The environment for community banking is undergoing massive disruption.
For one, the very definition of “primary financial institution” has evolved significantly. Traditionally, consumers defined their primary banking relationship as the one they have with the financial institution that holds any combination of their mortgage, auto loans and direct deposit checking account.
That definition harkens back to a time when most consumers maintained relationships with only one or two financial services providers. Today, consumers have many more choices, and their financial lives have become increasingly disaggregated. In response, people most value having the tools, transparency and control to confidently manage their money in ways that reflect their values, goals and lifestyle.
Now, a consumer’s most important financial relationship is with the financial institution — be it a bank, fintech, virtual bank or payment app — that helps them move their money where it needs to go — quickly, conveniently and securely.
Rising competition pressures community bank growth
As consumer expectations have evolved, virtual banks, fintechs and digital payment apps purpose-designed to meet these expectations have flourished. In fact, new research from RFI Global found that more than three-quarters of U.S. households (77%) engage with their financial institutions via mobile apps each month, ahead of desktop computers, branches and contact centers. Unfortunately, this success has come at the expense of community-minded financial institutions, which have always been valued for in-person service.
In Primax’s latest Banking in Focus research, we found major gaps among consumers’ perceptions of community and regional banks’ digital maturity compared with that of digital-native upstarts like PayPal, Venmo and Chime.
In our survey, “digital banking features” was chosen by only 16% of respondents as one of the top three reasons for doing business with a regional bank. In comparison, 25% of respondents named it a top reason for doing business with a national bank, and 40% chose it as a top reason for choosing a virtual bank. This is a key driver of why 31% of new primary financial relationships were opened with challenger banks like Chime and SoFi.
The solution to this challenge lies in capturing more of your customers’ daily interactions to maximize the opportunity to achieve top-of-wallet status and relationship primacy.
Pivot from a product-based to a lifestyle focus
Increasingly, consumers of all generations are intermingling financial management with their everyday lives. As their full financial picture is now available in the palm of their hand, consumers are no longer willing to visit a branch for routine financial services and transactions. That makes it increasingly critical to identify ways to embed your service offerings into your customers’ lifestyles.
Traditionally, banking was a destination. Consumers visited branches or navigated bank websites to explore services, open accounts or apply for loans. They had to put effort into finding financial solutions that met their needs.
Today, consumers (and particularly younger generations like Gen Z) expect the right financial services to be available at the right time and in the right place, without having to search for them.
“If I’m buying something, I want to easily pay and even invest spare change — right there, in the moment. I don’t want to open another app or fill out a form. Just make it smart, fast and aligned with what I care about.” – Gen Z Banking in Focus survey respondent.
To succeed in this new environment, banks must meet consumers where they are today — across digital platforms, mobile experiences and in-person interactions — and deliver value in the form of convenience, personalization and trustworthy guidance. You must provide the daily digital payment tools that support your customers’ desired financial services experience.
This shift isn’t only about adopting new technology; it’s about reimagining trust and relevance.
To compete, grow and remain profitable, community banks must deliver outstanding experiences that are not simply digital, but also personalized and focused on what today’s consumers desire most from their financial relationships: convenience, trusted guidance and security.
Embrace a payments-first approach to growth
To cater to the evolving needs of financial consumers, and most importantly, the emerging Gen Z cohort that is driving this shift in expectations, banks must embrace a payments-first approach.
A payments-first strategy is not simply about launching new products — it’s about creating seamless, empowering customer journeys. The most successful banks are “building smarter,” aligning innovation with what consumers truly value. This means designing digital experiences that focus on helping people meet their financial and personal goals, while delivering personalized, real-time support.
Banks must avoid the product innovation trap. Instead, prioritize customer-first design principles. The question every bank should ask is: How can we make our customers’ experience more personalized, empowered, embedded, immediate and authentic?
To learn more about our best-in-class payments solutions for banks, please visit primax.us or contact your Primax representative at (866) 820-5400.
