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Wipfli research shows state of community banking in 2022

Wednesday, January 19, 2022

New report emphasizes a need for local branches to embrace digital services to remain competitive, with cryptocurrency and wealth management offerings top priorities

Wipfli published a new report based on a survey of community banks that show how they are navigating today’s challenges of digital branches, online services and workforce shortages.

State of Community Banking reveals the story that community banks are bucking macro trends by maintaining their physical banking locations. In fact, 84% of respondents haven’t closed a single branch in the past 12 months — and they’re introducing new wealth management and cryptocurrency offerings customers can access and learn about both in person and digitally.

In the past three years, 77% of respondents added wealth advisory services, which historically haven’t been offered due to regulatory pressures and the inability to scale and retain talent — no longer obstacles as registered investment advisors break away from national institutions and turnkey technology solutions power back offices.

In efforts to explore new revenue streams, nearly one third (29%) expect to add cryptocurrency services within the next 18 months. Compared to wealth management or insurance, cryptocurrency offerings may feel like a less natural fit for community banks, but it serves as another way to deepen relationships while providing services to the community and attracting the next generation of customers.

“As community banks expand their digital offerings, they recognize that a branch’s physical presence in their communities is deemed essential. These local banks are oftentimes the lone financial institutions in their communities, serving as anchors to the local economy,” said Anna Kooi, national financial services leader at Wipfli. “The real threat to community banks arises from new technologies and payment companies that have penetrated deeply into banking services nationally. It will be imperative for community banks to stay true to their mission of investing in their community and community organizations while staying relevant both digitally and by offering the right service offerings. They have to further enhance the personal relationships they have built with customers despite the move to new payment technologies and lack of in-person interactions.”

Digital transformation and talent management are key strategies community banks need to commit to in order to prosper.

The interpretation of what digital transformation entails varies, yet the understanding surrounding its importance is overwhelming to avoid the possibility of community banks becoming irrelevant. Improving ease and security of payment transactions, faster loan approvals and opening new accounts, as well as virtual branch openings are among the top definitions. Coupled with digital transformation is cybersecurity: 78% of institutions consider cybersecurity their top concern when evaluating internal digital transformation efforts.

Similarly, 74% rated talent management as a primary concern. Just as community banks need to be more strategic and proactive, so do their employees. Customers are becoming more sophisticated, technology more complicated and cyber threats more prevalent. Without talented people to meet these demands, no amount of tech investment or innovations will matter. Nearly half cited the labor shortage as a factor, while 67% are extremely concerned about employee retention and recruitment.

Wipfli collected responses from 177 financial institutions across 33 states for the results of the survey. Of the institutions surveyed, 42% had assets under $500M, 40% had $500M-$3B, and 18% were over $3B.

Download a copy of the State of Community Banking report.