There is no shortage of problems testing community banks these days. Managing real-time payments, attracting Generation Z, and incorporating AI are just a few examples. But there’s one test that community banks may have pushed to the bottom of the list. It is the “daily test” that is the central issue facing community banks today.
Here’s how the daily test works, because a bank account isn’t really an essential account until it passes this test: A customer’s paycheck arrives there, the account pays rent, utilities and subscriptions, a debit card goes through the grocery store and money moves in and out of the store with the same ease as it moves in and out of a phone wallet.
An account that fails this test, even one that was initially opened and funded, ends up as a dormant placeholder, holding one old deposit and generating no real engagement. The industry has been largely successful in solving the issue of opening digital accounts and even initial funding; What it doesn’t solve is activating the account, and making the account the one the customer actually uses every day.
A simple technological solution is only part of the solution. new PYMNTS Intelligence Research It found that 55% of community bank decision makers say they have fully modernized their technology stacks, yet many of the accounts these banks open fail to become primary relationships. However, many community banks, while confident in their modernization efforts, lack the payment capabilities needed to support continued engagement. This gap between perceived readiness and actual payments function emerges as a major impediment to post-financial growth. In this environment, payments are not just a feature of the account; It is what determines whether the account achieves priority with any new customer.
Three components must line up for the account to pass the daily test.
First: The first is that income must enter. The single biggest indication that an account has passed the test is that the customer’s salary or service income is deposited directly into it. Once direct deposit is set up, a customer reorganizes the rest of their financial life around that account, such as bill payments, automated transfers, and debit card activity, because that’s where the money lives. Without direct deposit, the customer must pay money manually, and the account becomes an afterthought.
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PYMNTS intelligence data shows Consumers’ use of instant payments for income rose from 15% in 2020 to nearly 45% by May 2025, and the workforce is becoming increasingly non-traditional: About 1 in 3 Millennials and nearly half of Gen Z consumers derive their primary income from gig work, advice, or selling products online. If the bank cannot receive this income smoothly, and ideally immediately, it loses the underlying relationship before it has a relationship at all.
Second: Money must also come out easily, and this is the piece that is most often underestimated. Consumers now have multiple accounts across banks, neobanks, P2P apps and wallets, and direct their money to whichever destination moves the money more easily. PYMNTS INTELLIGENCE Research found that nearly 6 in 10 recipients who try Instant Payment once make this their preferred method of receiving money in the future.
An account that feels like a vault with slow check holds — no Zelle, no instant outward transfer and added friction over using a debit card — is not going to be the account people choose to fund, because they correctly sense that getting the money back will be harder than it is at their primary bank. Federal Reserve Survey of Household Economics and Decision Making (sound) This reinforces. Among consumers with bank accounts, 17% of consumers are underbanked, and 15% have problems accessing the funds in their accounts, compared to only 5% of consumers with fully banked accounts. Access friction is itself a downside deposit driver.
Third, daily spending must occur. Paycheck, rent, card swipe, Zelle to a friend on the weekend, this pattern is what creates the equilibrium stability and exchange revenue that makes the retail deposit relationship economic. An account that does not have this pattern pays the acquisition cost without recovering anything.
Opening an account is key
People open community bank accounts for a specific reason. They range from the price of a local CD, mortgage, small business loan relationship, family referral, or technology features. According to the latest PYMNTS Intelligence survey of community banks and credit unions, across the range of tools and features offered by community banks, features like mobile banking (100%), online banking (99%) and call center support (96%) are bets on the table. Card transaction management, planning and budgeting tools, biometric authentication, and mobile wallets all add up to 84% or more. These numbers reflect continued and deliberate investment in capabilities that members have historically rated as essential.
Small and medium-sized businesses (SMBs) have different reasons. PYMNTS intelligence found At least 38% of SME members are likely to leave their credit union within the next year, indicating a wide range of relationships at risk. It also found that 70% of SMBs that converted to enterprises prefer a digital onboarding, demonstrating how central self-service and speed are to winning new business accounts.
