Community Banks' Competitive Advantage Slips Away

Posted by Mark Gibson on Jul 12, 2016 5:10:15 PM

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The latest J.D. Power satisfaction results are like a “shot across the bow” for America’s community banks. For the first time, the nation’s largest bank customers have rated their service higher than regional and mid-sized banks, long known for superior customer service.

For years, larger banks have had advantages in branch and ATM convenience, brand awareness, and digital channel capabilities, but smaller banks have more than made up for these deficiencies by hiring knowledgeable, friendly people who delivered great service with a smile.

In recent years, though, there has been a sea change in terms of what most customers value in a banking relationship. Since the advent of mobile banking, mobile deposit and easy ATM deposit, most people don’t visit branches as often. And when they do, it’s for advice rather than routine service.

In fact, the large banks aren’t just winning with technology. In 2012, small banks outperformed big banks in “in-person satisfaction” by 43 points. By 2016, that performance gap narrowed to just 13 points. Chase led the way, and most big banks followed, to institutionalize Customer Experience Management - training front-line staff, empowering them, and providing them with electronic tools to speed up service and advice provision. They’ve also spent time and money identifying and fixing common customer “pain points” and emphasizing “one and done” problem resolution. Alternatively, many smaller banks take a more organic, less systemic, approach to providing superior customer service. Evidence suggests this will not be good enough in the future.

Predictably, these findings are strongest among Millennials, but troublingly, big banks are also doing well with affluent and especially emerging affluent customers, today’s and tomorrow’s most profitable segments. (See details here.)

So what are the implications for regional and smaller banks? A mobile banking upgrade, and some brush-up training on greeting and calling the customer by name?

No, the implications are more strategic and ominous. Many banks have staked their strategic position as providing “superior customer service,” serving as “trusted advisors” or becoming “the relationship bank.” Inherent in all of these is a “superior personal service” strategy, which this study suggests the customer doesn’t value as much as she once did. Instead, the reliability, availability and ease of use of technology has eclipsed personal service. Sure, customers want helpful, knowledgeable people to help them assess their needs or solve problems, just like they find in an Apple store. They just don’t need them as often, and as a result, the other aspects of the relationship have become more important.

These results are important enough to call into question many banks’ value propositions (why a customer will choose you over another bank), but it may actually impact some banks’ strategic underpinnings (Mission, Vision, priority customer segments) as well.

What to do? Three things.

  1. First, it’s time to challenge what your differential advantage truly is and double down on it. So, for instance, if you are “the trusted advisor,” how are you investing in your people and their supporting tools so they can perform that role better than the big banks? Have you armed them with a tool like Naviplan that enables your bankers to help customers plan for college or retirement? Have you made your investment professionals easy to access? And have you “digitized” much of your employees’ knowledge and made it easily accessible on your web site?
  2. Second, even if your advantage isn’t “being the most convenient” or “having the latest technology” like the big banks, you need to acknowledge that, because the time and place convenience these new technologies provide is so attractive to so many consumers and businesses, you need to at least meet the customers’ minimum expectations in the digital realm, or risk losing existing customers and being shut out of winning new ones.
  3. And third, you can’t continue to rely on hiring knowledgeable bankers and telling them to “take good care of the customer.” That is the new starting line, not the finish line. You need to adopt many of the Customer Experience Management tools the big banks are using to make sure you are focusing your efforts on what really matters to customers, and fixing things that really bother them. This, just as much as the latest technology, is driving younger and affluent consumers of all ages away from smaller and regional banks, and into the arms of the giants.

There is clearly a “burning platform” for small and regional banks to re-evaluate their approach to customer service, customer satisfaction, and the provision of digital banking convenience. They may even need to revisit their core strategy. What they can’t do is wait and hope that consumers will become less demanding, and less concerned with speed and convenience. Those days are gone forever.

[Author’s Note: “Community Bank,” “Small Bank,” and “Mid-Sized Bank” are used synonomously to refer to J.D. Power’s “Midsize Bank Assets of $2 Billion to $33 Billion]

Topics: Bank Marketing, Financial Services