Regional and community banks offer a viable alternative to big banks amid rising discontent and mistrust in traditional banking.

Consumer trust in big banks has declined significantly in recent years, with 13% of bank customers declaring themselves likely to switch banks in the next 12 months.

The reasons for this include a lack of transparency around fees, branch closures and poor customer service – including many banks implementing A.I. chatbots for client communications.

Banking is personal, and many people are tired of being treated like a number.

First Merchants is an attentive, community-first bank serving individuals, families and businesses in Indiana, Ohio and Michigan. In this article, we explore alternative banking options for customers considering switching to a bank that puts them first.

Community banks

Community banks are smaller banks that focus on investing in the local community and economy of where they are based. They are a great alternate banking solution for small-to-medium sized enterprises (SMEs), families and community groups.

First Merchants is an example of a community bank. We operate in Indiana, Ohio and Michigan, offering checking and savings accounts, mortgages and business banking solutions that champion the local economy and communities of the American Midwest. As a community bank, we are better equipped to serve the needs of local businesses, individuals, and families – offering a personal, attentive service, and building lifelong relationships with our customers.

Community banks offer many of the same services and benefits as big banks, just in a smaller, more focused geographical region. This makes them a familiar alternative to big banks, all while addressing the underlying reasons someone may want to switch banks.

Advantages of community banks

Community banks offer several unique benefits, including:

• Wide array of services: Community banks provide services comparable to those of big banks, often covering both personal and business banking needs, including private wealth management.
• Individual relationships: The smaller customer base of community banks allows them to treat individuals and businesses with personalized attention rather than as just another account. This customer-focused approach can also lead to lower overdraft fees.
• Local investment: Community banks have a stronger connection to the local area than big banks. This allows them to reinvest in their communities in meaningful ways, helping improve the local economy and quality of life.
• Remote locations: Some community banks operate in rural or remote areas where big banks may not find it profitable to do business. This can make community banks a financial lifeline in certain parts of the country.

Disadvantages of community banks

Some community banks may have limitations – though this is not always the case.

Those limitations may include:

• Smaller area of operation: Community banks will only offer services within a specific region. This means you may need to plan ahead when travelling, for example, as there will be a smaller network of ATMs.
• Limited digital banking options. Some community banks have less sophisticated online banking options. However, First Merchants has the First Merchants App – a secure one-stop solution for banking, money management and financial wellness insights.

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Credit unions

Credit unions offer many of the same services as big banks and can serve as a useful alternative for checking accounts. They function as financial cooperatives that are directly controlled by their members. Their not-for-profit nature makes them an attractive alternative banking option.

According to the National Credit Union Administration, credit union members tend to pay less in loan-related costs. However, certain savings accounts may come with higher fees than those at traditional banks.

Joining a credit union is not always as straightforward as opening an account at a traditional bank. Some credit unions may only allow membership through family connections, employers, or specific organizations. Additionally, many credit unions are limited to certain geographical areas.

Advantages of credit unions

• Certain advantageous rates: While rates vary by credit union, their community-first approach often results in lower interest rates for loan services.
• Fee free ATMs: Many credit unions participate in cooperative ATM networks, allowing members to access a wide range of ATMs nationwide without fees. In some cases, these networks offer more fee-free ATMs than certain national and regional banks.

Disadvantages of credit unions

• Membership criteria: Credit unions can be difficult to join if you don’t have the right connections. This may result in you not being able to join a specific credit union you had your eye on.
• Fewer financial services: While credit unions offer a variety of financial services, their range is often more limited than that of traditional banks. Smaller credit unions, in particular, may offer fewer options for insurance, investments, and specialized financial products.
• Cybersecurity risk: Many credit unions have legacy data security systems that lack critical patches, which could expose customers to hackers and other cybersecurity risks.

Online banks

Online banks are a form of non-traditional banking that operates entirely through digital platforms. While they have headquarters, they do not have physical branches for customers to visit. Instead, they provide financial services such as checking accounts and loans through websites and mobile apps.

Like traditional banks, online banks are mostly fully licensed. Their digital-only nature makes them relatively easy to join and access. Additionally, their streamlined operations result in cost savings that can be passed on to customers through better rates on loans and savings accounts.

Advantages of online banks

• Refined online experience: By focusing purely on the online aspect it means that many online banks have websites that are easy to use. Similarly, their mobile banking apps are intuitive for the same reason.
• Competitive rates: The money saved on not having brick and mortar branches, and the staff that go with it, allow online banks to offer highly competitive rates. Not only can this mean higher APYs, but it also means that there is often minimal service and overdraft fees if any.

Disadvantages of online banks

• Limited customer support: Online banks have limited customer service and many online banks have faced complaints around support being difficult to access. A lack of in-person customer service also means a lack of personalized banking solutions and limited care when things go wrong.
• Restricted services: Online banks may not provide certain services typically offered by traditional banks. Among these, cash deposits and checks tend to be the most affected, although wealth management, insurance and notarization services can also be lacking.

Neobanks

Neobanks are a relatively new alternative banking service having begun in 2009 with the former Portland-based neobank Simple. Although they share some similarities with online banks, neobanks are fintech companies that provide many of the same services through a website or app.

Despite their name, neobanks are not technically classified as banks, even though they offer many of the same services—along with unique features such as early direct deposits and budgeting tools.

Advantages of neobanks

• Innovation: The relatively recent emergence of neobanks and their embrace of modern technology have given them a technological edge over some other banking alternatives. This innovation includes features such as budgeting tools and early direct deposit options.
• Efficient use: Neobanks are generally faster than traditional banks for many services. Opening an account and depositing money are often quicker processes. Their online nature also allows for 24/7 access to banking services.
• Low fees: Like online banks, neobanks save on the costs of physical locations and pass those savings on to customers in the form of minimal fees, including lower overdraft fees.

Disadvantages of neobanks

• No physical locations: Similar to online banks, neobanks don’t solve the core lack of attentiveness driving customers from traditional banks. There is no long-term relationship being built and limited customer service.
• Missing features: While neobanks can function as a checking account alternative, they are still not technically banks. Depending on the neobank, they may offer fewer financial services and products than traditional banks or other banking alternatives. Some neobanks may not support check processing or cash deposits.

Should I switch to a banking alternative?

When considering switching from a large bank to an alternative banking service, you should first identify your reasons for wanting to leave and how an alternative banking solution can better meet your needs.

For example, if you prefer to conduct all your financial business online and on the go, you’ll want to find a bank that has a robust online banking app or option.

However, if you want to maintain a traditional banking experience while receiving more personalized service and customer care, a community bank is a strong alternative. First Merchants Bank is a community bank that offers the features, services, and products of big banks without sacrificing its customer- and community-focused approach. This attentiveness is why First Merchants Bank is trusted by hundreds of thousands of Midwesterners and small businesses across Indiana, Michigan, and Ohio.

Book an appointment with First Merchants Bank today to open a checking or savings account and discover the benefits of community banking!

Join a community bank today