How Innovation Is Reshaping the Landscape of Rural Banking in the U.S.

Rural Appalachian area in Tennessee. (Credit/Shutterstock)

Credit unions and community banks have historically served an essential role in providing core financial services to underbanked populations in rural locations that larger institutions tend to avoid. In recent years, community banks have faced increasing challenges to maintain profit, while credit unions have struggled to keep up with the number of banking options that larger institutions provide. From increased labor and real estate costs to a lack of efficient tools and technical knowledge, it is getting harder to justify keeping smaller branches open across the country. While the unbanked population has fallen to 4.5% in the U.S., rural Americans still depend on physical branches for access to cash and credit. Keeping these institutions open is a critical part of increasing access to financial services in underserved communities.

Understanding the population that these institutions serve, and how these customers and members interact with them, is key to understanding their value. In many cases, the customer/member base may be older and less affluent, thus slower to adapt to mobile technology. This makes the presence and availability of human tellers all the more critical. Rural Americans are less likely to have a sufficient credit history and more likely to use non-bank credit, resulting in rural consumers paying more for credit. Ultimately, community banks are three times more likely to locate their offices in a non-metro area, while holding the majority of banking deposits in U.S. rural and micropolitan counties. If these institutions leave, there is little to no safety net for rural Americans in need of credit.