Revolutionize Your Bank's Impact: The CEO's Guide to Championing Financial Coaching

Sid S.
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Why Community Banks and Credit Unions Need to Offer Financial Coaching to Their Customers.

Community Banks and Credit Unions, the Bedrock of Local Economies

Community banks and credit unions have long been the bedrock of local financial landscapes. Unlike the mega-banks that span nations and continents, community banks and credit unions have their roots deeply entrenched in local communities. 

As of 2023, there are over 4,000 community banks in the U.S. alone, holding more than $3.4 trillion in assets. Credit unions, too, boast impressive numbers with more than 5,200 federally insured credit unions holding north of $1.7 trillion in assets.

The Indelible Role in Communities and Customer-Centric Services

Community banks and credit unions are not just about numbers; they represent a philosophy

Community First: They have been instrumental in catalyzing local growth. A striking fact is that even though community banks hold less than 20% of the banking industry's assets, they furnish more than 50% of all small business loans, driving entrepreneurship and job creation.

Customer-Centric Approach: These institutions excel in personalized service. They don't see customers as mere account numbers; they see faces, names, and stories. This personalized approach is evident in their high customer satisfaction ratings. A survey from the American Bankers Association found that 86% of community bank customers rated their bank's quality of service as "good," "very good," or "excellent."

Reinvestment in the Community: Beyond business loans, community banks and credit unions play pivotal roles in local philanthropy, from sponsoring little league teams to providing scholarships. In 2019, credit unions returned over $12.5 billion in direct financial benefits to members, emphasizing their commitment to community over profit.

Challenges Facing Local Banks

We’ve seen the biggest shift in financial services and fintech in the last decade, with new platforms, new asset classes and rise in digital-first self-service which is putting tremendous pressure on local banks.

1. Technology and Digitalization: As banking shifts more towards online and mobile platforms, many community banks grapple with the technological overhaul required. Establishing digital channels, ensuring cybersecurity, and maintaining tech support can be capital-intensive and beyond the reach of some smaller banks.

2. Regulatory Burden: Post the financial crisis of 2008, there has been an influx of banking regulations aimed at ensuring financial stability. However, the administrative costs associated with these regulations disproportionately affect smaller banks, squeezing their profitability.

3. New Competitive Environment: The rise of fintech companies, digital banks, and the omnipresence of large national banks means increased competition for community banks. These competitors often have deeper pockets for marketing, technology, and can sometimes offer more attractive rates or terms.

4. Talent Retention and Acquisition: As urban centers grow and the allure of big tech companies in the finance sector becomes evident, attracting and retaining talent can be challenging for community banks located in smaller towns or rural areas.

5. Aging Consumer Profile & Deposit Retention: 57% of community banks' customers and 46% of credit union members are over the age of 52. As they go into their retirement, many of them are both looking to draw down on their savings, as well as pass on their savings as inheritance to their kids. Which means banks are at risk of losing deposits and customers for a whole generation.

6. Changing Demographics and Customer Preferences: As millennials and Gen Z become dominant economic forces, their preferences for banking, largely driven by technology and social responsibility, can be at odds with traditional community banking models.

7. Economic Uncertainties: We’re living in a very uncertain economic environment - with record inflation, and rising cost of living, which can disproportionately affect community banks. Unlike national banks with a diversified presence, community banks are heavily dependent on the health of their local economies.

8. Operational Costs: Maintaining physical branches is cost-intensive. With a trend toward digital banking, the cost-to-revenue ratio of these branches can be a concern.

9. Risk Management: The evolving nature of financial fraud, especially in the digital space, requires sophisticated risk management tools. Implementing and updating these tools can be both expensive and technically challenging.

As leaders of these institutions there’s an opportunity to re-define the role of community banks for a new audience, through new engagement models.

The Paradox of Choice, and Knowledge Gap for Consumers

The rise of new financial products, new platforms and asset classes, have created an intricate maze for consumers to navigate. Rather than being empowered, this means consumers are more confused by the myriad of options available to them, and are looking for guidance they can trust.  

At the same time financial literacy, unfortunately, hasn't kept pace with this evolving landscape. A survey by the National Endowment for Financial Education found that only 24% of millennials, the largest demographic in the workforce today, demonstrate basic financial literacy. This lack isn't limited to the younger generation; adults across various age groups consistently struggle to answer basic financial questions, with many unable to calculate interest or understand the principles of risk diversification. This gap in knowledge presents significant challenges:

Mismanagement of Debt: Consumer credit card debt has hit $1.03tn.Without proper understanding, many consumers find themselves mired in debt, and with interest rates at a record level we’re one missed paycheck away from disaster. 

Inadequate Savings: The lack of financial planning knowledge has led to insufficient savings for emergencies or retirement. 22% of Americans have no emergency savings, and 30% only have savings to cover less than 3 months of expenses.

