It's clear that megabanks have an advantage over smaller banks due to their size and resources. As consolidation and digital banking grow, megabanks continue to dominate the consumer banking industry. In fact, the largest five banks in the U.S. now control nearly 45% of the industry’s total assets, leaving just 55.4% of the market share to be divided up among over 6,500+ remaining institutions. But, community banks and credit unions have unique competitive advantages that can be leveraged to win customers back. Here are the top four ways community institutions can compete with megabanks.
Consumers are used to highly digital and personalized experiences across all aspects of their daily lives – order suggestions at Starbucks, relevant advertisements from Google, tailored Amazon product offers, and Netflix show recommendations. From the onset of this age of personalization, consumer banking has been racing to catch up and create experiences that align with these outside trends. And while megabanks have built sleek apps and improved online experiences, both large and small institutions have fallen behind in delivering a fully personalized experience.
Small banks in particular have struggled to go digital. But as the digital banking experience grows in customer importance, now is the time for small banks to start investing in improving their digital channels. According to a recent Forbes Advisor-Ipsos Consumer Confidence Survey, 78% of banked Americans prefer to do their banking digitally—via a mobile banking app or bank website. And a Businesswire study revealed that 22% of individuals who will not bank locally say it’s due to a lack of up-to-date technology.
People love their community institutions, but not enough to stick with them through poor user experiences and outdated digital channels. Community banks and credit unions can start small. Focus on the aspects consumers are most interested in seeing right now. Subscription management tools, digital wallet integrations, account aggregation, automatic savings, and budgeting tools currently top the list.
In fact, investing in digital banking is no longer negotiable, it’s a must. Institutions with clunky user interfaces and poor digital experience, they will simply be left behind.
Community banks and credit unions know their customers on a personal level much more than the big banks. And while this is still a strength, community banks need to change how they deliver personalized services or risk losing their connection.
Users are constantly communicating with their bank. Their transactions and spending habits indicate what is going on in their lives both personally and financially. Gone are the days of 30-minute meetings with your local banker to determine what kind of account or loan you need. Customers expect their bank already knows exactly what they need from their data and want immediate, relevant suggestions.
And community banks are just as equipped as the large competitors to deliver on this personalized service. All banks receive the same level of transaction data from their customers. Community banks just need to leverage that data in a way that makes the digital banking experience unique to the user. Whether it’s through tailored promotions, insights on spending, or a customizable interface, community banks can help their customers feel seen.
One of the main attractions to small banks and credit unions is their appeal to local banking and their community. This feel-good branding that small banks possess is a competitive advantage that megabanks are unable to emulate.
In a recent survey of banking customers, half of respondents agreed that credit unions care more about their members than big banks and 58% said they prefer to do business with institutions that invest locally. It’s clear that consumers want to stay local and support their community bank. The appeal to the local experience is a unique advantage small banks offer to win back consumers. Community banks who invest locally have seen success with this strategy with in-person banking, but the community focus must show up in a customer’s digital experience.
For example, if a community bank is a lender to a local coffee shop, they can digitally showcase that coffee shop’s loyalty program to members who frequently shop at a big chain coffee shop. Users get to tap into their community and support a local business, while the bank benefits from the thriving small business they lend to.
The banking industry is constantly focused on new customer acquisition. But right now, especially in the current economic climate, focusing on growing the relationship with existing customers is even more important than finding new customers.
Community banks and credit unions have the unique advantage of knowing their customers on a personal level and can tap into this special relationship to win over more of the user’s share of wallet. Customers are communicating in real-time to their bank their personal values and financial needs through their transaction data and spending. Small banks and credit unions can use this data to present personalized offers that are tailored to each customer's individual needs.
For example, through analyzing transaction data, a bank has identified that one of their users has likely started her own yoga studio, from various new income deposits, large purchases at yoga wholesale suppliers, and transactions with a legal support platform. The bank can send a tailored offer directly to the customer, nudging her to open a business account or apply for a small business loan. Doing this in real-time can significantly improve conversion rates, customer loyalty, and increase the bank’s share of wallet. Missing these opportunities to capitalize on a user’s' immediate needs can cost banks in the long run when users end up finding their solutions elsewhere.