Small banks can compete through niche marketing online

Small banks can compete through niche marketing online

Erie, Pa. -- Small community banks can still compete with large banks by catering to local customers with local needs and interests, a Penn State expert says.

Larger banks are being increasingly compelled, through acquisition or merger, to furnish full spectrum services that include investment counseling and money management, says Peter B. Southard, assistant professor of management in the Sam and Irene Black School of Business at Penn State Erie, The Behrend College.

High-profile banks will continue to develop new technologies in offering their services -- informational, administrative and transactional -- in a single package. In the process, the big banks will promote the use of wireless communication and mobile banking and make e-banking even more commonplace.

While small community banks can never command the resources available to large banks, they still have access to niche markets, according to Southard. In competing with the megabanks, community banks can serve their immediate customers by providing specific links to information about the community and local businesses. These services bind the customer, the bank, and the local community together in ways that large banks cannot.

Southard and Keng Siau, associate professor of management at the University of Nebraska, are co-authors of the article, "A Survey of Online E-Banking Retail Initiatives," in a recent issue of the journal, Communications of the ACM (Association for Computing Machinery).

The researchers examined data on the five largest banks in the United States, as determined by the Federal Deposit Insurance Corporation (FDIC), and five banks from the community-banking sector selected at random. They then reviewed the websites of these 10 banks for content and features.

The abundance of options offered by mega-banks may not necessarily be an advantage in serving smaller, semi-rural communities, Southard says. Even with the added feature of a search function, the national bank Web sites tend to seem more muddled and perplexing than those of the community banks because of the extra information and services, the researchers found.

"There will continue to be, in least in the foreseeable future, a need for brick-and-mortar facilities," Southard says. "The current generations of customers still require, in human terms, the personal contact provided by face-to-face contact so, while e-banking will continue to grow, customers still need to know there is a human face behind the screen. In addition, there are still some functions of the bank -- cash withdrawals, safety deposit boxes and other legal functions -- that require a physical facility and personnel."

However, the researchers' data make clear that both mega-banks and institutions that specialize in niche banking have to rely increasing on e-banking to maintain their competitive edge. Failure to do so will place both, to use the researchers' terminology, in the "area of oblivion."