This developing world of payments and the fierce competition offered by non-traditional providers of financial services presents big challenges to smaller and community banks – those financial institutions (FIs) with less than $10 billion in assets. But merchant services programs can offer a way for those smaller FIs to gain and retain an edge – assuming, of course, it’s all done right.

That’s the message sent by Edward Corona, Fintech Entrepreneur and CEO at, during a recent discussion with Forbes Contributor Kim Wexler. The conversation happened at a time of big change for legacy financial institutions, given the payment innovation and aid to upstart challengers coming from PSD2, the ongoing consumer move to mobile-focused financial services and other factors. Small community banks often face even tougher prospects in this new and emerging world of payments, given their relatively limited resources, marketing and technological capabilities.
Deposit Trends

It’s not a problem of scope those smaller FIs face so much as one of deposits, Corona told Wexler. “Those operations manage and own 50 percent of [U.S. bank] branches,” he said, “but only 20 percent of deposit growth has been with them over the last three years.”

Other industry data further illustrates the issue. Between June 2017 and June 2018, for instance, consumers withdrew more than $30 billion from non-interest earning accounts at U.S. banks. Not only that, but the community, regional and direct banks have managed to capture only 37 percent of the small and medium-sized business (SMB) market. Building deposits is – or should be – a top concern for the people who run such financial institutions.

And that’s where merchant services come in – that is, enabling businesses to accept credit card payments and have them automatically deposited in bank accounts. “That brings [smaller] banks an immediate string of deposits,”

Those smaller community banks have a built-in advantage when it comes to offering more robust or appealing merchant services programs, he said. Not only do existing banking customers often find it too much work to leave their existing financial institutions – that’s the power of inertia – but many businesses would prefer to deal with a bank that is part of the same community.

“Relationships can make a difference” Corona said. Local business operators “can walk into a branch and ask for help if they need it.”

But that assumes those business operators know about the merchant services programs offered by those smaller, local banks. “Many small and medium-sized businesses don’t realize community banks have merchant services offerings,” Corona told Wexler.

Services Ecosystem

It begins with the leadership of community banks in making it a priority to offer the best merchant services possible and to market them effectively to the local business markets. However, that’s only part of it. Those financial institutions would do well to craft relevant technology partnerships, Corona said, and ensure they integrate merchant services into their small business operations, properly train staff and find good opportunities for upsells. In short, the goal is to provide a full-range business suite.

“At the same time you are offering merchant services, why not offer your own business credit card or commercial credit card, or a business mobile app?” he asked. The idea is to be able to bring a business into a fuller ecosystem operated by that smaller, community-based financial institution.

The benefits can go a long way toward drumming up more deposits. Corona said businesses that use their local banks for merchant services are 57 percent more likely to open up a money market account – that’s a strong point in favor of using merchant services to increase customer loyalty and engagement as well as to win new business and deposits. “You can sell additional deposit accounts and other things that will be long-lasting,” he said.

The concepts behind his message are certainly not new, Corona noted. But for those smaller and local banks, the pressure to do more with merchant services is certainly building. “Digital-only banks [represent] quite a threat,” he said, noting one big area of increasing competition. “They don’t have the expense and overhead that community banks do.”

With retail sales continuing to increase – they will hit some $6 trillion in the U.S. by 2022, Corona said – and more financial services challengers entering the ring, the time is now for a better merchant services program on the part of these smaller financial institutions.