Chris Cox serves as the Chief Operating Officer of Apiture and oversees all aspects of business operations.
Even as the Silicon Valley Bank collapse disappears from the headlines, the dust continues to settle, and we’re seeing important trends emerge for community banks and credit unions.
SVB’s downfall was triggered by an old-fashioned bank run with a modern twist, orchestrated in part by the bank’s own investment decisions and exacerbated by venture capitalists on Twitter urging customers to rethink their deposits. Word spread fast, depositors pulled their money and, with no hero investor to swoop in to cover the withdrawals, the bank failed.
With the benefit of hindsight, we can look at SVB and draw some insights for community banks and credit unions to both attract new customers who are looking to spread deposits as well as shore up confidence with existing customers who might have concerns about the state of the banking industry.
The Aftermath
Even though the Federal Deposit Insurance Corp. has decided to make SVB customers whole, I’ve observed that the bank run stirred conversations about possibly raising the FDIC-insured cap of $250,000, developing potential options for how businesses with large deposits can raise their coverage or possibly charging big banks with big deposits to shoulder that burden alone.
There are two implications worth noting in the current banking environment. Small institutions witnessed a record drop, $119 billion, in deposits days after SVB collapsed as customers rushed to move their deposits to larger banks. While deposits at community banks and credit unions have stabilized somewhat since the days immediately following the SVB collapse, this shows the sudden impact headlines can have on their balance sheets.
Lessons For Community Banks And Credit Unions
1. Build a strong online presence. I believe community banks and credit unions will likely catch some stragglers, but a strong online presence is a strategic imperative. Community financial institutions should bolster their digital and social media communications to ensure they’re a part of whatever conversations customers are having about them online.
Basic digital marketing skills and strategies are a must as well since many consumers today start their product shopping journey with an online search and review. However, keep in mind that if someone can find a bank or credit union doing an online search but the bank can’t immediately onboard them through digital channels, then the institution could lose a prospective client.
2. Evaluate technology partnerships closely. If you’re looking for an account opening solution, ensure it is simple, intuitive and easy for customers to use. (Full disclosure: My company provides these types of solutions, as do others.) I also recommend evaluating what types of checks it conducts and whether it can provide a full compliance assessment. While community banks and credit unions don’t have the operational scale of the large, national financial institutions, they can consider leveraging technology partnerships to ensure the appropriate level of compliance.
However, when evaluating potential partnerships, community banks and credit unions should start by looking for cultural alignment. The most productive relationships begin with a shared business philosophy and a mutual understanding of working styles and project goals. If partnering with a technology provider, leaders at financial institutions should ensure the provider understands the bank’s customers and can help them cater to their needs.
3. If you use banking-as-a-service or embedded banking, ensure you’re prepared. Through my company’s banking-as-a-service and embedded banking solutions, I’ve seen that these two options can provide opportunities for community banks and credit unions to gain deposits by working with partners. In a BaaS strategy, a financial institution powers the banking services delivered by an unchartered challenger brand. Embedded banking offers a different approach, where the institution delivers its branded services—such as the ability to open an account, view balances or make transfers—within a partner’s website or app.
Since both BaaS and embedded finance rely on application programming interfaces to operate, community banks and credit unions would need to make sure they have the necessary technological framework in place if they plan to implement these solutions. There’s no right or wrong answer for whether financial institutions should choose to pursue these options. It all comes down to users’ needs and what types of services they require.
In either case, financial institutions should be aware of the compliance and regulatory requirements of each space, particularly as regulators begin to take a more stringent look at BaaS.
While a potentially broader banking crisis has been contained, community banks and credit unions cannot afford to be complacent right now. Community institutions must continuously assess their risk and investment practices, identify slack in their digital marketing strategies, monitor and actively participate in discussions about their businesses on social media and consider how they can attract new customers and deposits to fortify their place in today’s banking ecosystem.
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