The Tom Dougherty Blog


Posts tagged “bank transfer day”

Banks are still failing, but so are credit unions and community banks

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It is amazing to me that, despite the current economic turmoil and consumer anger toward the big US banks, those banks such as Bank of America, Suntrust, and Wells Fargo still think they are above the common man. The recent debit card fee addition and subsequent removal are no exception.

I have heard a lot lately about how many consumers are starting to consider other financial institutions, such as community banks and credit unions, in lieu of their big bank only to find that the switching process is too difficult. I can tell you after doing extensive research in this category that the big banks make it this way on purpose. It is the only thing they can actively do to retain their customers.

I have no data to prove this but I would put it to you that banks have done more research over the past five years on how to keep customers than how to attract more of them. The simple fact is that no major bank has done any real investment in its brand or in the equities it could utilize to grow its market share.

This is a sad commentary on any number of levels. First, the major banks have seen no reason to change their way of doing business. Even with those few who have left big banks, the attrition rates remain very low across the board. Again, banks are more worried about keeping their customers than providing a value that resonates with their non-customers.

Secondly, community banks and credit unions have done an absolute horrid job in positioning themselves against the big banks in any meaningful way.

Community banks and credit unions have had years to figure out how to take share and, for the most part, they have failed miserably. Ever since the anger against the big banks began back as early as 2007, credit unions and community banks have tended to take a very timid and soft approach, hoping not to raise the attention and ire of the major banks.

Why? Are they afraid that the banks are going to suddenly notice them (after years of not giving them a thought) and aggressively go into their markets and steal their customers because of it?

While I have seen and heard a great deal of discontent about banks, I have not heard that discontent coming from those who use credit unions and community banks. I actually think the real reason that credit unions and banks have not been more aggressive is because they are scared. Even when they have positioned themselves against big banks, the tone is so soft it does not resonate.

Credit unions and community banks have traditionally viewed themselves as being very collegial. They think that they are part of a team that somehow all works together. In reality, they do not. Each is doing its very best to return value to its communities and customer base, and each believe it can do it better than its credit union or community bank “partner” down the street.

Some of the research we have done on a nationwide scale suggests that, once someone uses a credit union or community bank, they are much more likely to lump all credit unions and community banks to their considered set. What is worse is that many people who use a credit union or community bank use more than one and still have one of the major banks as their primary financial provider for day-to-day transactions.

Even for people who use a credit union or community bank, those financial institutions are not viewed as being on the same “level” as traditional banks. They are being judged by the lowest common denominator in the category, meaning audiences judge the category by the worst-looking credit union or community bank because they view all as one category instead of separate entities.

The problem is that credit unions and community banks either need to really start to work together or really start to distance themselves from their lowest common denominator image. They can no longer have it both ways if they hope to gain a greater share of the consumers’ wallet and increase their relevance in the consumer’s minds.

Could a community bank or local credit union match the national bank’s advertising spend? No way, but they could spend more smartly and utilize a message that resonates with a potential customer. (Or they could pool their resources, something we have recommended to credit union clients.)

The problem is that in order to take an effective and resonating position against the big banks, community banks and credit unions have to position themselves against both big banks and other community banks and credit unions. They have to stand out as different and better. But to many credit unions and community banks, that means openly admitting something they have already admitted internally – that, in truth, credit unions and community banks are competing against each other.