Being Scarred by Bad Investments: From crypto, to meme stocks we’ve seen an explosion in self-guided investing, but the volatility has meant many consumers have been burnt and might be scarred from serious investing.

Customers Want More

Banking customers are actually looking for more guidance and support when it comes to their finances, but their needs are falling through the cracks. 

As the backbone of local financial ecosystems, community banks have an unparalleled opportunity to bridge this knowledge gap, championing a brighter and more secure financial future for their customers.

Becoming a Trusted Advisor and Power of Financial Coaching

At their very foundation, community banks and credit unions are more than just financial institutions; they are pillars of their communities, built for the community, by the community.

Unlike their larger counterparts, community banks and credit unions are intrinsically linked to the welfare of their localities. Their success is interwoven with the prosperity of local businesses, families, and individuals.

Community banks and credit unions exist to empower their members. This empowerment is not just financial but extends to ensuring members have the tools, resources, and knowledge to achieve their goals.

One of the most distinguishing factors of these institutions is their commitment to education. Community Banks and Credit Unions often provide resources, workshops, and seminars on various financial topics, ensuring their community is well-informed and equipped to make sound financial decisions.

Financial Coaching Can Transform Community Banks to Becoming Trusted Advisors

Financial coaching is a personalized, goal-oriented process that empowers consumers to achieve their financial objectives. It involves one-on-one guidance where individuals or families work with a financial coach to gain clarity about their current financial situation, establish clear financial goals, and create a roadmap to achieve these goals. Unlike financial advisors, who primarily focus on wealth management and investments, financial coaches work on building financial habits, understanding, and discipline, addressing behaviors that might be barriers to financial success.

Several of the services people crave help with aren’t even part of the financial services industry. And while Americans have a plethora of choices among financial specialists, none of those specialists are playing a central, generalist role. This is where financial coaching can help.

Introducing financial coaching as a core offering can elevate the value proposition of community banks and credit unions, making these core values more tangible:

Deepening Community Support: By providing financial coaching, these institutions can actively address the root causes of financial challenges in their community. This isn’t just support; it's proactive upliftment.

Augmented Empowerment: Empowerment takes on a new dimension when individuals are given the knowledge to manage their finances effectively. Coaching can unlock the potential of individuals, providing them with tailored strategies to manage debt, grow savings, and invest wisely.

Elevated Educational Outreach: Financial coaching goes beyond traditional workshops. It's a hands-on, personalized educational experience. With coaching, education is transformed from general advice to actionable, personalized strategies.

In essence, financial coaching is not just a service but a testament to the unwavering commitment of community banks and credit unions to their core values. By weaving coaching into their service fabric, these institutions not only uphold their foundational principles but also position themselves as forward-thinking leaders in community-based financial well-being.

Doing this right creates an ecosystem win - unlocking phenomenal value for the banks, building a deep, authentic relationship with customers, while creating wealthier, and more financially confident consumers.


Wealthier, More Financially Confident & Empowered Consumers

1. Empowerment and Confidence: According to a report by the Consumer Financial Protection Bureau, individuals who received financial coaching showed improved financial behaviors and outcomes. Specifically, 76% of those coached expressed increased confidence in their financial decision-making capabilities.

2. Debt Management: Data from the National Foundation for Credit Counseling (NFCC) indicates that participants who engaged in debt management plans reduced their total debt by an average of $5,500 over 18 months. We’ve seen similar results at Bolder Money, where clients have paid off an average of $5,000 in debt over 6 months working with their money coach.

3. Building and Preserving Wealth: A study from TIAA Institute highlighted that individuals who are financially literate are more likely to plan for retirement. Among those who do plan, they have over double the wealth accumulation of those who don’t. At Bolder we’ve seen a net worth of increase of $9,300 over the length of coaching, consumers are saving more, and also investing more.

4. Achieving Financial Goals: The S&P Global FinLit Survey found that financially literate individuals are 20% more likely to save and 10% more likely to plan and stick to a budget, indicating a more structured approach to achieving their financial milestones. Our clients at Bolder Money are saving towards over $20m worth of financial goals, and have already saved over half that amount working with their coaches.

5. Preventing Financial Mistakes: Research published in the Journal of Economic Psychology showed that individuals with higher financial literacy scores were less likely to have experienced negative financial events, such as borrowing against their retirement accounts or paying only the minimum due on credit cards.

Financial Coaching as Competitive Edge for the Banks and Credit Unions

Institutions that offer financial coaching are at a significant advantage, not only are they able to lift the financial outcomes for their customers, but also in a strong position to drive new business.

1. Increased Customer Loyalty: A Gallup poll highlighted that fully engaged customers, those with a deep sense of brand loyalty, bring a 23% premium in terms of wallet share, profitability, and revenue compared to the average customer.

2. Risk Mitigation: The World Bank emphasizes the direct correlation between financial education and lower default rates. An educated customer base can significantly reduce a bank's non-performing assets.

