Customers don’t like hitting their local bank. That statement may not sit well with community bankers, but it’s a fact.  A 2016 survey found that more than half of U.S. consumers prefer digital to face-to-face relationships with their banker.  It’s a harsh reality check, no doubt, but also marks another milestone along the eroding trail of traditional banking.

Yet financial service organizations prefer face-to-face contact with customers because it offers an opportunity to strengthen relationships and sell products.  Many bankers feel personal service represents their key differentiator and sets them apart from the digital competition. But, when a majority of customers reject personal service for “iPhoning it in,” the blow sends ripples throughout the industry.

Many banks respond to a consumer’s mobile preference by investing in cutting-edge technology. But doubling down on tech isn’t the answer for most local institutions; it only deepens their spiral into anonymity. The proliferation of digital technology has led to an explosion the number of banks and consumer options.  Consumers are no longer limited to hometown banks. National and regional institutions, virtual banks and FinTechs sport a plethora of rates, fees and features to rival Amazon’s online shopping tent.

What’s more, digital banking is making it more difficult to keep consumers who now find it easier than ever to switch institutions. Stickiness—reinforced by the hoops customers must jump through to change banks—is weakening. Forty percent of bank customers feel less dependent on their financial services provider that at any point in recent history, according to a 2016 study from Accenture.

Currently, almost 80 percent of account holders say their banking relationship is transactional. This suggests that while we strive for personal interactions, consumers are content with impersonal-but-efficient financial exchanges. Placing a heavy emphasis on mobile banking encourages digital relationships, thus making the financial institution even more indistinguishable from competitors. Ultimately, banks could be reduced to electronic transaction processors, soulless backroom computers—and nothing but a hushed electronic hum to indicate humans are transferring money, paying bills and carrying on with their financial lives.

Customers who prefer digital transactions also want a large network of ATMs and branches. They don’t want the hassle of changing banks as they flit from one neighborhood to another. Selecting a bank has become almost a beauty contest, with slick offices and even slicker electronics as the yardstick for decision making. It’s no surprise that the largest national institutions usually win, largely because they boast deep pockets and the economic efficiencies to build and maintain such a network.

Without person-to-personal interactions, banks will lose their identity and become commodity providers. Fortunately, not all customers are digitally-driven; many find themselves attracted to the personal touch of a community institution:

  • Older consumers tend to want human interactions.
  • The underbanked need hand holding.
  • Small business owners and new home buyers want attentive care.
  • Even the general population—when opening an account or resolving a problem–reject digital interactions.

Seventy-three percent of customers choose a human over digital capability when they want advice or need to resolve a service issue or complaint.  Few find the right comfort in punching digits into a smartphone.

Furthermore, an all-digital strategy does not offer the best approach for appealing to the most profitable customers.  The most lucrative accountholders use multiple channels.  And an array of channels—branch, telephone, chat, mobile and drive-through among them—keep them engaged and profitable. Digital represents but one facet of a strong customer relationship.

Thus, community banks must avoid placing mobile banking at the top of their priority list: Face-to-face interactions should receive top priority.

To that end, personal bankers and community institutions will also play a critical role in the future of banking.  Community banks must do what has made them successful—and one key function centers on engagement with the community.  Banks that consumers consider “very involved” enjoy high marks on the bank satisfaction barometer issued by CFI Group. Customers place value on those banks that give more than a perfunctory nod to community involvement.

Unfortunately, not all community banks will survive. Burdensome compliance and operating costs and overabundance of competition will drag some down. But salvation will not come through adopting a mobile-first strategy either. While financial institutions must offer convenient online services, smaller banks don’t need to charge to the forefront of the electronic revolution. Sitting in the second quartile of mobile banking services is sufficient. Neither bank resources, their mission nor their future justify an all-out digital effort.

The largest institutions on a mobile-paved road follow a mass-market, numbers-driven strategy. They have little involvement in the community and in many cases customers are little more than a revenue target. Our future depends on a different path: one best traversed through a continued, unflinching focus on the community and doubling down on customer niches that will keep us in business.

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