In our ever-changing industry, many community bankers fall into the trap of trying to grow market share by following the lead of the “big banks.” Many of them are finding that it just doesn’t work. Customers continue to flee from banks that focus on regular service charges and complicated products. Ask yourself: “As a consumer, would I think our institution’s pricing structure is fair?” As bankers, we need to look through the lens of the customer. The number one reason consumers switch banks is service failures, often in the form of unexplained nuisance charges or fees. Numerous studies published by The Financial Brand consistently show that consumers hate monthly service charges, minimum balance requirements and confusing products and services with too many variables and requirements. In an increasingly competitive marketplace, community bankers need to focus on customer perceptions to leverage their competitive advantages. In any given market, most community financial institutions see the big banks as their major competitors. So, let’s compare your institution to some of these larger ones. Since customer perception is reality, we will have to draw some conclusions on what customers are likely to believe. • Locations: For customers choosing a new institution, the biggest factor is still location. The average community bank in the United States has six branches, whereas Chase currently has more than 4,800 locations in 48 states. While some FIs are trimming their footprints, Bank of America recently announced plans to open more than 165 branches by the end of 2026. Further, in a recent article, Chase defended its branch strategy as a deposit-gathering machine. Given that location or convenience remains a primary reason for selecting a financial institution, community institutions leaning into the branch strategy will have an advantage. • Marketing Dollars Available: In 2024, Chase budgeted almost $5 billion and Wells Fargo budgeted $869 million for marketing. The average community bank spends less than $600,000 per year. Spent wisely, that budget can help community banks grow their customer base and double account openings. • Product Offerings: Perception is reality. Suppose you took a random survey of people on the street, asking them, “Which bank offers the most products and services: Bank of America or your bank?” Most people would answer “Bank of America” based on perception. The reality is that most community financial institutions offer nearly everything needed by most consumers and businesses. That said, community banks cannot and should not try to copy the big banks or their products. Since you don’t have the most locations, it is imperative that you have a more compelling offer. • Pricing on Deposits: Based on perception, many people may assume that one of the big banks pays the best. In reality, almost every one of our clients across the United States pays higher rates on deposits than the big banks. • Too Big to Fail: In 2023, the collapse of Silicon Valley Bank and Signature Bank sent the markets into turmoil. Uncertainty causes consumers to pause and question the stability of the banking industry as a whole. Which institution do they think is “too big to fail”: Wells Fargo or your community bank? • Customer Service Culture: All things considered, who has the ability to most fully know their customers and serve them and their business needs: Bank of America or your bank? This is an area in which community banks can win hands down; however, community banks rarely make this a priority. Frankly, it has been my experience that most community banks give “lip service” to customer service. CAPITALIZING ON YOUR COMPETITIVE ADVANTAGES It’s clear that big banks have a few distinct competitive advantages and a number of perceived ones. Unlike community banks, they also have a much higher cost structure and are less nimble. Because community banks operate on a very different business model, they can offer Leveling the Playing Field By DR. SEAN PAYANT, President, Haberfeld 12 WEST VIRGINIA BANKER
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