BankThink

Olive Garden Megabanks Will Lose to True Community Banks

We community bankers may be looking at our megabank competitors all wrong.

We have been under the impression that the greatest difference between Main Street and Wall Street institutions, and the biggest advantage for the megafirms, is their size and perceived market strength. They're just like us, we think, except for their trillion or so in deposits and 80 million additional customers. If our community bank makes unwise investment decisions, the ripples don't extend much beyond our market area. At Bank of America, JPMorgan Chase and Wells Fargo the repercussions may threaten to topple the U.S. economy and markets worldwide.

But comparing size doesn't do justice to the worlds of difference between the megabanks and banks that are tied to their community.

The big banks paint themselves as sophisticated money-center banks that are indispensable because of their myriad divisions and subsidiaries. And the truth is community banks really can't compete against that. But our values are also different, and that's where smaller institutions have the upper hand.

Ironically, Chase, B of A and Wells also try to portray themselves as community banks, running 16,000 branches — or "minibanks" — all around the country. But those locations have about as much connection to their community as do stores in the giant retail networks run by Dunkin' Donuts, McDonald's and Home Depot stores. Like the big retail chains, the megabank branch networks base their success on mass distribution, economies of scale and standardized products.

Drive around new shopping centers in towns across America and you will see the same familiar faces: Panera Bread, Office Max, an Olive Garden and one or two minibanks.

Gazing at them, it is easy to forget what city or state you're even in. The big names look the same wherever you go: cookie-cutter storefronts that vary only by size and are distinguished only by colorful and distinct logos. They could be plunked down anywhere.

Their only goal is to sell merchandise. They have no connection with the community, no interest in its economic well-being and no willingness to tailor packaged products to community residents. Their distribution network expands and contracts depending on the economic outlook. Currently, minibank managers are shutting their branches because the surge in mobile banking allows them to reduce their expenses. A soulless bunch, they are driven by quarterly profits and stock price.

No, they are not like us.

An industry once characterized by friendliness and the values of small-town America has been taken over by Wall Street. Fines for market manipulation, bilking mortgage owners, laundering money and evading taxes would mortify community bank CEOs, but they are a cost of doing business on Wall Street. Closing an office, terminating employees and withdrawing from a community would be a nightmare for local institutions. Not so for Wall Street.

Once we accept that Wall Street banks are more like chain stores, we can look into the competitive strategies embraced by those fighting huge national retailers: neighborhood coffee shops, computer repair stores, pharmacies and entrepreneurs everywhere.

Developing counterstrategies requires a new mindset, which comes from repeating three assertions: Their customers are not our customers, their marketing strategies are not our strategies and their values are not our values.

Perhaps the only thing we concede is that their storefronts are prettier.

Kevin Tynan is senior vice president of marketing at Liberty Bank in Chicago. He can be reached @kevintyn.

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