On June 5, 2025, the Federal Reserve Bank of Kansas City held a conference titled “Future of Banking: Navigating Change.” The event brought together academics, bankers, and policymakers to discuss key issues facing U.S. banks, with a focus on community banks. Four panel discussions covered topics such as funding challenges, payment technologies, third-party relationships, and the ongoing importance of relationship banking.
A central theme throughout the conference was that while community banks are experiencing increased funding pressures and difficulties in attracting new talent, they also have opportunities to use technology and partnerships to compete more effectively with larger institutions. The evolving landscape may allow these banks to strengthen existing customer relationships and expand into new markets.
Panelists noted that competition for depositors has intensified due to rising funding pressures. Community banks not only compete with nonbanks but also with larger financial institutions that offer greater convenience and perceived safety. Some banks are responding by seeking alternative funding sources or by focusing on service quality to attract depositors from other institutions. Suggestions included expanding FDIC insurance options and increasing public awareness about the relative safety of bank deposits compared to uninsured nonbank funds—ideas similar to those discussed in recent FDIC reports (https://www.fdic.gov/analysis/options-deposit-insurance-reform/index.html). Community banks might also draw larger deposits by offering additional branch services or participating in reciprocal deposit networks. However, even those maintaining their deposit base face rising costs; according to the 2024 CSBS Annual Survey of Bankers (https://www.csbs.org/data-and-research/csbs-annual-survey-community-banks), deposit costs remain the largest external risk for bankers.
Attracting new talent is another challenge for community banks. Panelists suggested strategies such as presenting banking as a technology-driven field or giving younger employees more autonomy and decision-making authority. Increasing employee ownership through share offerings was mentioned as a way to motivate staff and connect their performance directly with company outcomes.
The adoption of faster payments technologies like FedNow is reshaping customer expectations around speed and convenience in banking transactions. While these technologies bring fraud management challenges due to their irrevocable nature, panelists highlighted that replacing paper checks with secure instant payments could reduce fraud risks for both customers and banks. Many businesses now request instant-payment capabilities from their financial institutions, which can help retain customers by providing near real-time access to deposited funds. Additional benefits include earned wage access features that may make businesses—and thus their employees—more likely to choose community banks offering such services.
Third-party service providers present further opportunities for community banks by supplying technological solutions and risk-management tools tailored for changing customer needs. Panelists emphasized weighing both cost savings and convenience when entering these partnerships, citing examples where quick approvals outside traditional hours attracted borrowers despite higher costs. As demographic shifts lead to significant generational wealth transfers, strategic third-party partnerships may become increasingly important for attracting younger retail and small business clients.
Effective use of data analytics can help tailor products based on demographic trends or electronic payment traffic patterns available from core providers. Early assessment of compliance responsibilities under regulations like the Bank Secrecy Act is essential when developing these partnerships.
Both technological advances in payments and third-party collaborations support the value proposition of relationship banking—a traditional strength of community banks rooted in personal knowledge about local borrowers and markets (“soft information”). This advantage remains difficult for large institutions to replicate at scale but can help smaller banks uncover unique insights about their customers.
Conference participants concluded that while challenges persist in areas such as funding, talent acquisition, payments modernization, and regulatory compliance, there are significant opportunities for community banks willing to leverage technology while maintaining strong customer relationships through personalized service.
“The thought leaders from banking organizations, industry, and academia that participated in the panel topics framed a future for community banking that presents both challenges and opportunities. The panelists highlighted strategic opportunities to leverage technology and data to address challenges and remain competitive in the areas of funding, payments, and third-party relationships, while retaining the value proposition of the traditional community banking model through relationship banking.”
