Community Banks Face Their Future

By Cocheo, Steve | ABA Banking Journal, May 1997 | Go to article overview

Community Banks Face Their Future


Cocheo, Steve, ABA Banking Journal


Part 2 of a two-part series, covering electronic banking, management succession, and acquisitions

Recently, over dinner, a community banker was holding forth to an ABA Banking Journal reporter about ways his bank was trying to remain competitive several branches of larger institutions. Establishing a presence for the bank on the World Wide Web was critical, the banker said. He believed more and more customers would come to expect this in the future. Indeed, he had his own computer-whiz son working on the bank's Web site.

Furthermore, the banker saw the World Wide Web being of more and more assistance to bankers as it grows daily in scope and ease of access. However, he himself didn't plan to use it directly. As a CEO, he said, he had other things he had to be doing, but he had employees who were adept at using the Web that he could tap when he needed something.

The conversation moved on from there to branches. This banker was convinced that the bank needed something beyond its traditional branches to stay in touch with customers. To this end, he was pursuing a supermarket banking strategy. Of course, he acknowledged, his bank wasn't the only one in the area with this idea, so there was an element of competition just to get the signoff by the local stores.

The banker represents the second generation of his family to run the bank. As majority stockholders, he and his family are always thinking about who will run the bank next. As is typical of smaller banks that are family owned, several members of the family already take an active part in management or are on the board. What the future would be like was still an open question.

This banker isn't unique, not by a long shot. The issues he is facing confront community bankers throughout the country. These issues are also among the subjects of the survey on community bank competitiveness that was sponsored by ABA's Community Bankers Council and ABA Banking Journal. This article is the second and concluding report on the survey's overal findings. (To obtain a full report of the survey's findings, see the notice at the end of this article.) Community banks and the Web Among the nation's large financial institutions, having a site on the World Wide Web is almost de rigueur--like a navy having to have a flagship just because all navies have flagships.

Because of that, a fair number of community bankers agree with the banker we mentioned at the opening of this article. As shown in Exhibit 1, one out of five banks surveyed currently maintain some sort of site on the World Wide Web. The addition of those who plan to launch sites, this year brings the total to a little more than half of the survey sample.

Of those banks answering a question regarding site development, one third of those banks that either had Web sites or planned to start a site reported that they tapped internal expertise to create the site, while almost two-thirds sought outside expertise to create the site.

Unlike the banker mentioned at the beginning of this article, almost half (49%) say they use the Web or the Internet themselves. Most use it for research on rates, investments, and such. The next most-frequent usage reported was entertainment or general curiousity. Only one banker reported using the Net for personal banking.

There appears to be a strong correlation between a community bank having a Web site and the use of the 'Net by top managers. Two thirds of those bankers who said that they use the Internet reported that their banks either have or plan to launch Web sites.

Automated banking strategies

Of course, running a site on the World Wide Web is only one, fairly new way of extending the community bank's reach through electronics. The ABA/ABA BJ survey asked community bankers about eight other electronic banking approaches. The findings are presented in chart form in Exhibit 4.

Some of what the survey found was to be expected. …

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