Many community banks still operate on a payments system with fragmented payment capabilities. Only 24% of community banks currently receive FedNow instant payments, and only 9% send them, according to 2024 CSBS Annual Survey of Community Banksalthough 44% plan to add reception within a year. Without instant receipt, a bank cannot reliably receive a customer’s income or tips on the same day. Without instant transmission or modern P2P, a bank cannot be the account a customer uses to pay a friend or push money to a brokerage firm.
In this scenario, both ends of the daily test become weaker at once.
Organizational friction
Regulations add another layer of friction at exactly the wrong moment. under Expedited Funds Availability ActBanks may legally hold checks deposited in accounts opened in the last 30 days for up to seven to nine business days, and may extend the hold period on large deposits (more than $6,725) or checks that are doubtful. From a safety and health standpoint, this is completely reasonable. From the customer’s perspective, during the period when the account is being evaluated as a potential primary relationship, the funds are “not really there,” pushing the customer back into the account that worked on day one.
Daily testing also presents a financing cost issue. Federal Reserve Bank of Kansas City (April 2024) found that community banks are more vulnerable to deposit outflows than larger institutions because they are more reliant on deposit financing and have limited ability to access broader wholesale funding markets.
Since the Federal Open Market Committee raised interest rates in 2022, community banks have been forced to shift toward term deposits and longer-maturity borrowings from the Fed’s discount window and bank term financing program. All of these are more expensive and less stable than basic transaction deposits. the CSBS Annual Survey 2024 It reported that 59% of community bankers ranked the cost of deposits as the single most significant impact of inflation on their banks. FDIC quarterly bank file data. Through Q4 2025, they show local deposits rising for six consecutive quarters, with community bank local deposits up nearly 5% year-over-year as of Q2 2025, a significant improvement.
But community banks’ net interest margin in Q1 2025 (3.46%) remained below the pre-pandemic average of 3.63%, meaning the cost of holding deposits is still weighing on profits. Every account that fails the daily test represents an acquisition cost below revenue offset, forcing the bank to replace that lending capacity with more expensive wholesale financing. For an industry that produces roughly 35% of U.S. small business loans and 70% of agricultural loans, this is not a trivial fringe issue.
Banks do not fail the daily test due to negligence. They fail at this because the safeguards that prevent loss also create friction that kills engagement.
New account fraud, first-party fraud, synthetic identity fraud, paper checks, and solicitation all appear disproportionately in newly opened accounts. PYMNTS INTELLIGENCE It found that 26% of community banks cite fraud concerns as the main barrier to implementing faster payment capabilities. The same real-time bars that would allow a customer to receive their paycheck instantly and pay money to Venmo also give the scammer a way to drain the account before the bad deposit is recovered. Seizures, deposit limits, and restrictions on funding sources exist precisely because of this tension, and they also serve to suppress the activity the bank needs.
Pass the test
Daily testing requires both aspects to happen simultaneously: modern payment rails on the front end, combined with multi-layered intelligent fraud controls including device intelligence, identity verification, consortium data, and zero-sum behavioral monitoring with end-to-end friction with legitimate customers.
The Emerging Playbook for Community Banks focuses on making every part of the daily test successful.
- On the side of funding the funds in the bank/account, banks are prioritizing FedNow and RTP receiving capability, integrating with gig platforms and payroll providers, and proactively pushing direct deposit toggles upon account opening rather than leaving customers to set it up themselves.
- On the cash out side, they’re integrating Zelle and P2P, enabling instant outward transfers, and tightening up the ACH and card network experiences so money moves in and out of the account as seamlessly as it leaves the new bank’s wallet.
- In terms of daily activity, they tend toward debit card incentives, relationship rewards, cross-selling from existing loan or CD relationships to verification, and converting a single product customer into a full-fledged customer.
When inward investment in technology is not possible, fintech partnerships fill the gap. Companies like Ingo Payments (which acquired Deposits Inc. in late 2024), Jack Henry and deposit aggregation services are bringing modern rails for money movement to legacy cores without the need for a complete replatform project.
The challenge of community bank deposits is really the challenge of passing the test. An account that receives income, moves funds easily and supports daily spending will receive funding, stay funded and generate stable deposits at a reasonable cost.
An account that fails any of these three requirements will drift into a dormant state no matter how great the setup experience is. Rebuilding deposit growth in community banks means rebuilding daily testing, from start to finish.
