Community banks, once the backbone of the U.S. financial sector, are facing an existential crisis. More than 3,800 institutions have disappeared since 2004 due to industry consolidation, digital disruption, and changing consumer expectations. With competition from national banks, credit unions, and online-only financial institutions intensifying, community banks must rethink their role and redefine what it means to serve their neighborhoods.
Our latest research examines the state of community banking from a consumer perspective, identifying key drivers of attrition and growth opportunities. Through a quantitative study of over 4,000 consumers and 500 bankers across North America, we explore how community banks can reinforce their core strengths while addressing the gaps that lead customers to switch to competitors.
KEY INSIGHTS
- High Attrition Rates – Community banks have the highest churn rate in the industry, with nearly 1 in 4 customers considering moving their business—1.5 times more than national banks. Low Net Promoter Scores (NPS) and customer dissatisfaction highlight the urgency of improving service quality.
- Shifting Expectations – While customers appreciate community banks’ local engagement and trust-based relationships, these attributes alone no longer drive loyalty. Negative perceptions of product offerings, service levels, and digital capabilities are eroding retention.
- Growth through Community Commitment – Customers who perceive their bank as actively engaged in local initiatives, social causes, and financial education are more likely to stay. Visible, authentic community involvement is key to differentiation.
- Empowering Branches and Employees – Physical locations remain important, with 55% of respondents preferring in-person banking experiences. Personalized service, staff engagement, and localized branch design can enhance customer connection.
- The Role of Digital and Personalization – AI-driven financial advice, inclusive design, and omnichannel integration are crucial for attracting and retaining customers, particularly younger demographics and underserved communities.
STRATEGIC RECCOMENDATIONS
- Reclaim Community-Centric Identity – Strengthen local partnerships, support small businesses, and ensure outreach initiatives are meaningful rather than performative.
- Enhance Customer Experience – Address key friction points in service, improve staff training, and personalize interactions to build deeper relationships.
- Leverage Word of Mouth – Create sharable, community-driven experiences that drive customer advocacy and organic growth.
- Improve Digital and Physical Integration – Invest in seamless digital experiences while maintaining branch relevance through design and accessibility.
- Tackle the Attrition Problem First – Fix fundamental service gaps before attempting growth-focused initiatives.
CONCLUSION
Community banks are at a crossroads. While their local focus and trusted relationships remain valuable, these strengths alone are no longer enough to secure customer loyalty or drive growth. The rising tide of digital competition, evolving consumer expectations, and industry consolidation are forcing community banks to rethink their strategies. Addressing the root causes of attrition, such as service gaps, limited digital capabilities, and perceived lack of innovation, must be a priority before pursuing growth initiatives.
Now is the time for community banks to take action. With the right strategy, they can leverage their unique strengths, improve customer retention, and build lasting relationships that ensure long-term success.
How SLD Can Help: As experts in financial institution transformation, SLD offers strategic positioning, branch design, digital integration, and community engagement solutions to help banks navigate the future.
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About the authors
Jean-Pierre Lacroix
President of Shikatani Lacroix Design
