Better Understanding Your Bank Competitors

Competitive Positioning

Knowing who your competition is, what they are offering, their delivery channels and service levels can help community banks differentiate their services and enhance their competitive advantage.  Understanding the competitive banking landscape helps community banks set proper pricing, effectively respond to rival marketing, and compete more effectively.  Analyzing the competition can also help a bank be realistic about which products it can sell and at what price. Unfortunately, banking is not an easy industry to analyze.  Community bankers sometimes fall into the trap of believing that they are competing exclusively against other community banks – nothing can be further from the truth.  Many existing community bank customers and prospects are also national bank customers.  In this article, we highlight a few important trends that all community bank managers must understand to be successful and more competitive against the national banks.


Who is Your Competitor?

With the increased use of the Internet to buy banking services, banks are no longer just competing with local competitors. The banking industry is nation-wide and is becoming less branch-focused.  Further, competition is not just another bank that might make a loan or take a deposit, but it could be a credit union, insurance company, retail store or financial technology startup (like Robinhood that announced a 3% savings account). 


Below is a graph showing the number of branches owned by commercial banks from 1998 to the last reported quarter.  The graph also shows on the right axis the percentage of those branches owned by the top four, ten and 100 banks.  While the number of branches has been increasing over the last 20 years, the top competitors have been decreasing their branch network as a percentage of the total market.  This is important because while the largest banks have been maintaining their market share of deposits and loans, they have been doing so without growing their branch count.

Number of Domestic Branches

The graph above shows that the largest four banks own 21% of all branches, down from 24% in 1998.  The largest 100 banks own 59% of the branches, down from 63% in 1998.  These banks continue to find ways to deliver products and services and grow market share while decreasing storefront presence.


The graph below shows the size of the domestic loan market banks from 1998 to the last reported quarter.  The graph also shows on the right axis the percentage of those loans at the largest 4, 10 and 100 banks.  What is starkly evident in this graph is that a small number of banks (100) control a larger majority of the loan market (75%).  These 100 banks have increased their loan market share by eight percentage points from 1998.  The top four banks in the country control 31% of all loans (an increase from 27% in 1998).

Domestic Loan Balances

 When we talk to community bankers, the vast majority of the SWOT (strengths, weaknesses, opportunities, and threats) analysis and competitive strategy is focused on other community banks.  We feel that community banks are overlooking a vast percentage of profitable clients and prospects by excluding national and regional banks from their analysis. The national and regional banks are not doing everything well, and community banks would be making a mistake to imitate larger banks’ business models, however, community banks are competing for loan and deposit customers that are also customers of the largest four, ten and 100 banks in the country.


Community banks must analyze how the national banks provide their services, how they price them, and how they deliver them.  One important difference between larger banks and community banks is focus and measure of profitability.  Community banks are primarily driven by net interest margin while larger banks are primarily driven by total return, which is often measured by net interest margin, fee income, and longer-term credit costs.


Many national and super regional banks are now resigned to being an IT company.  Scale, security, and innovation are all linked to better designed and implementation of information technology.  Banks that are not investing in IT cannot compete effectively.  Community banks cannot match software companies or larger banks in spending and IT development, but community banks also have talent and can evolve, and buy off-the-shelf technology that allows them to compete more effectively.


Community banks can also innovate their products and services to match larger competitors.  We interacted with a community bank last week that was able to win a new client while competing against a national bank.  The borrower wanted to finance the purchase of industrial space and protect its debt service coverage ratio by fixing the rate for as long as possible.  Wells Fargo offered the borrower competitive financing and allowed the borrower to fix the rate for up to 15 years.  The community bank won the loan at a higher margin but was able to fix the loan for up to 20 years, with quicker closing, simpler documentation and better terms for the borrower.  Rather than imitate the national bank, this community bank saw the gap in the market (the need for long-term fixed-rate financing) and was able to address the need with a simpler and more cost effective product.



No matter which community bank you work for, some banks (including national banks) are doing things better than you, and some things worse than you.  Good managers learn from competitors and position their bank to better solve customer’s challenges.  Community bankers must consider national and regional banks as their direct competitors.  These larger competitors control the vast majority of the market share and would gladly have a community bank’s best customer – just the customer you want to keep.