The news: Technology modernization and attracting younger consumers are key to community banks’ survival over the next decade, according to a discussion between Treasury Secretary Scott Bessent and Federal Reserve vice chair for supervision Michelle Bowman at a Fed conference.

The backdrop: Most community bankers agree, according to a Conference of State Bank Supervisors study of community banks. 53.4% of respondents said that “the adoption of new or emerging technologies to meet customer demand in [their] market” is “very important” or “extremely important.”

And younger consumers are top of mind: 75.9% of respondents selected “expansion of mobile banking services” would help their banks grow in the next five years. Mobile services are crucial to attracting younger consumers given their importance as Gen Zers’ primary banking channel.

The challenge: The strategic importance of community banks’ digital capabilities, underpinned by modern infrastructure, can’t be overstated. Competition from larger banks through digital channels and fintechs is a strong threat to community banks’ long-term viability, and as this study’s sample is well aware, certain elements of the customer experience need to be top priorities.

That’s not to say that community banks need to give up their focus on “community.” Local, in-person, individualized services from bankers within branches make these banks stand apart from larger competitors that don’t have the same roots—or the specialized products that a big bank is unlikely to offer (for example, agricultural loans).

Our take: Community banks face existential threats. Consolidation in the community banking market has been substantial. Community bank leadership is aging, and banks’ small scale makes it difficult to compete in a digitally interconnected banking market. Their strategies need to account for what’s changing.