Local Banks’ Advantages in a Digital Era

Local businesses have been generating customer loyalty by delivering services with local expertise and knowledge. However, as the bigger banks move in with more resources and sophisticated tech offerings, how can local banks ensure that their competitive advantage remains powerful enough to retain customers? This question is at the core of the dynamics between local banks that have better links with the local community and the larger banks that offer more convenient banking channels and faster turnaround on processes.

What is the Local Bank Competitive Advantage?

Small local businesses have always had a better link with the community than larger business franchises and chains. Compare the way a local restaurant operates with how McDonald’s operates, or how a small shop will usually be owned by people everyone knows, while places like Walmart are disconnected from the community aside from providing employment. However, the same advantage is pronounced much higher in the banking domain largely because of the nature of banking itself.

When we look at retailers and fast-food restaurants, the local knowledge only helps in the marketing side of things. Local businesses understand the local community better and thus know what products and services they should deliver to be successful. Banking is different because of the way it interacts with the economy. Banks do not just sell a product or a service – they are involved with buyers and customers both.

Banks provide services to local customers and businesses. Local banks do not just know more about the local community – they also have more links with the local business community. The owners and managers of local banks often have direct relationships with prominent business owners and investors in the area. They have their finger on the pulse about the local economy in a way that larger banks simply do not have.

How Large Banks Compete

Large banks have attempted to make inroads by hiring people with local knowledge, but now they have a much better way of competing. Larger banks have access to better technology and more data. This allows them to provide better and more convenient options. Online banking is a good example – the online banking features of large banks are very attractive for customers. Similarly, there is a lot of technology running in the background which allows large banks to manage risks and compliance issues efficiently. The money and time saved through the risk and compliance technology are passed on to the customer.

Larger banks have access to better technology and more data. This allows them to provide better and more convenient options. Click To Tweet

Bringing the Local Bank Advantage to the Digital Era

The problem is that the advantage that local banks has is too liminal in nature. There is no shared knowledgebase which collects new information related to risks in the local markets – it is up to the bankers within the local bank to gauge the economy though the links they have forged. Local banks can provide a tougher front against large nationwide banks by codifying this advantage. This means that there should be a system which allows the bankers and risk managers to manage the risk information and make it usable for the rest of the enterprise.

How Modern Risk Management Systems Empower Local Banks

Risk management systems enable the bank to coordinate its risk knowledge and awareness also cooperate more efficiently, resulting in earlier detection of both threats and opportunities. If a banker or a risk manager finds out a major new development in the local market, they can include the information in a risk assessment and upload it to the risk platform. The system will automatically include the new assessment in its risk metrics and analytics. The new information will be rolled up into the enterprise-wide risk report.

The information will not remain limited to the person who found it or who they personally shared it with – it would instead become a part of the bank’s risk management framework, ensuring that the whole bank can take actions in light of the new information. This codification of important risk information can help local banks not only decrease the time and costs required to discover risks but also find out more risks and opportunities through knowledge sharing. Instead of separate pieces of the puzzle existing in the email inboxes and messaging logs of different employees, all the pieces are brought together, and the full picture is made visible on the centralized risk management platform.

The full picture is helpful for all stakeholders of the bank. The employees can work faster and better because the technology streamlines their workflows and allows them to quickly assess risks and detect compliance issues. The board of the bank gains visibility into all risk and compliance-related tasks and issues within the bank on an executive dashboard, allowing them to quickly intervene if needed. The customers benefit as well – their bank now has better protection when it comes to risk and compliance and can deliver better services at a faster pace.

If local banks can successfully maintain their competitive advantage while also competing with larger banks on the technology side, then it will be easier for them to ensure that local customers prefer them over large nationwide banks. They can combine their local expertise with cutting-edge technology to deliver services that are more personalized yet just as fast as what other banks are offering.

Interested in seeing how such a solution will work within your bank? Get in touch with our risk and compliance experts to see a demonstration of the automation and streamlined workflows within Predict360 that provide next-gen risk and compliance management for local banks.