How Digital Tools Can Help Small Banks Beat Out Larger Rivals

Despite significant digital disadvantages, community banks and credit unions are doing a better job satisfying their customers than big banks, new research finds. But concluding that digital initiatives are an overrated aspect of competing for new customers is mistaken, analysts said. 

In a survey of more than 2,300 bank customers conducted earlier this year, Celent, a technology consultant to the financial services industry, found that small-bank customers are significantly more likely to recommend their banks to friends than customers of large banks. 

This is despite the fact that every large institution offers a robust range of digital banking options, from online bill-paying to voice-activated bots, while some community banks continue to struggle with things as basic as online account-opening. So why the big difference in customer satisfaction rates?

“Said simply, small institutions deliver a superior in-person experience to clients who are less digitally directed than clients of the large banks. The difference points to important things smaller institutions are doing well,” Bob Meara, a senior analyst with Celent, said of the study.

However, those “less digitally directed” customers tend to be a self-selected group of mostly older customers who don’t necessarily highly value digital and mobile banking. That customer base will decline over time. Meanwhile, younger customers, who do far more of their banking online, represent a critically important customer base for banks because such customers may remain loyal for decades.

“Today’s advantage may be tomorrow’s liability,” Meara explained. “The digital lead enjoyed by big banks will become increasingly important — and pay increasingly handsome dividends.”

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How to Approach Digitization vs. Personalization in Banking

Celent found that 44 percent of community bank and credit union customers are highly likely to recommend the institutions they use to others. For big banks, that number is only 27 percent.

For large institutions, argues Meara, the challenge appears to be a lack of personalization both within their branches and online. Data suggest that customers appreciate the convenience of the digital services offered by their banks, but don’t feel their banks communicate with them in a personalized way, especially given the amount of information banks have about them.

Smaller banks are faced with the opposite problem: For them, the task ahead is to catch up with their larger rivals online while retaining their in-branch advantages. 

“This is not a debate over high tech versus high touch,” Meara said. “Both are imperative for institutions seeking to deliver excellent customer service.”

For those smaller banks and credit unions tempted to double down on their strengths, focusing on in-person customer service instead of mobile banking, the data appears to warn against that: Customers under age 45 are the most likely to say they do all or most of their banking online and want only “some banking matters” handled in person. On the other hand, two-thirds of customers over age 60 prefer to do all or most of their banking in person.

How to Create an Effective Mobile Banking Strategy

To grow, small banks need to add more robust digital and mobile banking options for their customers. But with limited resources, they have little margin for error when in choosing where to focus their efforts.

So, what do banking customers want when it comes to digital experiences? In its Global Banking Benchmark report, Forrester Research said the highest-rated mobile banking apps offered did four things in particular: 

• Made bill-paying easy.
• Allowed person-to-person payments without the need to share sensitive data.
• Offered a digital wallet.
• Used the mobile device’s camera to simplify tasks such as depositing checks.

“Banks that are taking a methodical approach to mobile banking, where they constantly update and refine their offerings, are experiencing higher usage rates and customer satisfaction than those that see it as a channel that can be upgraded every three years,” said American Banker, reporting on Forrester’s report.

Peter Wannemacher, a senior analyst with Forrester, told the publication that the better-performing banks are using funds more effectively. “It’s not just that some banks are investing more, but they’re investing more wisely,” he said. 

His advice to community banks is to focus efforts on the particular digital services their customers — as well as their targeted customers — want most, rather than trying to chase big banks’ latest innovations. They should also examine how their own apps are being used and invest appropriately.

Wannemacher noted that many banks whose mobile apps were found wanting lacked features that aren’t expensive to build, such as search functionality, but that make the app more convenient to use. 

“It’s not just about spending money on new features,” he said. “You can have all the features in the world and it won’t help you if your mobile app is inconvenient to use.”