Community Banks Under Pressure

Big banks are realizing benefits from deployments of CRM and predictive modeling software, and the smaller fry are feeling the heat. "They're going to create corporate knowledge of their customers that equals or exceeds what community banks know," says Ralph Cumbee, senior vice president and technology officer at First National Bank (Pasco, Florida; $88 million in assets).

The customer drain occurs in the retail, small business and commercial segments, as financial institutions build comprehensive dossiers on their customers encompassing multiple product lines. Furthermore, customers increasingly expect services such as around-the-clock call centers, which require scale. "Unless you're $400 [million] to $500 million [in assets], a community bank's not able to field a 24/7 call center," notes Cumbee.

Community banks may be faced with a difficult choice: Gear up on technology, or sell. But gearing up can come at a high cost. "It's scaring a lot of boards of directors," Cumbee says. "When you say you're going to go from five miles per hour to 60 miles per hour in technology, and you bring that bill to your board of directors, it's huge."

The alternative is to find a buyer that has the tools to compete in today's market. "There could be a day when we have the 10 or 12 megabanks in the United States, and 800 to 900 niche players," warns Cumbee.

One option for community banks is to band together. "Bankers' banks can come into play," Cumbee surmises. "Groups of community institutions can form consortia to spread the costs."