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Community bankers anticipating increased credit union, fintech competition


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Community bankers anticipating increased credit union, fintech competition

Community bankers are increasingly worried about future competition from credit unions and financial technology firms, according to the 2017 National Survey of Community Banks conducted by the Federal Reserve and the Conference of State Bank Supervisors.

Compared to past surveys, when bankers were seeking to understand the vast number of shuttered banks, the 2017 survey suggests that a "subtle shift has emerged," and bankers are now "anticipating the influence of consolidation on performance."

More than half of the 2017 respondents currently consider small community banks to be their toughest small business lending competitors, while more than 26% consider midsize community banks to be their greatest competition. But, according to the survey, the current competitive landscape "may not persist."

About 10.1% of respondents expect credit unions to be their greatest source of future small business lending competition. Only 3.2% of respondents named credit unions as their current toughest competition. Credit unions, however, overshadow small community banks when it comes to consumer loan competition, with 45.1% of respondents indicating credit unions are their greatest source of competition in the space.

Fewer than 1% of respondents currently consider fintech firms their main source of small business competition, but 7% believe it will be the biggest source of future competition. Currently, only 9.2% consider fintech firms to be the toughest competition in the payment services space, but that number spikes to 26.3% for the future.

Meanwhile, only 8.2% of respondents indicated regional banks are their greatest source of small business lending competition, down from about 16% in the 2016 survey. But 9.1% of bankers indicated regional banks will be their greatest source of future competition. Still, at least one community banker expressed frustration with "irrational loan pricing and structuring from regional competitors."

Another respondent listed "competition for good loans" as a challenge. About 61% of respondents said they have lowered interest rates more than half the time on small business loans due to competition, with fewer than 3% indicating they never lower rates in response to competition. Slightly fewer than half of respondents, about 46%, said they have sometimes lowered small business loan fees to stay competitive.

The survey suggests that community banks are "less motivated" to adjust structuring of small business loans, stating fewer than 10% of respondents reduced collateral requirements at least half of the time, while fewer than 25% extended maturity at least half of the time.

On the M&A front, respondents said consolidation has led to more opportunities for organic growth. Respondents also said they are now finding deal opportunities in often-overlooked markets.