Small town banks beating national chains? Yes, it happens, and here’s how

National and even global banks dot the landscape of almost every city and town in America, but that does not mean local banks are down for the count.

Local and small regional bank chains can and do beat the behemoth banks, but it does not happen by accident. Local banks that win know where to focus their resources and their alliances.

“When it comes down to the financial needs and goals of the average person, local banks have much more to offer and are usually the best choice,” noted Savings to Invest. “Customers of local banks enjoy the best deposit account interest rates, lowest loan rates and highest level of customer service, which are arguably the most important aspects to consider when choosing a bank.”

But where local banks typically can’t compete is with technology—for instance, app-enabled deposits—and with convenience for travel, whether that be a multitude of locations and ATMs around the nation or a plethora of branches in your city.

First up – what are the biggest banks in the nation? According to Business Insider, the 10 largest banks in the U.S. in 2020 by assets are:

  • JPMorgan Chase: $2.74 trillion
  • Bank of America: $2.38 trillion
  • Citigroup: $1.96 trillion
  • Wells Fargo & Co.: $1.89 trillion
  • Goldman Sachs: $925 billion
  • Morgan Stanley: $875 billion
  • S. Bancorp: $475 billion
  • PNC Financial Services: $392 billion
  • TD Bank: $384 billion
  • Capital One: $373 billion

So exactly where can small banks edge out the biggies?

Personal service: At a large bank, you may be one of millions of customers. Small banks, on the other hand, might not only know a customer by name, but they might also know that customer’s spouse, children, hobbies, go-to restaurant, and favorite sports team.

“When you visit a community bank, you’re apt to get a toaster for opening an account, grab some popcorn or get a cup of coffee,” notes Bank Rate. “This personalized service helps small banks chalk up high personal satisfaction scores, according to the American Consumer Satisfaction Index.”

Lower fees: Some big banks are downright infamous for their fees. Community banks, adds Bank Rate, often offer lower fees than big banks, including free checking, lower overdraft fees, and lower balance requirements that avoid checking fees. Some single-location banks with no ATMs, like the Bank of Montana, make up for that fact with up to four free ATM withdrawals per month at any ATM in the continental United States.

More lending flexibility: Small banks can be more flexible than big banks with loans, including business, home, and car loans. As My Bank Tracker explains, smaller banks are typically more willing to negotiate and work with customers. “Big banks have financial products with fees and interest rates that are set across the board,” the site explains. “There’s little wiggle room. Community banks may be more likely to work with customers on a case-by-case basis to see how they can provide a service to clients.” Community banks may also be able to waive certain account or service fees and offer reduced interest rates.

While small banks have distinct advantages, there is one key area where they have had difficulty completing: technology.

In 2018, Cornerstone Advisors surveyed the tech offerings of banks nationwide and found that big banks offered the most features. While tech is not the only reason big banks continue to grow, it’s a big part of it, as customers increasingly look for easy ways to move money. Top tech features from big banks include:

  • Fraud alerts
  • Balance management
  • Non-fingerprint biometrics
  • Peer to peer payments
  • Viewing balance without logging in
  • Account statement access
  • Easy ways to turn cards off or report a lost card
  • Budgeting tools
  • Other language options
  • Travel notifications
  • Apple Watch app
  • Credit score information
  • Cardless ATM access
  • Schedule branch appointment
  • Picture bill pay

Cornerstone noted that smaller banks rely on vendors for many of these premium services—and if the vendor does not offer the service, then de facto the bank can’t, either. What’s it worth to change vendor? Cornerstone found that 57% of millennials have their primary checking account at one of the handful of largest U.S. banks due to the digital banking tools and the fact that they don’t really care if the bank is “local” or not. Is there a way for small banks to compete? Yes.

“The path to competing with the megabanks is not by trying to keep up with (or heaven forbid, leapfrog) the megabanks on technology features, but by offering product innovations,” Cornerstone noted.

And, of course, tech is not the final word when it comes to bank choices, adds My Bank Tracker. Customers are looking for a full suite of services, low cost of business, fair treatment, and an up-to-date online presence.

“What are you looking for in a bank?” the site asks customers. “How you answer that question could go a long way toward determining if you would be happier with a large bank or a small bank.”

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