Can Smaller Community Banks Win Market Share?
Smaller community banks have been losing market share to the large national and super-regional banks for many years. In 2021, the nation’s top 20 banks achieved 55% market share in deposits; the top 4 captured 35% market share. Certainly, much of the market share dominance by large banks is a result of consolidation. There were 8,315 FDIC-insured commercial community banks in 2000, but only 4,377 in 2021 - a 47% reduction.
Consolidation aside, larger banks use their marketing advantages (retail presence, brand awareness and digital acquisition technologies) to continue to slice away market share from community banks at the local and county level.
So, can smaller community banks still win market share in today’s environment? The answer is yes. Here are three reasons why:
Community banks can concentrate their resources and win locally by leveraging their relationships and commitment to the community. Community banks typically invest more of their resources and lending power to the people and small businesses in their communities. Larger banks often use local deposits to support lending activities elsewhere. We recommend that leadership adopt a more proactive posture and start by ranking the market potential in the geography of each branch. That market potential can be estimated from a variety of information sources including US Census data and population growth trends, as well as FDIC data to understand competitive market share trends. Changes in the competitive landscape, such as the acquisition of a local competitor by a national/regional bank, also create opportunities to focus marketing and outreach activities on those geographies.
While big banks have huge advantages with in-house technology, data analytics, sophisticated advertising and digital marketing, community banks can access the same resources through third-party data and marketing providers at a fraction of the cost. Small banks can leverage data and customer acquisition expertise to acquire customers in a hyper-focused way with much greater efficiency today than ever before.
Finally, customer acquisition is a long game based on building consistent visibility and also building trust and relationships through education and outreach. In-house CRM software is easier to use and enables staff across the bank to interact with the right prospect at the right time. Then, once a customer is acquired, understanding that customer’s unique needs, life stage, aspirations, and potential, will enable the institution to better cross-sell relevant products and services. Gaining market share through organic growth of existing customers can be the most efficient strategy in the short term and most rewarding strategy in the long term.
If you would like a free 15-minute discovery call with a Princeton Partners FSG team member to discuss your financial institution’s specific goals, you can schedule a call here with CEO Tom Sullivan.