How community financial institutions are restoring consumer confidence in the banking industry

You might have seen a clever meme on social media, incorrectly attributed to President Abraham Lincoln that reminds us, "You cannot believe everything you read on the internet." Since he missed out on the benefits of the world wide web by more than 100 years, he probably didn't get to “like” posts about himself.

Truth is, we've all become more cautious and more doubtful of what we see and what we hear, and not just because of the internet. The banking industry, for example, saw a sharp decline in consumer confidence after the Great Recession in the first decade of this century. In the decade that followed, consumers continued to lose confidence in the banking sector, both before and after the pandemic. Overall, less than one in five consumers feels confident in big business.

Where do customers who need a trustworthy financial partner look if they don't trust big businesses? The answer is closer than you think: bank locally.

Consumer confidence survey tells us the truth about big banks

In 2019, a survey of 40 commercial banks revealed that the customer trust in the reputations of most big banks stemmed from areas in which many Americans might expect megabanks to lead the industry: corporate governance and citizenship. 13,000 customers and non-customers ranked Bank of America near the bottom of the list with Wells Fargo dead last.

Of the seven categories used to rate each financial institution, good citizenship – being part of a community – proved to be the most important quality in creating consumer confidence. Why? Because the customer experience is as much about consumer trust as it is about innovation and technology.

Ultimately, the survey came down to one primary focus: is this financial institution ethical? Put simply, do customers believe their bank or credit union will do the right thing. Keeping your money with a financial institution that shares your values matters.

Confidence in U.S. banks is improving

Don't lose hope. Many community financial institutions are doing what it takes to turn consumer sentiment upward, especially community banks and credit unions in your neighborhood.

During the pandemic, small banks and local credit unions were making a difference for small businesses impacted by COVID-19. In the first round of Paycheck Protection Program (PPP), 60% of small business loans were made by small financial institutions.

The secret for maintaining customer confidence in the banking industry remains the same today — post-pandemic — as it did after the crash of the financial markets in 2009: serve their customers and members.

Community financial institutions have followed, and will continue to follow, a business model that prioritizes Main Street banking customers ahead of Wall Street profits.

Speak directly to account holders

Forming personal relationships is the backbone of community financial institutions. Customer loyalty to banks and credit unions depends entirely on the loyalty of those financial institutions to their account holders regardless of economic conditions, global pandemics, or even the latest free offer from an online lender.

“I was really appreciative of our bank,” Shelby, a community bank account holder recalls of her experience during the pandemic, “because they would send, ‘Hey, do you need help?’”

Community banks and credit unions are often more engaged in the day-to-day finances of their customers. “ ’What can we do to help you?’ And I really appreciated that there was an option and the fact that they were reaching out during that time,” Shelby added.

Community banks have money to lend

Credit unions and community banks came to the aid of small businesses all across America during the pandemic and that fact remains the same. Whether you are a small-business owner or just looking to buy a new-to-you vehicle, community financial institutions are willing to help you with every step from the application process through the duration of your loan.

Local lenders can usually offer better rates and more flexibility in lending than a national bank and they are eager to lend money within their own communities to keep local economies strong and healthy.

Local financial institutions are nimble

Over the past several years, financial markets have included high and low unemployment, rising demand, and low product availability. Community banking institutions have been navigating all of these uncertainties boldly. Unlike large megabanks, the profit margins for smaller bankers can allow for yield increases on CDs and a better interest rate on loans.

By choosing a community bank or credit union, their customers and members benefit from quicker reactions from one minor financial crisis to the next. They evolve based on the needs of their community, not the entire country.

Digital banking continues to advance

Lastly, don't count out community banks and credit unions because of perceived technology differences. Mobile financial services are becoming increasingly available to smaller financial institutions. Community financial institutions are eager to improve the customer experience, including adding new technology.

Partnering with fintechs who also recognize that serving smaller, or even underserved communities, will bring economic strength and financial well-being to towns throughout the U.S. When these communities are economically healthy, economic activity and spending increases, as does customer confidence.

Economic growth begins with community financial institutions

Whether lending money or improving local economies, community banks and credit unions continue to restore confidence in the financial industry. When a bank or credit union represents your values, invests in the community and businesses where you live, and continues to advance the technology that keeps your life running smoothly, they restore America's confidence in the financial industry and the American economy.

Discover more about Sustainable Banking in our previous blog post, "Ethical Banking: How to put your money where your values are."

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