On June 5, 2025, the Federal Reserve Bank of Kansas City hosted the “Future of Banking: Navigating Change” conference. The event brought together academics, bankers, and policymakers to discuss issues facing U.S. banks, with a focus on community banks. The agenda included four panel discussions on funding, payments, third-party relationships, and the ongoing importance of relationship banking.
A key theme from the conference was that while community banks are contending with rising funding pressures and difficulties in attracting talent, they also have opportunities to use new technologies such as faster payments and partnerships with third parties to compete more effectively with larger institutions. These changes could help community banks strengthen relationships with existing customers and expand into new markets.
Competition for depositors has increased in recent years due to funding pressures. Community banks not only compete with nonbanks but also with larger banks that can offer more convenience and a perception of greater safety because they are considered “too big to fail.” Some banks are replacing lost deposits with more expensive funding sources, which affects profit margins. Others are focusing on their service quality to attract depositors from competitors. Panelists at the conference suggested that expanding FDIC insurance coverage, similar to options discussed by the FDIC in 2023 (https://www.fdic.gov/resources/deposit-insurance/di-options-study/index.html), along with increasing public awareness about the relative safety of bank deposits compared to uninsured nonbank funds, could help bring deposits back into smaller banks. Community banks may also be able to attract larger deposits by offering additional branch services or using reciprocal deposit networks. Policies related to merger applications could help keep local funding stable. Even so, many community banks continue to face rising costs for deposits—a risk identified as significant in the 2024 CSBS Annual Survey of Bankers (https://www.csbs.org/data-and-research/csbs-annual-survey-community-banks).
Attracting new talent is another challenge for community banks. Some strategies discussed include positioning banks as technology companies or giving younger employees more autonomy in their roles. Panelists said that providing decision-making authority and opportunities for young professionals to take risks can be motivating. Offering employees shares in the company may also strengthen their sense of ownership and connection to performance.
New payment technologies such as FedNow are changing customer expectations around speed and convenience. These technologies are expected to disrupt traditional payment systems like small-dollar wire transfers and certain ACH transactions but may also present fraud management challenges since instant payments are typically irreversible. Panelists recommended layered security measures and gradual adoption of new capabilities. They noted that replacing paper checks—which account for trillions of dollars annually—with secure instant payments could reduce fraud risk for both customers and banks.
Some community banks initially adopted instant payment technologies out of concern over competition from fintech firms but found that many customers still value their primary banking relationships. Businesses are increasingly requesting instant-payment capabilities from their financial institutions, which can help retain clients by offering near real-time access to funds. Additional benefits like earned wage access—allowing employees same-day wages—may make these services attractive both for businesses and potential employees.
Third-party service providers play a growing role by supplying technology solutions, risk management tools, and other products tailored to evolving customer needs. Panelists emphasized weighing both cost savings and convenience when forming these partnerships. For example, an online mortgage provider was able to win business despite higher costs because it approved loans quickly outside normal hours—highlighting how convenience can outweigh price for some customers.
With large demographic shifts expected in coming years—sometimes called a “silver tsunami” due to generational wealth transfer—third-party providers may become even more important as community banks seek ways to serve new generations of retail and small business clients.
Panelists suggested using data analytics—including demographic data or information about electronic payment traffic—to tailor products and services at different life stages or identify where third-party partnerships might add value. They also stressed assessing compliance risks early when developing these partnerships.
The ability of community banks to maintain close relationships gives them an advantage known as “soft information”—insights gained through personal connections—which is difficult for larger institutions to replicate at scale. Technology’s growth is expected eventually to give smaller institutions access to many benefits currently available only at large organizations while allowing them to leverage this qualitative knowledge about borrowers and markets.
Panelists concluded that while challenges remain for community banking—including those related to funding, payments innovation, staffing, and third-party partnerships—the sector also has strategic opportunities if it uses technology effectively while retaining its relationship-based model.
