The recent Wall Street Journal article about the dominance of the three largest banks struck a visceral reaction among bankers. The key points were not only that the top three (JP Morgan Chase, Bank of America and Wells Fargo) have grown market share to 32 percent of total deposits, but also that last year they garnered an astounding 45 percent of all new checking accounts.
The reactions we heard reminded us of the stages of grief—comments ranging from denial (“It can’t be true”); anger (“How could they accomplish that—even Wells Fargo with its reputational problems!”); to finally acceptance and resignation (“How can we possibly compete against them?”).
Let’s step back and ask: Is this accurate? If so, how did they do it? What can—and should—you and your bank do to compete?
Is it accurate? Yes—but. Certainly, the share of total deposits is straight from FDIC data. However, the largest banks have access to large corporate, trust, investment and other funds not realistically available to their smaller competitors. When compared to deposits that can be captured in the markets your bank serves, the playing field is a little more level.
Of much greater concern is the statement that about 45 percent of all new checking accounts were opened at these three banks: almost half the total accounts opened by all banks in the United States!
We understand the analytical approach and have many questions about the validity of the specific number. But let’s be clear: Fundamentally, the conclusion is at least directionally right. In the end, it doesn’t matter if the “real” percentage is 45 percent or 35 percent. These banks are capturing a significantly higher share of customers than everyone else. This marks a major reversal of a long-term trend where community and regional banks outperformed the largest banks in customer acquisition.
How did they do it?
In many ways the financial crisis was a boon for the largest banks, even if it didn’t always seem that way at the time. They were the only ones with enough capital and management resources to rescue Merrill Lynch and Countrywide (BofA), Wachovia (Wells Fargo), and Bear Stearns and Washington Mutual (Chase). As a result, they got a huge expansion of their customer base.
Growth also came with constraints. Gone were the days when these large banks could create growth through acquisition, expanding territory and whacking costs, and at the same time drive customers to community and regional banks. No acquisitions meant they had to learn to generate (or get better at generating) organic growth. For example, Bank of America exited smaller, stagnant markets and concentrated its resources in areas with growth. And they focused on cross selling to Merrill Lynch customers, who often did not have other relationships with the bank. The result? Average checking account balances grew over time from $2,000 to $7,000.
It also meant paying much closer attention to their customers’ needs, as evidenced by their improving J.D. Power satisfaction scores. While not up to the level of their regional competitors, they consistently get better, with Chase ranked number two nationally in 2017. This strikes at the core of the community bank value proposition that promotes high service levels as a competitive advantage.
Statistics from the recent BAI Banking Outlook survey back this up. When asked the main reason why customers chose their primary financial institution, 33 percent replied “most convenient branches,” the top-rated response overall and across all age groups. As for choosing a new institution, only 12 percent said “available, knowledgeable staff.”
What can–and should–you do?
Take a lesson from the success of the largest banks and adopt a “play to win” strategy in each of your markets and for each of your branches. Here’s how:
1. Find the growth.
Only three sources of growth exist in your markets:
If the market is growing, you can capture your share.
You can capture a share of the natural customer churn (around 8-10 percent per year).
You can steal share from competitors (usually an expensive proposition).
But first you must have good metrics to measure the potential, and to assess your “fair share” capture. Without these guiding lights, you are flying blind and may think you’re doing OK, when in fact you’re underperforming the opportunity.
2. Concentrate your resources.
Take a page from Bank of America and shift resources from low-growth markets or neighborhoods. Redirect them instead to growing areas. Have a defined distribution strategy to target higher growth areas. It may be branches. It may be allocation of sales and marketing resources. Or it may be strategic fill-in with ATMs or other high visibility, but lower cost approaches that give greater sense of presence and convenience. This may take time—as it did for your larger competitors—but it will pay significant dividends.
3. Get rid of single-service households.
We don’t mean literally run them off, but rather look to your single-service households and convert them to deeper relationships. Every bank has them but most don’t take full advantage of the opportunity. We’ve heard all the rationale: CD customers don’t want a “relationship,” just a rate; low balance checking account holders don’t have the financial wherewithal; indirect auto customers have no relationship with the bank; etc., etc. But we’ve found these excuses usually reveal a lack of focused sales strategies and product offers appropriate to the specific needs of the customer.
For example, significant portions of CD customers will deepen relationships if offered products consistent with their life-stage and banking habits. (Hint: it’s more likely to be other savings or wealth management, don’t start by trying to move the core checking account they’ve held for years at another institution). Many credit unions have been very successful using indirect auto as a feeder for account acquisition. It can be done!
4. Close the back door.
A reduction in attrition is as good as an improvement in acquisition. Have you identified your most profitable customers and do you have a strategy to retain them?Do you know which services are most “sticky” and have a strategy to deepen both penetration—and more importantly, usage? Or are you hung up with “We don’t have good data and CRM systems”? Most of what you need can be estimated from simple models and the data can fit on an Excel spreadsheet. Use what you have today while improving your processes and technology.
5. Go digital.
Larger banks are succeeding, especially with millennials, because they offer the suite of digital services they want and fit their lifestyle. But in our conversations with bankers we hear two refrains. First: They don’t think they can compete with the offerings of the large powerhouse banks. Second: When pressed on the quality of their own mobile and other applications, they almost always tell us they are competitive. So that leads us to this question: If it is sufficiently competitive to hold its own, why aren’t you aggressively promoting it to your customers, in your branches, and in your marketing? And why aren’t you moving beyond signup, but deepening usage?
Finally, we’ll add a sixth comment. Face reality and take some action. The large banks are successfully capturing more than their “fair share.” That means that regional and community banks are under-punching their weight.
The situation will only worsen. The three largest banks continue to improve and expand their reach, with Bank of America and Chase announcing plans to enter new markets and open new branches. Take a lesson from the large bank playbook and use these five strategies—along with clear focus and disciplined execution—to win.
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