It’s a popular opinion that large banks have countless advantages over mid-tier banks. How recently did you last say, “If only we were a bigger bank, we could get the resources we need to get this project done?”
We hear this from clients every day, but there’s never been a better time to challenge this misconception. Some of the features typically associated with mid-tier banks have traditionally been seen as limitations – but in today’s climate, they can actually be turned into strengths.
From clarity of communication and agility, to overall customer experience – not to mention supporting a new wave of post-pandemic entrepreneurs – there have never been more opportunities for mid-sized banks to compete with the Top 50.
While large banks might offer a wider range of services, more customizable products, and have dedicated staff and departments for each customer’s needs, there are still so many ways mid-tier banks can stand up to the competition.
In this post, Superior brings you the top five ways mid-tier banks can compete with large banks, as the world recovers from the disruption of COVID-19.
Problem 1: Mid-tier Banks Face Budget, Time, and Staff limitations
The Problem
When we speak to mid-tier bank Vice Presidents, they often identify budget restrictions as a key limitation to growth and competitiveness. How many of these challenges sound familiar to you?:
- “We don’t have time to do a good job of project management as the team is so restricted by time.”
- “We can’t implement a new vendor as no-one has the resources to do the research this would require.”
- “We can't delegate tasks that would lead to innovation because there's no one to delegate to.”
We know how frustrating people, time and budget constraints can feel when you have big plans for your mid-tier bank. You might see a customer demand for slicker services, digitization and a more sophisticated user experience, but feel powerless to action real change.
The Solution
By working with a banking business partner who specializes in client engagement you can activate a solution faster – and with surprisingly little disruption to your business. The tools, product offering and services that providers, such as Superior, provide don’t require a lot of implementation.
Kevin Traut, President at Superior, knows only too well how vital it is for mid-tier banks to find an outsource solution that doesn’t impede the day-to-day running of a bank:
“Mid-tier banks need a solution that doesn't require file development or IT resources. It needs to give you the chance to leverage an outsourced option to reduce the amount of handling of products or services you get involved in.”
Finding an external partner frees up mid-tier banks’ time. They become an extension of your team, so you don’t have to worry about taking on the more technical jobs in house, and can instead focus on doing what you do best: delivering exceptional customer care.
In fact, this model is one which much larger banking competitors are already utilizing – and they’re doing it well. This means there is far less risk for mid-tier banks who choose to outsource their technical support: your accounts will be easier and low-risk to manage than large banks so you’re likely to see results quicker. This helps you match the capabilities of far larger banks, but with a budget you can afford: and if it works for them, it’ll work for you, too.
Problem 2: Mid-tier Banks Lack Resources on Their Technological Teams Making Them Limited in Number of Projects to Take On
The Problem
We know that one of the biggest headaches for mid-tier banks is that they don’t have the technology resources – such as developers, infrastructure or testing capabilities – to support technological advancement.
Without dedicated teams to work on technology implementation, many mid-tier banks turn to DIY solutions which make for a flawed and inefficient process. This usually means that:
- You don’t have the technology specialists to project manage.
- The digital shortcuts you have to take to develop your products can become convoluted, messy and ineffectual over time.
- There’s an overreliance on manual, error-prone and time-consuming solutions instead of automation.
Technology talent is lacking at mid-tier banks; it’s common for the deep organizational structures that are required to help innovate – such as managers, developers and business systems analysts – to be missing. When competing with large banks that can easily create their own products or customize services in-house, it can feel like a losing battle.
Not only that, but if you do outsource to a technology provider, you might feel trapped by their solution, as Kevin Traut explains:
“There's been a lot of consolidation of the traditional bank technology providers. So competition and options within those few providers is minimal. When a bank selects a core banking system, they typically use them for most of the other ancillary product offerings simply out of ease to implement and not enough time and bandwidth to vet other options."
Sound familiar? Do you feel restricted by your technology provider and unable to break away? There are more efficient and affordable workarounds for mid-tier banks to consider.
