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Community banks have long thrived on local ties and personal relationships with business customers. However, digital banking is eroding this advantage as online services become more affordable and accessible. With larger institutions and fintechs encroaching on their market share, community banks must work harder to retain customers. Simply digitizing existing processes isn’t enough; they need to leverage data, integrate with business software, and strategically target markets.
Key Insight: A 2025 BNY survey reveals that over 70% of small businesses prefer or would prefer community banking, yet only 31% currently do so. Meanwhile, the Federal Reserve notes that small-business financing applications to online fintech lenders rose from 17% in 2020 to 29% in 2025.
1. Get the Data Right
Technology implementation is a top concern for community banks, with 81% rating it as a key risk in a 2025 survey. Before adopting new tools, banks must make their existing data accessible and useful. For example, Grasshopper Bank moved data into Google BigQuery and uses an internal AI agent to help employees retrieve client information quickly. Data-driven insights enable banks to shift from selling products to solving business needs, identifying growth opportunities and preventing churn. As one executive explains, using data to understand which customers are growing or at risk changes the conversation entirely.
2. Provide Banking ‘Pipes’ for Customers
Community banks cannot build every financial tool their customers use. Instead, they should embed their services into the software businesses already rely on. Grasshopper Bank offers multiple data access points, including APIs and connections through Plaid, ensuring customers can connect their banking to accounting platforms. This flexibility helps retain customers by meeting them where they are. Faster processes, like Always.bank’s 12-minute account opening, also attract new deposits by matching the speed of larger digital providers while maintaining personal service.
3. Target the Right Markets
Digital banking allows expansion beyond local areas, but community banks should focus on niches they understand. Univest Bank concentrates on familiar industries in nearby states, assigning teams with specialized knowledge. By analyzing existing customer data, banks can identify sectors where they have expertise—such as marinas—to expand strategically. Data can also guide geographic growth; Citadel Credit Union used member data to choose new markets. While digital platforms enable reach, physical branches still signal community commitment, reassuring customers of local presence.
In today’s competitive landscape, customers have infinite choices. Community banks that prioritize customer success and adapt to digital demands will thrive. As experts note, relationships are no longer defined by physical location but by the value provided to businesses.
Source: thefinancialbrand.com