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National Banks Vulnerable to “Jaws” Attack

Lurking beneath the placid surface of retail banking is a deadly threat to the long-term prospects of national banks.

For national banks especially, retail banking has been reduced to little more than a series of smartphone keystrokes. Virtually any financial transaction from anywhere in the world can be made from a touch screen in the palm of your hand.

Big banks have gambled heavily that customer-friendly technology, convenient branches and slick products are their passport to future growth. The strategy seems to be working …. at least in the short term.

The top ten largest institutions now control almost 80% of consumer deposits grabbed largely from smaller banks. Their strategy for building deposits and retaining customers has lacked subtlety:

  1. Reduce customers to digits
  2. Give them electronic banking tools
  3. Lock them up with sticky accounts
  4. Push them into the self-service lane.

Slick products and slicker technology has squeezed inefficiency — and face-to-face interactions — out of the big bank retail banking system. Nowadays, only high net worth customers get personal attention; mainstream accountholders must fend for themselves.

All may seem well, but in many ways, the scenario is ominously similar to the movie Jaws where an unseen threat lurks menacingly beneath the surface only to rear up and swallow the mariner.

Megabanks are dogged by two big issues they can do little about: customer antipathy and lower-priced competition. Both create an environment that puts them at significant risk.

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Customer Antipathy

Customers don’t like big banks. Surveys show that customers prefer credit unions or community banks to national institutions. But the convenience of extensive branch and ATM networks combined with customer-friendly technology make it hard for customers – particularly millennials – to resist the pull of big banks. Once caught in their orbit, customers stay put but they are unhappy. Forty-three percent of big customers say they are unsatisfied with their institution, according to the 2014 Consumer Banking Insights Study. But 59% of the dissatisfied won’t switch institutions because it’s simply “too much of a hassle” to change.

Big bank backlash can be seen in social media. Big bank postings receive twice the level of criticisms as smaller institutions. Remember when Bank of American proposed to raise debit card fees? More than 500,000 tweeters protested – and forced them to cancel — the proposed move. And when J.P. Morgan invited students to submit questions to Vice Chairman Jimmy Lee, the bank received so many nasty responses, they closed down the program. Big banks often seem insensitive to the level of consumer distrust and dissatisfaction.

Lower-Priced Competition

National institutions have cut costs by investing in technology. But in capturing younger, technology-savvy customers from community banks and credit unions, they have also sowed the seeds of their undoing. They captured a market with no loyalty; one ready to move to lower-priced competitors with even friendlier technology and lower fees.

Cue the soundtrack. The predator approaches.

Lower-priced competitors such as Moven and Simple have proven their appeal to younger demographics not by simply adapting banking to an online environment– as big banks did — but by rethinking services that customers want such as advisory and budgeting tools. They created online banking from the scratch. In addition, online firms have another huge advantage over big banks – lower expenses and account fees.

But these lower-priced competitors will not be a significant threat to national banks.

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The huge predator lurking below goes by several familiar names — Apple, Amazon, Google — the three most admired firms in the world according to a Fortune magazine 2014 survey. Big bank customers are loyal to these brands. They trust them. On the other hand, 72% of U.S. consumers say they have no loyalty to any bank. They see their current banking relationship as merely transactional. In a poll of 1,000 bank customers conducted online by Harris last year, 58 percent of respondents said they don’t believe their primary bank has their best interests at heart, and 42 percent feel their bank takes advantage of them with fees.

Amazon is a serious threat. Amazon has credit card information and conducts financial transactions with more than 240 million customers. They are known for their customer-centric culture, super-convenience and local delivery. Amazon recently announced a PayPal-type payment program that allows customers to make automatic payments for cell phone bills and subscription services like Spotify and Netflix. They are relentless about innovative, consumer-friendly technology.

Apple, too, is gaining more control over the finances of its customers. Their soon-to-be-released iOS 8 software allows iPhones to automatically scan and enter the owner’s credit card information.  By knowing your bank, Apple will be able to customize solicitations and, even more worrisome, charge big banks for facilitating purchases.

A recent Accenture survey found 72% of consumers ages 18 to 34 would be ‘likely’ or ‘very likely’ to bank with at least one technology, telecommunications, retail or shipping/postal company they do business with if they offered banking services. More than half (55%) of consumers ages 35-54 and 27 percent of those ages 55 and older would be willing to do the same.

Once Amazon announces an online bank and reaches out to loyal customers, national banks will be eaten alive. By 2020, millennials will comprise more than one of three Americans and by 2025, they will represent as much as 75% of the workforce. Currently, almost all millennials (88%) do their banking online. And, if they need a brick and mortar partner, they’ll find one.

Big banks may look like the top of the food chain, but it’s an illusion. Ironically, smaller banks are in a stronger position. As technology-driven customers switched to big banks, service-oriented customers remained behind. These tend to be older, underbanked consumers who need a little help. Personal service breeds loyalty. This doesn’t mean community banks can relax. They must invest in customer-friendly technology and seek new ways to meet customer needs, but at least, they’ll be on the shore watching the life and death retail struggle going on in the deep water.


Kevin TynanKevin Tynan is SVP Marketing at Liberty Bank for Savings in Chicago, and an authority on strategic planning and community bank marketing. Formerly, as principal of Tynan Consulting, he developed award-winning marketing programs for clients in finance, healthcare, politics and higher education. The author of two books and numerous articles, you can reach Kevin via email.

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