The Solution
Now is the time to find a more flexible option that works for your business; fintech companies are sprouting up all over the country – who are not in the traditional banking space – and they’re ready to help mid-tiers succeed. A recent article in The Financial Brand about digital banking transformation cited that:
"Most financial institutions have a digital loan abandonment rate of between 40% and 80% depending on the complexity of the process. When fintech companies compete, this can open new accounts or process loans in minutes using only a digital device, as opposed to a process that currently takes 15 minutes for a new account opening or days for a loan, the performance gap is massive."
There is an excellent opportunity here for mid-tier banks: gone are the days where you had to choose one technology provider and stick with only their products forever. Instead you can:
- Explore more personalized products and add-ons
- Plug in and play with some of the newer technologies to decide what you really want to invest in
- Find providers, such as Superior, who only charge for what you use
Spending some resources exploring agile fintech partnerships could solve many of your problems – and in an affordable way. With traditional models, as the product grows, your spending also increases – providers look at the contract value over a three-year period and rigidly stick to the terms.
But with modern solutions, if you don’t use the service, you don’t have to pay for it, making your partnership far less risky and far more flexible. As Kevin Traut advises:
“You’ve got to look at the track record of that fintech company and see if it's a scalable contract, versus a fixed fee. Are there ‘pay as you go’ options? A lot of our engagements have no contractual obligations: you’re only paying for what you’re using.”
Problem 3: Mid-tier Banks Struggle to Keep Up with Compliance
The Problem
Regulations have increasingly been a key focus for all institutions since the financial crisis of 2008. Security, compliance laws and privacy laws are all vital regulations for financial institutions to keep up-to-date with – and progressively difficult to manage.
Mid-tier banks tend to be at a disadvantage when it comes to regulatory upkeep because:
- They don't have the organizational structure to support a whole compliance department.
- The budget isn’t available to internally staff a vendor management, compliance and regulations team.
While your mid-tier bank might be compliant to a point, regulations continue to evolve over time. How can you ensure you keep compliant with frequent, complex policy changes? Oftentimes, it can feel like compliance maintenance is a checkbox task you do once a year; more of an expense versus an asset to the business.
The Solution
A lot of mid-tier banks outsource compliance as a way to take that liability off of their hands, so they can tell an investigating body that they’re using a trusted provider that does their due diligence.
While this eliminates the element of concern for many banks, you need to ensure you work with a partner you can trust: a vendor who will read absolutely every piece of compliance you send them, and advise you accordingly.
While Superior doesn’t offer compliance as a service, Kevin Traut does recognize the importance of having current knowledge of all compliance standards affecting mid-sized banks:
“We don't have a formal compliance service to sell. But we offer guidance to mid-tier banks. We’re keen for them not to wash their hands of compliance if they don't do it in house. It shouldn’t be a ‘set it and forget it’ mentality.”
Too often, we hear from our bank customers that we “are the only vendor who reads all the fine print” or that we’re “the first vendor who found an issue with our regulatory process and provided us guidance on how to improve it.”
Unfortunately, regulatory paperwork is usually stored away and forgotten about. Whereas Superior interrogates documentation so customers are mindful of compliance throughout the year, and are able to seek additional support from professionals if deemed necessary.
Problem 4: Communication Across Large Banks Can Be Difficult Giving Mid-tiers the Clear Fast Advantage
The Problem
It is common, in large banks, that the product team has no idea what the compliance team is doing – because they're so large and work in silos. The product team gets sucked into the compliance world because they might not be talking to each other and working collaboratively.
Generally speaking, things move slowly at large banks because:
- They have a lot of legacy systems and customization which makes it really difficult to integrate into or add new technology to.
- There can be a breakdown of communication between what the Sales team sells and what the Product team actually makes.
- There is a disconnect between what the customer wants and what the bank can deliver – there’s a tendency for Sales to offer services that the product team can’t deliver on.
