Regional Banks: The 3-Pronged Strategy to Build Trust Before the Next Banking Crisis

After a spring marked by several high-profile bank failures and takeovers, regional banks have entered a period of relative calm. But many are still reeling from the outflow of deposits – from otherwise healthy institutions, no less – that followed the demise of Silicon Valley Bank (SVB), Signature Bank, and First Republic Bank. Despite the recent calm, how can regional banks hang on to their customers if another crisis hits?

Banks must develop a strategy for regaining and maintaining customers' trust; proactive customer engagement can play a huge role. In this piece, I'll offer an approach that centers on three related themes: crisis communication, ongoing financial education, and tech-powered microlearning.

1. Proactive and Transparent Crisis Communication

There's a scene in the film It's a Wonderful Life where dozens of customers converge on a community bank in a classic bank run. They'd heard that the bank was running out of cash, and they didn't want to lose their savings.

That's a bit like what happened with SVB and First Republic. On a Wednesday in early March, SVB issued a press release announcing a $2.25 billion share sale. It was an eyebrow-raising move for a healthy bank, of course. 

Once venture capital firms saw the news, they advised their clients to pull money from SVB immediately. An overnight social media frenzy ensued. Meanwhile, SVB's customer-facing channels largely stayed silent: no reassuring emails, texts, or tweets. When the bank's CEO spoke to customers (on a 10-minute Thursday morning call with no questions allowed), a bank run was already in full swing.

First Republic was a bit more proactive with its communication. That weekend, the bank posted a letter from its CEO across all channels that reemphasized its liquidity and asset diversification. But customers were already talking about pulling their deposits – and many ran in similar circles. Once they heard about others leaving First Republic (say, through a text from a friend or a viral Twitter thread), they didn't hesitate to move their money.

In a crisis, word of mouth impacts customers' confidence in the safety of their deposits, often negatively. But so can a coordinated communication strategy in a positive way.

The key is to be proactive and transparent. Customers should always have clarity about their financial risk (or lack thereof). And that clarity should extend across every communication channel: email, social media, text, and even phone calls when necessary. 

A communication strategy might include a Twitter explainer about unfolding financial events (Twitter is still a go-to channel for customers in technology). And perhaps send an email reassuring customers about the safety of their cash (as Charles Schwab sent to its brokerage account holders ahead of the recent US debt default deadline). No matter the channel, make sure each message emphasizes…

- Your bank's solvency.
- The industry's structural integrity.
- Existing protective measures (e.g., FDIC insurance). 

By communicating early and often during tumultuous events, regional banks can get ahead of network chatter before widespread panic ensues. Moreover, this approach can build customer trust and encourage them to stay put.

But the real trust-building happens long before a crisis hits. It starts with ongoing education that shows customers their bank's value as a partner invested in their financial wellness. We'll explore that concept in the next section.

2. Personalized, Ongoing Financial Education

Regional banks have a financial literacy problem on their hands. In the wake of the spring banking crisis, nearly 50 percent of Americans are worried about the safety of their deposits – despite most having amounts well below the FDIC-insured limit of $250K. And those with deposits above that limit (like someone who's received a considerable inheritance) may not know they have options to mitigate their risk.

The antidote is to invest in educational tools that can improve customers' financial literacy—the alternative is customers who run for the exit at the slightest change of wind.
Here, regional banks can leverage an approach they've spent decades perfecting: deep personalization for specific customer groups. 

Regional banks already personalize the way they serve customers. Consider Arvest Bank's specialized lending products for farmers or City National's high-touch service with Hollywood executives. By applying that mindset to customer education, regional banks can significantly increase their value and build trust before the next crisis hits.

Like crisis communication, ongoing customer education should involve an omnichannel strategy. For instance, a bank might…

- Send a weekly newsletter to low- and middle-income customers with information that addresses common financial literacy gaps.
- Push mobile banking notifications to high-income customers when they're approaching the FDIC limit – and suggest private insurance options for deposits in excess.
- Host webinars for commercial banking customers that target their most significant financial pain points. 

Of course, boosting customers' financial literacy isn't just about what and where banks educate – it's the how that helps each lesson stick. One particular approach – microlearning – is an incredibly effective way to cement new knowledge. More on that in the next section.

3. Tech-powered Microlearning

Microlearning involves breaking down complex topics into smaller, more digestible chunks. The concept is built on two psychological principles:

1. Miller's Law states that the average person can only hold about seven chunks of information in their working memory.

2. The spacing effect shows that learning is more effective over extended periods versus all at once.

There's a good chance regional banks already use microlearning internally for employee onboarding or compliance training. Regarding customer education, a micro-learning approach can help customers retain more information and derive more value from educational content.

The right technology can help regional banks make the most of microlearning. And in many cases, a blend of current and new digital tools can have the most significant impact. A few options to consider:

- Bite-sized social media posts: Banks can post weekly Instagram carousels that contextualize the latest financial news. 
- Mobile banking popups and tooltips: Banks can weave educational content throughout the mobile banking experience. For example, an app development team might add a card with daily financial wellness tips to the top of the home screen. Personalize each recommendation to a specific customer segment (e.g., college students or small business owners).
- Fintech-powered gamification: Rewarding customers for learning can make them more likely to stay engaged. And some fintechs have built apps that do just that. One in particular, Zogo, has partnered with over 200 financial institutions (from insurers to community banks) to improve financial literacy nationwide.

By investing in microlearning, regional banks can gradually help customers learn more about finance, no matter their experience level. It's another way to create value – and boost customer loyalty over time.

Take Action Now Before the Next Crisis Hits

Many regional banks survived the spring turmoil. But now isn't the time to return to business as usual. Regional banks can use the recent crisis to rethink how they engage customers – and ensure they have a strategy to head off future bank runs.

But it's essential to make changes sooner rather than later. If banks wait for the next crisis to take action, it may be too late to avoid mass withdrawals.

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