete. Sometimes, a customer may not hear a decision on a loan or even a request for a checking account or savings account until a few work days have passed.

Automation of such tasks offers the following benefits:

• Human errors are reduced
• Get loans approved as fast as possible
• Attract customers who need emergency loans right away
• Improve operational efficiency
• Free up your loan officers’ time so they can focus on personalized customer care

As a customer-first banking institution, the community banking center should delegate as much work as possible to computers. This will help community banks to spend more time with the people who use their services for lines of credit, home equity loans, or general inquiries.

Artificial Intelligence and Machine Learning

Using machine learning algorithms and artificial intelligence (AI) can help predict the outcome of different loan products and lending strategies.

AI and machine learning find historical data patterns that can be applied to future scenarios. This is a more advanced form of predictive modeling because it learns from each prediction. If the algorithm predicted a specific outcome that turned out to be slightly off, the system will take this error into account when it makes its next prediction. It is constantly evolving and improving.

This is particularly important for community banks because they have access to data and offer customers loans that other financial services providers might avoid. With more reliable predictions about customer behavior and loan outcomes, community banks can become better lenders.

Big Data Analytics

Big data isn’t just for large banks anymore. Community lenders also collect more data to compete against federal banks and offer personalized loans. However, big data analytics come with challenges. You need a system that can securely collect and store large amounts of data. This data must also be normalized and connected before you can perform any in-depth analysis.

Thankfully, some of the most advanced custom loan platforms include big data governance and analytics as part of the package. These systems automatically collect traditional and alternative credit data and any other pertinent information about each customer. From here, the system normalizes and securely stores the data in the cloud. Community banks can then decide what to do with the data. They can:

• Decide on a loan application
• Calculate the risk of structuring a new loan
• Keep track of delinquency and default rates
• Create visualizations of the data to drive future decisions and more

Cloud Banking Compliance

Nearly all banks, including community banks, have transitioned to digital lending. Customers expect to have access to information about their loans available online. More customers are also demanding instant answers to loan inquiries via an online application portal, mobile app, or through text message notifications.

Community banks need to improve cloud security to provide their customers with this convenience. The best way to do this is to hire an LOS provider that takes data security seriously and follows all state and federal compliance regulations. The benefit of hiring a provider to handle this is that you don’t have to check that your system is compliant continually. The provider will ensure you get all the necessary security patches and avoid expensive non-compliance fines.

Mobile Banking

With mobile banking, community banks can increase customer engagement and expand service offerings to boost revenues. First, community banks can attract more customers by developing user-friendly mobile banking apps.

By offering features like mobile check deposits, fund transfers, and real-time account monitoring, community banks can make it easier for customers to use their services more often. It can then cross-sell additional products and services, such as loans, credit cards, and investment products, directly through the mobile platform, strengthening customer loyalty.

Community banks can also partner with fintech companies to integrate innovative solutions into mobile banking. Adding peer-to-peer payments, robo-advisory services, or contactless payment options can attract tech-savvy customers and generate new revenue. In addition, it can offer small business features like invoicing, expense tracking, and mobile point-of-sale solutions via mobile banking platforms.

Open Banking

Through open banking principles, community banks can securely share sensitive customer data with third parties and offer their customers a range of financial services. Collaboration can lead to innovative products, like personalized financial management tools, investment services, or specialized loans. Fee-sharing arrangements with fintech partners can help community banks make money, creating a mutually beneficial ecosystem where both parties contribute their expertise.

With open banking, community banks can get customer data and create targeted and personalized offers based on customer spending patterns, preferences, and financial behaviors, and upselling. As a result, it can offer highly relevant and timely financial solutions to the customers, which enhances the customer experience and generates additional revenue. Community banks can become an innovative player in the financial ecosystem by adopting open banking.

End-to-End Loan Origination Software

The last community bank technology trend is end-to-end lending and banking platforms that include features such as call center services, auto loan and lease care, collections management, and remarketing services. Rather than having multiple systems or vendors for each task, which is costly and complicated, seek a provider that will provide each of these services. These services are especially valuable for smaller and mid-size community banks that might need help to afford them.

This also ensures that community banks won’t deal with issues like incompatible files or security vulnerabilities. With an end-to-end system, everything works harmoniously, and all data is encrypted in the cloud.

Why Community Banks Need Fintech Partnerships?

Community banks are facing more issues than just rising costs, liability for a cyber-attack, and competition from larger entities. Fintech partnerships are the solution, offering community banks the chance to provide brand new digital experiences, without huge internal investment to get up to speed on technology. Fintech automations will also allow community banks to internalize their processes and eliminate inefficient and time-consuming tasks while refocusing their staff on relationship building and personal service.

In summary, fintech partnerships create a situation where community banks move from point-of-sale systems to a level playing field, allowing for full access to advanced analytics, credit analysis tools, or CRM platforms that have only been available to larger competitors. This alliance of fintech and community banks allows benefits to be created on both sides of the partnership while returning community banks to the trusted local expert position they want to be recognized as.

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FAQs about Community Banks

What are the challenges of community banks?

Community banks face many challenges, including increased competition, funding challenges, and high technology and personnel costs. These challenges are further compounded by ever-increasing federal regulatory and compliance costs.

What are the risks of outdated systems in community banks?

Fraud remains a major concern, and traditional systems are increasingly vulnerable to inefficiencies. Many institutions still use fragmented applications across different deposit channels, which can lead to errors, transaction delays, and missed opportunities to detect fraud early. Legacy systems also raise maintenance costs and complexity, requiring more resources to manage multiple platforms and introducing friction in the user experience.

Are community banks better?

Community banks provide similar traditional banking services offered by other bank chains, but frequently with higher rates and lower fees. Since community banks are smaller than larger establishments, business banking is usually less expensive, resulting in lower fees and better interest rates.

How do community banks work?

Community banks focus on providing traditional banking services in their local communities. They obtain most of their core deposits locally and make many of their loans to local businesses. For this reason, they are often considered to be ‘relationship’ bankers as opposed to ‘transactional’ bankers.

What is the difference between a community bank and a regular bank?

Community banks are local, independently owned, and focused on serving the people and businesses that make up their neighborhoods. Unlike national megabanks that answer to distant shareholders, community banks reinvest deposits back into the local economy.