Reliance on branches has declinedas people conduct more business through digital channels such as online and mobile banking, pushing community banks to take a harder look at digital offerings.

Clients' adoption of services like remote deposit capture is making proximity to a branch less relevant. Online banks, such as Simple, are building momentum, and traditional institutions, such as Urban Partnership Bank, are trimming their branch networks to ramp up digital offerings.

As a result, more bankers are turning to technology to attract new customers, even if it means courting prospects who live outside the reach of a branch.

Still, banks that want to ramp up their digital strategy to gain customers in new markets must avoid alienating existing clients while keeping an eye on the overall user experience.

"Savvy bankers are looking at mobile banking as a platform to expand their footprint," says Tim Holt, president of Profit Resources. "It is a great way to test what an area would be like for you."

A handful of banks are growing aggressively because of an online presence, says Brad Smith, president and chief executive at Abound Resources. This can be easier for banks that serve a niche customer base, such as a certain specialty within the medical profession.

First Green Bank in Mount Dora, Fla., has successfully gained customers across the country who want to do business with an environmentally conscious institution, says Kenneth LaRoe, the bank's chairman and chief executive. A customer in New Mexico became the $253 million-asset bank's first client outside of Florida in 2010, a year after the bank opened, LaRoe says. First Green hasn't actively solicited customers from other regions, though people who agree with its mission have contacted the bank, sometimes after reading news coverage.

"It is a case where our value proposition turns into a business proposition," LaRoe says. "There are people who have heard about us but are not in this area, so there is no way they could do anything but use electronic banking."

First Green Bank will soon open its fifth, and possibly last, branch for a while, LaRoe says. As the bank continues to expand, management will "assess how many more brick-and-mortar [offices] we want to do or whether to do them much further apart," he adds.

Rather, the bank is using technology offerings to attract more customers and work more efficiently with existing ones, especially businesses. It is promoting its commercial remote deposit capture by waiving fees tied to these transactions through Dec. 31. First Green could easily work with a commercial client that was 90 miles away, LaRoe adds.

Using a digital strategy to enter a new market is significantly cheaper than opening a branch, Holt says. He recommends opening a loan-production office, which could cost just 10% of what it takes to open a branch, along with launching mobile banking in an area to gain traction. In those instances, banks usually target markets that are next to the ones where they are currently operate.

Community bankers should be aware that trying to gain customers through a digital strategy can be difficult. There are often pitfalls, and the strategy will not work for all banks, industry experts say. Bankers must select an overall strategy and how they will measure success, Smith says.

Introducing mobile or online features "as a knee-jerk reaction" could backfire, Smith says. "If you are just doing something because your competitors are doing it, that doesn't mean you'll have a lot of success."

Actively trying to attract customers in new markets could also clash with a bank's corporate strategy, says Drew McMullen, a partner at Sense Corp. Reaching clients in other markets through digital channels could be counterproductive if a bank prides itself on a high-touch customer experience.

"If you start introducing those digital capabilities and it eliminates the need for having that local presence, haven't you just gone counter to your strategy?" McMullen says.

While a digital strategy is typically cheaper than opening branches, there are added costs such as marketing, industry experts say. Obtaining customers will be expensive in the near term since people in a new market will lack awareness of a new bank, McMullen says.

Landing business will require more effort than just telling prospects about a bank's mobile capabilities, says Doug Brown, general manager of FIS Mobile at Fidelity National Information Services. "There has to be a value proposition," he says.

It is possible to gain customers with a digital strategy, "but it has to be executed through careful marketing," Brown adds. To win over reluctant prospects, community banks should focus on the idea of "anywhere banking through mobile" features in addition to promoting the superior customer service they could offer.

Community banks also need to consider the different ways customers use digital channels, says Steve Shaw, a vice president in Fiserv's electronic banking group. For example, customers may conduct online research using a personal computer but apply for a loan on a tablet. Smart phones are typically used for quick transactions, like transferring funds between accounts.

"With each of these services, you want to provide the relevant content," Shaw says. "We are starting to see the beginning of the idea that the digital banking relationship can go anywhere with the customer. They don't need a physical footprint to either retain or attract customers."

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Jackie Stewart is a reporter for American Banker.