How Credit Unions and Community Banks Can Compete with Big Bank Mergers
As big banks look to improve their services, lower capital, and increase profits, mergers and acquisitions (M&As) have increased over the years. In 2019, a total of 35,800 M&A deals were announced in the banking sphere; while in 2018, the average M&A deal size was valued at $114 million - up from $63 million in 2014.
For example, in 2019, BB&T merged with SunTrust Banks to become Truist - a $66 billion deal which made Truist the sixth- largest bank in the US. Elsewhere, Charles Schwab acquired TD Ameritrade in the same year, in the hope of offering more robust services from the discount brokers.
These kinds of M&As can be especially intimidating to smaller community banks and credit unions, who face greater competition when big banks pool their resources and knowledge. However, there are notable downsides to M&As that smaller banks can use to their advantage. Smaller banks provide services big banks can't, meaning they can champion niche markets. Not to mention, the M&A market is very volatile; an influx of megadeals can occur over a given period, followed quickly by a dip in volume.
Here's how credit unions and community banks can stay relevant among big bank mergers:
Focus on flexibility
When major players in banking combine, bureaucracy and protocols can become particularly convoluted. The process of integrating practices from two separate banks is complex and requires a lot of time to officially order. Even once banks have merged, customers may notice a difference in the bank's efficiency.
Larger banking entities are subject to long waits, thorough checks, and stop-start processes. Post an M&A deal, meetings, application approval, and general advice may become slower and more restricted for customers due to extra layers of bureaucracy. This lack of flexibility is problematic when customers at smaller banks experience faster, more attentive customer service.
A difference is clear in the call times alone: the average wait time at small banks is 111.9 seconds , while at bigger banks that number rises to 191.5 seconds. The one-and-a-half-minute difference is crucial considering customers expect swift and effective customer support.
Likewise, account-holders at smaller banks can directly speak to decision-makers when requesting a loan or different service, and so have access to answers more quickly. Moreover, because small banks are more informed about the conditions of their local markets, customers can receive detailed advice about how best to proceed with their money. Big banks operate at more of a macro level.
Also worth noting, a general downside of M&As is that some customers view it as a way for big banks to monopolize the market. Small banks have the upper hand then, because they are a diverse offering in a seemingly saturated market. Community banks and credit unions should not underestimate their position as entities oriented around people and not around mass power.
Prioritize customer trust
Comparable to flexibility, smaller banks are more equipped to nurture customer trust than banks that have undergone M&As. Small banks are dependent on community relations, and are generally more transparent with customers to retain their business. Big banks on the other hand, tend to have a higher staff turnover and a less personalized service, so customers don't build any sense of familiarity with them.
Stronger customer ties means credit unions and community banks can negotiate terms for loans and services more easily. A more personal approach to banking enables these smaller institutions to accurately assess who is suitable for which products and who is potentially high risk.
Another thing to consider, is that big banks are more commonly targeted for fraud and theft. Although customer payments aren't necessarily safer with small banks than with big ones, data breaches occur more regularly for big-name banks with a vast client base. In 2014, for example, JP Morgan Chase announced a breach that affected seven million small businesses. No financial information was leaked, but the attackers were able to access the bank's systems - suggesting they could have gained new points of entry to later exploit.
These types of vulnerabilities have not gone unnoticed in M&A deals. In fact, a survey by Forescout Technologies....-->