On May 1, 2013, Spilman Thomas & Battle, PLLC, in conjunction with the North Carolina Bankers Association, held The Future of Community Banking Symposium in Greensboro, N.C. It was a day-long discussion of the issues facing and opportunities for community banking. Our day was highlighted by a keynote address from Congresswoman Shelley Moore Capito (R-W.Va.), who chairs the House Subcommittee on Financial Institutions and Consumer Credit. For those of you who attended, I expect that you agree it was a very worthwhile event. For those of you who could not attend, I want to share a few takeaways.
1. Cybersecurity (Doris Gardner from Mandiant)
- Community banks cannot be too careful. Resources must be expended here to protect the bank and its customers.
- The protection must be directed toward both insiders and those outside the bank.
- Although attacks cannot be prevented in most situations, the damage can be mitigated by properly staffing IT, using the right tools, knowing your network and securing your information.
2. Payment Systems (Terry Wright from the Federal Reserve Bank in Richmond)
- Payment trends have undergone significant change in the past 10 years.
- Check usage has decreased, while debit card and other forms (excluding credit cards and cash) have increased. (Interestingly, the usage of cash has remained constant at about 20% of all transactions.)
- Mobile banking remains strong and will continue that strong growth. Likewise, P2P payments are continuing to pick up ever more steam.
- Prepaid cards are morphing into something similar to checking accounts, serving more than just the “unbanked” and potentially causing a larger challenge to community banks.
- Hybrid products that combine prepaid accounts with FDIC insurance present additional challenges.
3. Keynote Address (Congresswoman Capito)
- She emphasized that she understands that Dodd-Frank and the increasing regulations have been suffocating community banks.
- She hopes that there can be some relief on that front this year and will work hard to that end.
- Congresswoman Capito cited examples of successfully asking the CFPB to revise final rules that presented challenges for various constituents.
- She encouraged community bankers to contact her office or that of their own Representatives to identify specific concerns regarding industry regulations. On a personal note, this is an important step.
4. Innovation Panel
- Branches will remain important to banking (especially community banking), but there will be fewer branches than today.
- Embracing trends, such as prepaid products, can be combined with traditional community banking goals, i.e., helping the underbanked establish savings accounts, mortgages, etc.
- Community banks must embrace technology, although it may not be necessary to always be the best in technology. (Jim Cherry, President of Park Sterling Bank disagreed with this during the CEO Panel.)
- Community banks need to understand their market (whatever that may be) and get to know their customers.
- Community banks need to show that they are partners with the customers and care about their financial health and security – not just in it for a profit.
5. Capital Panel
- The process of raising capital is long and difficult. One has to start preparing for the process long before actually attempting to raise any.
- There are many turns on the process and it may end up somewhere you did not expect.
- Be prepared for in-depth questioning of your business and strategy.
- Consider close capital raising (i.e., friends and board members) and its potential for success, in addition to broader offerings.
6. CEO Panel
- CEOs disagree as to the importance of implementing cutting-edge technology. Some believe that while it is not necessary to be the best, a bank can and should be satisfied with being one of the best or better ones. Others believe that given the widespread technology today, a community bank should be the best in something – choose that area and then do it (such as mobile banking, etc.).
- Contrary to what one reads in American Banker, the CEOs believe that credit unions remain a bigger threat to community banks than the TBTF banks. So “the enemy of my enemy is my friend” adage does not hold true in all situations.
- The future of community banking is bright, albeit challenging.