In today’s marketplace, the combined assets of the ten largest banks exceed 10 trillion dollars. Most of that growth comes from two sources. Mergers, acquisitions, and market share from smaller, often community banks. So how are the large banks gaining this market share? Is it their deep menu of financial services or the never-ending list of new products?
Those might work for a small percent of highly affluent customers. But overall, they’re not the primary factors that impel their majority market share. Today, even small banks offer online banking, mobile banking, and even more advanced services such as remote cheque deposits.
Areas Where Small Banks Scored Big
In fact, there are few technical and retail banking services by large banks that small banks are struggling to offer today. If they’re not offering better products or better technology, could it be that they have better customer service? In almost every customer service survey, whether it is JD Power, Consumer Reports, or Bank Rea prime research, small banks have consistently scored higher than big banks when it comes to customer service.
Smaller institutions have a huge advantage because they have the opportunity to offer really flexible products. Since they are small, they don’t have to run a custom offering through gauntlets of ten different committees. This helps them to build close relationships with customers. Also, they offer better rates and lower fees.
Small banks really outshine their larger competitors in these areas. So with all these major advantages, why can’t smaller banks compete with the bigger ones?
Why Can’t Smaller Banks Cope-Up With The Bigger Banks
Well, the answer is the lack of distribution access. Today, the top five banks have branches and ATMs that not only blanket a city or state but the whole country. All customers fear that if they are outside of the city, they won’t get access to a branch to cash a cheque, use an ATM, or deposit funds. That one distinction allows big banks to thrive in comparison to community-based institutions.
How Can Community Banks Get Ahead – A Sample Strategy
The answer is actually quite simple. They need to build out a nonprofit community bank-owned entity that offers a cloud-based Universal teller workstation. A Universal teller workstation is a basic teller platform that can handle all of the customers’ needs at any member branch regardless of that customer’s primary bank. A member bank would reserve one teller line that has the capability to process foreign transactions as local transactions for basic retail banking needs.
Furthermore, almost all banks have an online presence that offers a wide variety of banking features. Community bank online banking has become a must-have to keep up with bigger banks. Community banks can start by building a cloud service that allows access to the current balance.
As for security, with current advances in biometrics, a simple palm print for example can be used to guarantee that that customer is who they say they are. In addition, they could limit withdrawals just like they do with ATMs today, further reducing any risk.
By keeping this shared entity as a joint-owned property, they can keep costs and fees in check by using a netting algorithm. A similar approach to the one used for ATMs.
This way, they would also have access to the banks across the country as long as they choose to operate through a member bank.
Bottom Line
Community banks should stop competing with each other and start jointly competing with the big banks. The rate of the young population moving into cities is only growing. If community banks don’t adopt smart strategies, they might face problems as big banks continue to gobble up more and more market share. If they were to do something as we discussed above, the competition would be on a much more level playing ground.