Because of these reasons, large banks have the potential to be slow-moving, unwieldy machines that get a lot of things stuck in their gears. They’ll typically have various teams across various levels to get new products and services through before sign off.
The Solution
At smaller banks, things can happen faster. There might only be one or two decision makers, instead of a whole bunch of people. As Drew Sementa explains in Credit Union Business News:
"Slower services and less personalization are the outcome of large M&As that lose sight of the importance of human interaction with customers. In response, smaller banks that concentrate on flexibility, customer trust, and innovation, can keep up with daunting M&As."
Speed and agility are benefits that mid-tier banks have over large banks, and they should use this to their advantage. As a mid-tier bank, you probably don't have as many competing strategic initiatives in-house, constantly vying for attention and importance.
Instead, you can dedicate time and resources to one initiative at a time and get things over the line much faster. This leads to both happier customers and team members who know exactly what is going on at the business.
Problem 5: Customer Experience
The Problem
Large banks are able to customize and offer more feature functionality – that much is widely accepted. But mid-tier banks can make up for this through customer service; it might not come through the product range itself or how they’re configured.
There’s still a tremendous amount of trust put in smaller banks – in fact, more so than in large banks. In a recent survey by Rivel, they discovered:
"Of the 25 largest institutions (those with 400 or more branches) 34% of their customers are not happy and open to leaving. On the other end of the scale, those institutions with fewer than ten branches, only 25% of customers are similarly vulnerable."
Perhaps you get told this by your own customers? You probably don't offer big, expensive credit cards, mortgages or finance options which were caught up in the bad PR loop back in the financial crisis, so customers are likely to see you as far more consistent and trustworthy. Indeed, 58% of consumers would rather do business with a credit union or regional bank than one of the big guys.
Your tools and products might not function as well as the large banks’ versions because of the reasons already cited above, but if given the choice most people prefer to do business in their local community.
The Solution
If your product offering was to be on a more even footing with larger banks, there would be nothing stopping the majority of customers coming to you. It might take longer to build systems such as:
- Discount codes
- Promotions
- Digital billing
But ultimately it will give your customers more options in addition to the home-grown, exceptional service they’ve become accustomed to.
To compete, mid-tier banks really need to get out into the community, spending valuable face time with their customers. This will build and strengthen relationships, as you affiliate your bank with local causes. As Tyler Munro commented in a recent article for Flybits:
"Smaller institutions own the in-person experience—and it’s not even close. That’s because they know how to connect with their customers on a personal level and build relationships that last. Beyond that, they’ve spent years creating deep roots in the community. Believe it or not, that still means something."
Despite initial concerns during the pandemic outbreak, branch traffic is coming back. We know that at the start of the Covid-19 crisis, smaller banks were hit hard by a lot of small business bankruptcies and foreclosures.
But now more start-ups and small businesses are being established every day, as people choose to refocus, leave the workforce and pursue their own ventures. There's a real opportunity for mid-tier banks to reach out to these entrepreneurs and forge lasting relationships – offering them opportunities for growth where larger banks don’t.
The real competition when it comes to customer experience, isn’t larger banks, but e-commerce companies, such as Amazon. Customers now expect data management that allows them to view your further products and services that relate to them, based on their previous engagement.
Kevin Traut sees this as the true point of competition for mid-tier banks:
“If mid-tier banks can do that, realizing they're not really competing with large banks they're competing with an Amazon or an Uber experience, then they’ll be able to adapt their online banking experience accordingly.”
Using a trusted partner to mimic your positive in-person customer experience in a digital format could be the defining feature that helps mid-tier banks strike out in front.
Expanding your digitization possibilities, alongside maintaining the in-person, personalized, branch experience that helps customers feel special, means there’s no reason mid-tiers can’t compete with larger banks.
We hope you agree that the five differentiators in this article show that mid-sized banks have plenty working in their favor. There’s every reason to be hopeful for the future of mid-tier banks in the US, after a challenging period.
If you’d like to speak to a Superior expert about your mid-tier bank needs, contact us now – we’re happy to talk through your options.