3. Potential Growth in Services: According to J.D. Power, 58% of financially literate customers are more likely to use diversified banking products compared to those with low financial literacy, suggesting an increase in product cross-selling opportunities.

4. Positioning as a Thought Leader: A study by Edelman Trust Barometer highlighted that 68% of customers consider trust as a primary factor when selecting their financial institution. By offering financial education and guidance, banks can position themselves as trustworthy thought leaders in the space.

5. Community Impact: Data from the Federal Reserve suggests that communities with higher financial literacy rates tend to have lower unemployment rates, higher incomes, and more small business startups, underlining the broader economic impact banks can have by fostering financial education.

Incorporating these findings, it's evident that the introduction of financial coaching not only provides tangible benefits to individual customers but also paves the way for a stronger, more resilient, and growth-oriented future for banks and credit unions.

Financial Coaching: A Deeper, More Powerful Relationship

Over 50% of Americans have confessed to having cried about money. There’s a lot of shame and embarrassment around money, which means consumers are suffering in silence.

Financial coaches are able to provide a thoughtful alternative to traditional service providers. As independent, unbiased guides they combine practical guidance with thoughtful support and accountability, enabling customers to overcome the stress and anxiety around money and achieve their financial goals.

How Banks Can Incorporate Financial Coaching

At Bolder we’re working with community banks to bring financial coaching to their members, and have identified some effective models that enable banks to offer financial coaching at scale.

a. The Simple Referral Model

Where banks are looking to move fast, and looking to test the value of financial coaching for their customers and the bank, we’ve partnered with community banks and credit unions where they simply refer clients to Bolder Money. 

Banking customers are able to choose from either working with a financial coach, or leveraging our platform powered by AI to get actionable guidance on their finances.

b. Monetising the Declined Pipeline

Banks often have potential customers who might not be a perfect fit for their products, whether they don’t have credit scores that enable them to get a loan, or they might get bad deals due to their circumstances. 

In these cases, rather than losing the client completely, Banks can offer financial coaching to help them improve their circumstances, and in that way retain customers as well as build a powerful, deeper relationship.

c. Subsidized Coaching for Customers

Ultimately financial coaching improves outcomes for both customers and banks, whether it’s offering financial coaching to high potential customers, or to those struggling with finances, using overdrafts or credit card debt. 

Financial coaching as a perk to customers can lead to higher deposits, and fewer defaults for customers, while reducing the cost to the bank. 

d. Coupling Coaching with Financial Products

Financial coaching can help banks increase their reach to underbanked customers, as well as compete against other banks by going beyond just competing on rates. We’ve partnered with banks where they’re able to attract new customers to the bank by offering financial coaching as a perk to those customers.

So, whether clients are opening their first bank account, or looking for a loan, financial coaching can provide the support and guidance they need to make the best use of their new accounts. We’ve also seen banks offering financial coaching as perks to employees of their business customers to attract new retail customers.

e. Building Financial Coaching Capabilities In-house 

For banks who have the talent and internal capabilities, we’ve been able to bring our insights, processes and tech platform to enable them to deliver financial coaching at scale. 

This is something that obviously requires more commitment and investment on the part of the banks, and might not be a fit for every institution. But we believe that it’s an important consideration to evolve the culture and impact that the bank can create for the business and the community.

Reaffirming the Power of Financial Coaching

Financial coaching stands as a beacon of empowerment and enlightenment in today's complex economic landscape. It is not just about numbers and accounts, but about transforming lives, reshaping futures, and building resilient communities. The essence of community banks and credit unions is interwoven with the prosperity and well-being of their members. Thus, the mutual benefit of offering financial coaching is clear: a more informed and financially stable customer base leads to healthier, more resilient financial institutions.

The ripple effect of financial literacy is profound. Customers equipped with the right tools and knowledge make informed decisions, manage risks better, and contribute positively to the overall economic health of the community. For the banks and credit unions, this translates into reduced risk, higher customer loyalty, diversified service utilization, and the unmatched satisfaction of seeing their community thrive.

However, in the midst of global financial shifts and evolving challenges, passive recognition of this truth is not enough. Active, deliberate, and strategic actions are the need of the hour.

A Call to Lead

Community banks and credit unions are uniquely positioned to champion this cause. Your institution is not just a bank; it's a pillar of your community, a symbol of trust, and a catalyst for positive change. By offering financial coaching, you can strengthen this role manifold, creating a legacy of financial empowerment.

Take the helm in this transformative journey. Integrate financial coaching into your core offerings. Collaborate with experts, host seminars, create platforms for continuous learning, and most importantly, listen to the financial aspirations and concerns of your members.

In doing so, you're not just elevating your institution, but lighting the path for countless individuals to realize their dreams, and for your community to flourish. It's a call to go beyond transactions and numbers; it's a call to lead, inspire, and make a lasting impact. Seize this moment, and let your institution be the beacon of financial empowerment in your community.

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