Breaking up the big banks is a popular topic of debate in the ongoing Democratic primary, but closer to home, community bankers hope to translate that populist sentiment into new customers.
To be certain, community banks do offer a unique value proposition – and their customers know it. According to last year’s American Consumer Satisfaction Index, regional and community banks received higher marks than their national bank contemporaries on nearly all counts, except for the number and locations of ATMs and branches.
Yet big banks still dominate the market. Bank of America captured nearly 18 percent of the deposit market in the Greater Boston area as of mid-2015 (the latest date for which FDIC data is available). In June 2010, when public sentiment was undoubtedly less favorable to the big banks than it is now, BofA boasted 24 percent of deposit market share in Boston.
It’s not your imagination: Post-crisis, the big banks are bigger than ever and regulation that promised to reign in the worst of their risk-taking has essentially amounted to a deal with the devil.
“What we’re left with is basically a two-tiered banking system,” said Cornelius “Con” Hurley, director of Boston University’s Center for Finance, Law and Policy. “On the top tier, within the castle, you have the six largest banks who cannot fail. They have a safety net, it’s well known … They can take inordinate risks because of the government safety net and they have very close relationships with their regulators. Outside, it’s every man and woman for himself. Banks fail, banks merge, banks get in trouble, CEOs get fired.”
Regulators are not totally insensitive to the plight of overburdened community banks, Hurley said. He pointed to Comptroller of the Currency Tom Curry’s proposal to raise the asset threshold for banks to be examined on an 18-month cycle, from $500 million to $1 billion.
“That’s all good, but it is nibbling around the edges,” he said. “What we are talking about is structural problems.”
The Medium Is The Message
Even with the cards stacked against them, some Massachusetts community banks have made a play to steal market share – and disenfranchised customers – from the big banks.
“We decided three years ago that we wanted to do precisely that,” said Eric Morse, senior vice president of marketing and business development at Needham Bank. “We know that we compete with other community banks, but we know we’re related to them. We want to go after the disenfranchised big bank customers, of which there are millions.”
It’s not easy, he acknowledged. Morse said that first meant taking a hard look at Needham Bank’s product offerings and undertaking a product development process to make sure they were at least as good as what BofA had to offer.
“Once you figure out what your products are and how you want to price them, now you’re starting to talk about your brand, and we believe people are attracted to brands. They’re not attracted to products. If they’re attracted to your brand, they will invest your products,” he said.
For Needham Bank, that means tapping into the “go local” sentiment that’s prevalent in the bank’s backyard and linking up with the Newton-Needham Chamber of Commerce to help promote other local merchants.
For neighboring Middlesex Savings Bank, it means emphasizing their mutuality (“no shareholders”) in their branding and messaging.
“I think for community banks, we need to make sure we’re competing on our own terms and put a distinctive proposition out there,” said Jim Briand, senior vice president of marketing at Middlesex Savings Bank. “You see banks of various sizes just talk about their latest checking account. If you compete on the same terms as the big guys, you’re not going to win.”
Briand also said it’s important to give back to the community in a distinctive way. He highlighted the bank’s recent “10,000 Adventures” initiative, in which it donated 10,000 books to area schoolchildren.
But switching bank accounts can be a pain, and customers have to have a reason to do it in the first place. Robert M. Mahoney, president and CEO of Belmont Savings Bank, said that it’s often a “life event” that brings a new customer through the bank’s doors.
“When I look down into the lobby and I see a young couple signing up with us, invariably, it’s somebody moving into town. They just became a homeowner, they’re here for the schools and they wander into the biggest bank on the street,” he said.
Community banks aren’t trying to edge out the banking behemoths everywhere, they say, but they’re willing to play the long game.
Morse said, “What you want to do is build a brand and establish a brand that has a set of values that is known enough in the community, so when someone gets mad at one of these big banks, they will come and visit you.”
