On June 5, 2025, the Federal Reserve Bank of Kansas City held the “Future of Banking: Navigating Change” conference. The event brought together academics, bankers, and policymakers to discuss issues affecting U.S. banks, with a focus on community banks. The conference featured four panel discussions covering funding, payments, third-party relationships, and relationship banking.
A key topic was the rising competition for depositors among community banks. Panelists noted that these banks not only compete with nonbanks but also with larger institutions that can offer more convenience and are often seen as safer. Some banks have responded by turning to more expensive funding sources or by emphasizing their customer service to attract depositors from other institutions. Panelists discussed the possibility of expanding FDIC insurance options and increasing public awareness about the safety of bank deposits compared to uninsured nonbank funds. Community banks may also attract larger deposits by offering more branch services and using reciprocal deposit networks. Additionally, policies around merger applications could help maintain local funding.
Talent attraction was another challenge identified for community banks. Suggestions included presenting banks as technology companies and giving young workers greater autonomy and decision-making authority. Offering employees a sense of ownership through shares was also proposed as a way to increase motivation and strengthen connections between employee performance and company outcomes.
The adoption of faster payments technologies was discussed as both a challenge and an opportunity for community banks. Services like FedNow are changing customer expectations regarding speed and convenience in banking transactions. These changes are expected to disrupt existing payment systems such as small-dollar wires and some ACH items, while introducing new fraud management challenges due to the irrevocable nature of instant payments. Panelists highlighted the need for layered protections but also noted that replacing paper checks with secure instant payments could reduce fraud risk.
Faster payments were also seen as beneficial in helping community banks retain customers who value primary bank accounts even when fintech competitors offer similar services. Businesses are increasingly requesting instant-payment capabilities from their financial institutions, which may help banks keep these clients by offering near real-time access to deposits. Features like earned wage access could further attract business clients seeking same-day wage delivery for employees.
Panelists discussed third-party service providers as another avenue for community banks to tailor their offerings to evolving customer needs. While cost is important, convenience is also a factor—one example cited was an online mortgage company attracting borrowers through quick approvals despite higher costs compared to traditional banks. As demographic shifts occur, third-party partnerships may become increasingly important in capturing generational wealth transfers.
To maximize these partnerships, panelists suggested leveraging demographic data and electronic payment traffic information available from core providers to customize products at various life stages or identify opportunities for collaboration with third parties. They emphasized early risk assessment in these relationships, especially regarding compliance responsibilities under regulations like the Bank Secrecy Act.
The conference concluded that both faster payments and strategic partnerships could enable community banks to use their strength in relationship banking more effectively against larger competitors benefiting from economies of scale. By making use of qualitative “soft information” about borrowers gathered through personal relationships, community banks might uncover opportunities or insights difficult for larger institutions to match.
Participants framed a future where technology and data provide tools for addressing industry challenges while preserving the traditional advantages of relationship banking at community-focused institutions.
