How mid-sized banks can outmaneuver mega-banks

For banking customers, good service now means completing a quick and painless transaction online. The experience of 2020, with branches closed or offering reduced services due to COVID-19 restrictions, has brought this to the fore: a survey by Mastercard showed 87 per cent of people who had never used a banking app before the pandemic would continue to use them in future.

Banks are intensely aware of this change, which was under way even before the pandemic. Digital transformation was the biggest priority for 75 per cent of banks in a recent study authored by Jim Marous, CEO of the Digital Banking Report. Within that, 87 per cent said customer engagement was the core reason for transformation. But for mid-sized and regional financial institutions, local market expertise and superior customer service via their branch network is the most important way they have of distinguishing themselves from multinational megabanks.

So, as Malcolm Gladwell asks in his book David and Goliath: Underdogs, Misfits and the Art of Battling Giants, how can smaller players turn their perceived disadvantage into an advantage? What is the mid-sized bank’s slingshot? In our work with clients, we have developed a new roadmap for success and reimagined the customer playbook to truly focus on the market of one, using technology to ensure banks can go beyond relying on lower prices and their branch network to succeed.

Purpose and edge

The first step is to define an outward-looking purpose that connects and builds trust with the community, and then find an edge: does your lack of size mean you can move faster, or focus on an important niche of the community that you can serve differently?

A good example in my own home state of Colorado is Elevations Credit Union: the front page of its website is very different from a typical banking site. It sets out that Elevations provides financial products specifically for Coloradans, it offers free one-on-one consultations, and it donates two cents every time you use your credit card to support local scholarships and grants. This community-focused approach is very difficult for a national megabank to replicate.

Find clients

The second step on the journey is precise and targeted marketing. For mid-sized banks, the branch used to serve this purpose, but as people visit their bank branch less often, local banks need to find another way to be where their customers are.

They certainly don’t need to spend money on expensive national TV ads. Instead, a mid-sized bank needs to go directly to where its customers are online. This means finding out which targeted Google adwords will get them to the top of their searches, geotagging, placing ads in relevant community Facebook groups sharing the ways in which they are supporting that community, and even advertising at local sporting events, connecting community with experience.

Acquire customers – aka sales

Selling can be a dirty word in banking, but what we’re talking about is making it easy for customers to access your products online - making applications happen as fast as possible. One large regional bank with over 1,400 branches found that only 14 per cent of people who gave up on an online application then came into the branch to finish the process. Ensuring that the first three questions of an online application are name, email address and phone number allows banks to follow up with people who don’t complete the process. By doing this, a Temenos customer converted 40 per cent of abandoned loan applications into successful transactions. Just because someone doesn’t complete an application, doesn’t mean they’re no longer interested. Sometimes, life gets in the way. Show people you want their business.

There is a range of things banks can do: for example, using data held by the applicant’s mobile phone company to prefill parts of the application, speeding up the process and helping with identity verification. Also, offering predictive text on categories such as occupation makes those sections quicker to complete. These sorts of simple changes could bring account opening down to 90 seconds, with no increased risk of fraud to the bank.

Retain and help

Every bank’s digital channels are an opportunity to reinforce their edge – such as the donations to local charities via credit card spending by Elevations. You can display how those donations are being spent on the home page of your mobile banking app, for example. Banks can also use the data they have to personalize what each customer sees on that first screen, such as their progress towards savings goals.

Many mid-sized banks have moved quickly to ensure they are still providing a high level of personal service during the pandemic – in one example adding a secure one-to-one chat feature, similar to WhatsApp, in just three weeks. A large national bank would not be able to move so fast.

After this extraordinary year, the task for mid-sized banks globally is to keep learning lessons in how to meet their customers’ needs through digital channels, and to prioritise investments that bring them closer to their communities. To paraphrase Malcolm Gladwell in David & Goliath, just like David, mid-sized banks can win by changing the game.