### The Shift from National Banks to Local Financial Institutions

Small and mid-sized businesses (SMBs) are increasingly considering a transition from national banks to local financial institutions (FIs), such as community banks and credit unions (CUs). Traditionally, the convenience of national banks has been a significant attraction, offering easy access to a range of banking services. However, various factors are now prompting SMBs, particularly those based in rural areas or operating with lower revenue, to explore the unique advantages provided by local banking options. Personalized service, reduced fees, and enhanced access to local support are becoming crucial differentiators that are steering businesses toward community-oriented financial solutions.

Despite the growing appeal of local banks, many smaller financial institutions still face considerable challenges, particularly in terms of their digital capabilities. According to a report by PYMNTS Intelligence titled “Community Banks Appeal to Small Communities, But …,” which was created in collaboration with i2c, it is evident that smaller FIs must significantly enhance their digital offerings to effectively compete against the robust frameworks established by larger banks.

### The Rising Popularity of Community Banks Among SMBs

Community banks and credit unions have seen an uptick in favor among SMBs, especially those that generate lower revenue or are situated in rural locations. The report reveals that nearly 49% of rural SMBs prefer a local bank or CU, while only 25% choose to remain with national banks. Furthermore, a striking 32% of SMBs that earn under $150,000 opt for smaller banks and CUs compared to 44% that still favor national institutions.

The compelling appeal of local banks stems from their physical proximity and the ability to provide personalized customer service. For smaller businesses, the relationships that local banks foster are seen as vital, offering tailored experiences that larger banks often cannot emulate. However, despite these preferences, larger banks continue to dominate the landscape, with a significant 58% of all SMBs still choosing them over community financial institutions.


### SMBs Are Hesitant Yet Hopeful About Switching Banks

As SMBs with lower revenue increasingly contemplate changing their financial institutions, market trends suggest that 16% of them might make a switch in the next five years. Among those with annual earnings of less than $150,000, a remarkable 22% express a strong intention to transition. This opens a lucrative opportunity for local banks and credit unions as they can capture market share by providing tailored services that better align with the needs of these businesses.

The primary motivations for SMBs to consider switching banks include lower fees, more competitive loan terms, and enhanced levels of personalized customer service. Despite the still-dominant popularity of national banks, dissatisfaction is on the rise, particularly among businesses with lower revenue streams. Many of these SMBs are frustrated by the high fees and lack of personalized attention they receive from larger institutions. In contrast, local banks and credit unions present an opportunity for more customized solutions and deeper community connections, making them an attractive alternative for SMBs seeking improved value and customer support.

### Addressing the Digital Divide in Community Banks

While local banks and CUs are appealing for their community involvement and personalized service, they encounter substantial obstacles regarding their digital services. According to the referenced report, SMBs have come to expect advanced digital banking features, an area where national banks clearly excel. While customers of local financial institutions report satisfaction with 12 banking features, those banking with national institutions express satisfaction with 11 features.

However, the digital aspect of banking services, including mobile banking and online financial management tools, reveals a significant gap between community FIs and their larger counterparts. This discrepancy often leaves SMBs feeling underserved, bearing in mind their reliance on efficient digital experiences for managing their financial needs.

Local banks and credit unions can remedy this situation by leveraging their strong community connections to enhance their digital service offerings. By investing in digital improvements, they can provide SMBs with a more competitive and comprehensive banking experience that integrates modern technology with the personalized service these businesses cherish.

### How AI legalese decoder Can Assist in the Transition

As SMBs navigate the complexities of switching financial institutions, tools like AI legalese decoder can play a pivotal role in streamlining this process. This innovative technology can help businesses easily understand their banking agreements, breaking down legal jargon into clear, straightforward language. By doing so, SMBs can make informed decisions about their banking options, ensuring that they choose institutions that best meet their unique needs.

Moreover, AI legalese decoder can assist SMBs in identifying potential legal issues within contracts, allowing them to negotiate better terms with local banks and credit unions. This support can enhance their ability to secure loans with favorable terms or minimize fees, ultimately increasing their chances of finding a banking partner that truly understands and supports their business objectives. With the help of AI tools like legalese decoder, small and mid-sized businesses can confidently embrace the transition to more community-focused banking institutions.