There’s a fundamental truth in banking that gets lost amid the noise of consolidation and digital disruption: where you bank matters. .Community banks and credit unions — the local institutions embedded in our towns and cities — are more than just financial institutions; they are a force for good, whose success is inextricably tied to the prosperity of the people and businesses they serve. They represent the human element in finance, building relationships and making decisions based on local knowledge and genuine care, not just algorithms and stock tickers.But let’s be clear: these vital institutions are facing unprecedented pressure. The competitive ocean is churning, dominated by megabank “killer whales” with massive scale and marketing budgets, alongside thousands of fintech “piranhas” nibbling away at the traditional banking relationship. Standing still isn’t an option. Survival, let alone thriving, demands a strategic response grounded in data and focused on true differentiation.The stark reality: Megabanks retreat, communities sufferThe data paints a stark picture of divergence in the physical banking landscape. While headlines trumpet the move to digital, the reality is that large banks are strategically withdrawing from communities, leaving gaps that community financial institutions (CFIs) are striving to fill. Between the end of 2019 and mid-2023, the total number of U.S. bank branches declined by a significant 5.6 percent. This trend accelerated dramatically during the pandemic, with the closure rate doubling from an average of 99 branches per month pre-March 2020 to 201 per month afterward.Who drove this retreat? Overwhelmingly, it was the largest institutions. Banks like Bank of America, Wells Fargo, Flagstar, and TD Bank led the charge, shedding branches to cut costs. Contrast that with community banks (those under $10 billion in assets), which actually increased their branch networks by 1.1 percent during that same 2019-2023 period. Credit unions held nearly steady, losing only 0.1 percent of their branches.This withdrawal isn’t just numbers on a spreadsheet; it creates real hardship, particularly in rural America. The number of banking deserts — areas without a nearby branch — surged by 217 between 2019 and 2023, impacting an additional 760,000 people. As of mid-2024, a staggering 12.3 million Americans live in these deserts.For rural residents, who rely more heavily on physical branches, a closure means traveling significantly farther for essential services. Post-closure, the median distance to the nearest branch in rural areas jumps to 0.64 miles, over three times the 0.18-mile median in urban areas. This underscores the commitment community institutions show by staying when others leave.The digital deluge & the acquisition battlegroundWhile megabanks pull back physically, the battle for customers rages fiercely online. Fintechs and neobanks are experiencing explosive growth. Projections show U.S. digital-only bank accounts soaring from roughly 30 million in 2021 to nearly 54 million by 2025. The global neobanking market is forecast to grow at compound annual rates approaching 50 percent, with transaction values expected to exceed $4 trillion in 2022 and potentially reach nearly $9 trillion by 2026.This digital shift is dramatically reshaping customer acquisition. According to Cornerstone Advisors, digital banks and fintechs captured nearly half (47 percent) of all new checking accounts opened in 2023, a massive leap from 36 percent in 2020. Where did that share come from? Largely from the biggest banks, whose share of new accounts dropped from 24 percent to 17 percent, and large regionals, which fell from 27 percent to 21 percent over the same period. But here’s the critical wake-up call for community institutions: Banks under $100 billion in assets accounted for a mere 4 percent of new checking accounts opened in 2024. This isn’t sustainable. The megabanks and fintechs leverage huge marketing budgets and often unsustainable high-rate offers to lure customers, creating what I call “phantom growth” — transient gains from rate chasers, not loyal relationships. They also benefit from a consumer perception — often inaccurate — that bigger means better technology.The path forward: Innovation, intelligence, and true valueTrying to simply imitate the megabanks — out-spending them on marketing or matching every generic digital feature — is a losing proposition for CFIs. The path forward lies in smart differentiation, leveraging the community banking advantage while embracing innovation that drives real, sustainable growth.Conclusion: Refuse to be commoditizedThe challenges facing community banks and credit unions are real, but so are the opportunities. The data clearly shows megabanks prioritizing scale over service, leaving communities underserved. It shows digital players capturing new customers at an alarming rate. But it also shows that community institutions are holding their ground physically and possess an inherent advantage in trust and local connection.The future belongs to CFIs that refuse to be commoditized. It belongs to those who leverage their community focus while strategically embracing innovation — not just any technology, but consumer-centric products designed to build deep, profitable relationships. By partnering smartly, focusing on real value, and staying true to the mission of serving their communities, local banks and credit unions can do more than just survive — they can thrive.Gabe Krajicek is CEO of Kasasa, a fintech company that works with banks to offer checking and savings accounts.
