= Subscriber content; or subscribe now to access all American Banker content.

How Small Banks Can Overcome Big Banks' Lock on Mobile

Community banks are threatened on many fronts – burdensome regulations, national competition, inefficient branch networks and technology breaches. None of these threats, however, is more serious and least anticipated than that of mobile banking. The service, which smaller banks struggle to embrace, may be the very one gobbling up market share.

Fifty one percent of U.S. adults and 61% of internet users already bank online, so it’s not a subject that can be ignored. Consumers are quickly adopting online banking in all its forms – bill-pay, deposit capture, money transfers.

Although mobile banking is a financial and technological challenge for most banks, community banks have their backs to the wall. They cannot match the huge budgets, seamless convenience or slick features offered by national banks.

According to Technology Business Research, the largest 200 banks in North America will spend an average of $1.5 million for mobile and online banking projects this year. Self-service and service desk solutions command another $881,000 per institution.

Spread these costs over big branch networks and hundreds of thousands of customers and huge investments make sense. The average cost of a bank teller transaction is $4.25, compared with 10 cents for the same transaction done on a mobile device.

But small-bank economics makes similar technology prohibitively expensive. As a result, most community banks rely on private-label firms to provide generic versions of mobile services. However, without the latest features and customized applications, small institutions struggle to keep up.

Later this year, Wells Fargo is rolling out a mobile banking app incorporating voice technology, an advance many experts expect will be next big thing. But it will be years before voice technology shows up in small-bank apps.

There’s more than economics that motivates big banks. They have discovered that mobile is their best bet for combating deep consumer distrust and rampant turnover. The banking industry – largely reflective of customers’ perception of big banks – ranks dead last of eight industry categories in a 2014 Edelman trustworthiness study. Throw in high fees and ethically challenged behavior and big banks won’t win many accounts on pure good will. For them, mobile banking is a must-win game. 

They see the labor-intensive process of setting up online bill payments and automatic deposits as an advantage because it creates barriers to switching banks. According to a 2012 Javelin Strategy & Research survey, the vast majority of major banks (87%) said customer loyalty (known as "stickiness") is the biggest motivator for investing in mobile banking.  It's a cynical but winning strategy. 

In 2013, JPMorgan Chase reported a 30% climb in mobile banking accounts over the previous year. Wells Fargo saw a 29% year to year jump – well above the industry average. The top five banks have steadily increased their share of the bank and thrift industry's total assets from nearly 10% in 1990 to 44% today and their success in mobile banking suggests the trend will continue.

What strategies should community banks adopt to compete with big institutions? Here's a seven-point plan.

  1. Don't seek technology parity with big banks; it’s unattainable. Stake out the middle ground. Most customers are not early adopters and don't seek cutting-edge features. Apple may be the innovation leader, but Samsung has double the market share.
  2. Pursue your niche. Target customers that want personal service, objective information, integrity and a neighborhood commitment. Identifying high-potential prospects, cross-marketing and strengthening community ties have never been more important.
  3. Personalize your bank. Use the faces of local employees in advertising, brochures and websites to      underscore that one-on-one banking relationships are your specialty. Use customer endorsements, too. Social media is an ideal way to strengthen relationships, answer financial questions, highlight employees and promote community events.
  4. Launch a hyperlocal marketing plan. Partner with community groups, support local events,      underwrite school activities and promote a local business environment. Look for opportunities that are impractical for national brands. Bring the community into your lobby, that is, hold free concerts, chamber of commerce receptions, school registrations and financial seminars.
  5. Make it easy for big-bank customers to switch institutions. Nearly 20% of large-bank customers consider leaving each year. Make it easy for them. Promote a low-cost checking or debit account to allow big-bank customers to test out your institution. Develop an easy-to-use Switch Kit and advertise a “Say Goodbye to Your Bank” program that encourages disgruntled big-bank customers to leave.
  6. Compare your fees against those of big-bank competitors – your fees will probably be lower. According to a 2013 American Bankers Association survey roughly two-thirds of people think they pay next to nothing for their checking account. However, a survey found only around 30% of accounts are actually free. Compare your fees to large-bank competitors and highlight the differences. 
  7. Conduct two or three focus groups with noncustomers. Find out why they don’t use your bank and which competitors have irritating policies or services. Develop a marketing plan to respond to criticisms and leverage anti-bank sentiment.

Mobile banking plays a different role for big banks than smaller ones. Community institutions would do well to recognize the importance of mobile banking, but continue to focus on delivering the services that has fueled their growth for the last hundred or so years.

Kevin Tynan is senior vice president for Marketing at Liberty Bank for Savings, an $850 million-asset mutual savings bank in Chicago. He can be reached at


(3) Comments



Comments (3)
While most of Mr. Tynan's points are well taken I must respectfully disagree with him on his item #1. I think technological equality on the important aspects of electronic and wireless banking are eminently achievable, and further, it is imperative community banks appear to be technologically up to date. If they don't they are capitulating to the big banks and perpetuating the perception that they are technologically inferior. Here is a link to a similar article I wrote last year. While it agrees that consistent marketing and knowing your niche is important, it also points out that most market segments now demand all facets of electronic banking.
Posted by JohnMatheny | Wednesday, February 05 2014 at 6:10PM ET
ROBBGAYNOR is spot on in his assessment. I don't have the stats on hand to support his argument but I talk with a lot of community banks and read a lot of community bank websites. The ability of community bankers to avoid the bureaucracy of large banks cannot be underestimated. My "ear-to-the-rails" approach ROBBGAYNOR is right!
Posted by jcbruss | Thursday, January 30 2014 at 2:26PM ET
Interesting article. I have to disagree in spades. I can site 2-3 examples in the past 18 months of community bankers out-innovating the money-center banks. Big banks can't go fast enough to keep up. Mobile is a level playing field for all to utilize. Suggesting that a community bank should seek the "middle-ground" is down right offensive. And I can again site countless examples of community banks gaining the same levels of growth non the mobile channel as suggested above, 30%+. Why do no big banks have debit card management when I know of 70+ community banks that are? Why is only one top ten ban launched with mobile photo bill pay when 7-10 community banks already have it? I think the facts represented above are somewhat dubious. At best. If you are a community bank, ignore the article as it just ain't true. You can and are ahead in many ways and your goal should always be leadership, not a "middle-of-the-road" solution. Long live the community banker.
Posted by robbgaynor | Thursday, January 30 2014 at 1:49PM ET
Add Your Comments:
Not Registered?
You must be registered to post a comment. Click here to register.
Already registered? Log in here
Please note you must now log in with your email address and password.