Consumer Banking: The Never-Ending Saga of Big vs. Small

It’s been interesting (and also unsettling) to watch the changes to the banking industry over the past five years. As a marketer, one of the most interesting things is the ongoing argument around which is better – big or small banks. In the grand scheme of things, does it really matter for the average consumer? Even before the banking catastrophe that began over five years ago, marketing communications around which is better have been front and center in branding and advertising. Some marketers tout the superiority of large, national organizations, which have huge suites of products, services and technologies to serve consumers, small businesses and conglomerates around the world. While the contrarian message in the market claims that small, local banks are more nimble with their service and decision-making and treat their customers like human beings, not a number.

So, who’s right? Throughout the crisis, the pendulum of opinion has swung back and forth. At the beginning, with the failures of big names like National City and Washington Mutual, many thought that as consumers looked for safe havens, small and mid-sized banks would benefit. But eventually, many smaller regional and local banks also began to fail, ultimately being taken over by larger, more capitalized entities, effectively causing consumer flight to the perceived safety of larger players. Even today the debate continues with JPMorgan’s recent $2B+ loss as a result of bad derivatives trades, questioning not whether it’s too big to fail, but if it’s too diverse to manage.

But let's assume that most consumers’ accounts fall well within the FDIC insurance limit. At that point, safety is not a real concern. So what do larger banks offer? Are you going to get a better interest rate at a bigger bank? Not likely in this economic climate. The day of the CD special is long gone. Do bigger banks have more or better products than smaller banks? Not really. Thanks to new regulations, deposit products are fairly similar, and online banking services are table stakes these days. Are you at risk if your smaller bank runs into trouble and is taken over by another bank? Again, as long as you’re under the FDIC limits (which the vast majority of Americans are), your money is safe. Is the service really that much more personalized at a small bank? As a consumer with bank accounts at both a large, national and a small, local, I can attest to the fact that I’ve encountered service issues with both, and both took care of the issue within 24 hours. That’s all I needed.

So, what’s a consumer to do? The real answer is probably nothing. After all, no matter where the grass looks greener, switching is a hassle. Banks have spent years developing services that tie you into them (direct deposit, automatic payments, online banking, etc.). Getting all of that switched is a pain. The only real reason to switch involves moving to a part of the country your bank doesn’t service (and yes, that can happen even with the bigger banks, as not a single one of them services all 50 states).

So what is a bank marketer to do? If banks and their marketing communications are really going to differentiate, they need to get out of the big vs. small argument. They need to find a way to reinvent or redefine the banking experience so that it’s truly different, yet relevant to how consumers want to use and manage their finances. How can I pay with my mobile? Can I reach customer service via Twitter? What does your app do that no one else’s does? Some of the startup online-only banks have started exploring this, but it will be interesting to see how the rest of the industry follows. What would you expect the most progressive bank to offer in the next few years? Leave a note in the comments.