Bigger vs. Better

We have all heard the mantra that “bigger is better,” but I have never agreed with it. In my opinion, the company that provides quality products and services is better than a company that does not. Size is not a factor.

However, this week I read an article written by Wendell Cochran, of the Investigative Reporting Workshop, American University. I do not know Mr. Cochran but, assuming his data is accurate, I now have a new take on that mantra. Bigger may not always be better, but bigger will have a better chance to survive.

In less than four years, the number of banks in the United States has decreased by 1,020 to 7,522. Failures accounted for 370 of the banks that went out of business; the remaining 650 succumbed to mergers and acquisitions. Here’s another statistic: Just 37 banks nationwide control $9.4 trillion of bank assets, out of a pool of $13.6 trillion. That means that 7,485 banks are fighting over the remaining $4.2 trillion of assets, or 31 percent. By the way, the big bank share of assets has grown from 65 percent at the end of 2007 to the 69 percent level today.

According to a survey conducted by the American Bankers Association, 57 percent of consumers aged 55 and older prefer to bank online vs. in-person at a main office or branch. Remarkably, the same survey last year found the level of 55-and-older consumers preferring to bank online was only 20 percent. The “online elders” have more than doubled in one year! Validating these findings, all ages of consumers who prefer online banking increased from 36 percent last year to 62 percent this year.

While many conclusions can be drawn from these two reports, a glaring one is that the banking industry needs to take a long, hard look at our branching system. Then there is the question: Will online banking favor the big banks, or will it be the great equalizer for small community banks? Only time will tell.

I still believe that any company, regardless of size, needs to offer outstanding products and services. But maybe being a little bigger will help community banks survive.

2 Responses to Bigger vs. Better

  1. Mike Cahill says:

    You have hit on something that all community bankers should focus on. Where is the niche or niches where a mass market or mass homogeneous solution is not practical or desired by the customer. That will be where the focus must take place. Further, I see this spreading from larger urban areas to smaller ones over the next decade. Those in secondary and tertiary markets have a window of time to figure this out.

    • Joe DeHaven says:

      Mike,

      Thanks for sharing your thoughts. I wonder if the rural areas, where it is presumably more difficult to obtain a full array of financial services may already be experiencing this phenomenon. With the statisitics growing so much in twelve months, I doubt that banks have a decade to wait, regardless of location. However, like politics, all services, including financial are local. Therefore, I think that each bank will need to know the statistics for their marketplace. Similar areas may have very different statistics as to on line usage. So I think that local facts will dictate actions required of banks. Knowledge of the facts will be the key. I hope that bankers understand and act on this. If not, many opportunities to serve will be missed and many dollars may be spent on branches that are soon not needed.

      Joe

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