Americans are moving their banking deposits — and not into regional banks. At the end of the first quarter of 2023, the nation's largest banks reported
Since then, deposit distribution has only grown more lopsided. JPMorgan Chase's May takeover of First Republic included
For regionals, this outflow of cash and customers is a worrying trend. But it's not necessarily surprising. Most customers trust the biggest banks during times of economic uncertainty. Moreover, many high net worth and commercial customers have learned from recent bank failures — and they're
Historically, regional banks have jockeyed to become customers' one-stop shop for financial products. But that's a losing strategy in today's industry landscape. Competing with credit unions on auto loan rates or the handful of dominant credit card issuers on customized rewards is unrealistic. And there's a slim chance a regional bank's financial management app can compete with nimbler fintechs.
In the coming months, it will be critical for regional banks to pivot toward delivering value based on how customers view and use them: as part of an ecosystem that includes big banks, fintechs, credit card companies and others.
Over the last several decades, many regional banks have made their bones serving a unique customer segment. Bank of the West supports small-business agriculture while City National writes mortgages for Hollywood executives. Silicon Valley Bank and First Republic Bank carved out their niche among West Coast startups and wealthy technology founders and executives.
Regional banks like these perform an essential function in the larger banking ecosystem. They excel at delivering the high-touch, personalized service big banks can't provide. Now, regional banks have the opportunity to double-down on that approach. They can entrench themselves in a specific role in each customer's financial journey, making it easy for customers to navigate the rest of their financial relationships.
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Many regional banks make it challenging for customers to manage multiple relationships. Connecting with other banks to move money directly or use a network like Plaid often takes extra work. For example, difficulty moving money creates friction when making periodic transfers — to a college savings plan or investment account. And some banks have relatively low daily or monthly limits on transfer amounts.
These experiences can be intensely frustrating for customers. Many folks value their regional bank's services and offerings. But to justify staying, they must see improved technology and practices that create a more fluid customer experience.
All signs point to the need for a banking ecosystem centered on reducing — not creating — friction for customers. And that depends on collaboration among all players in the finance ecosystem, from regional banks to credit unions to fintechs.
The good news is that banks can play a critical role in fostering such an environment. They can leverage their specialized customer knowledge to develop relationships with other financial institutions and fintechs that solve customers' most pressing financial problems.
In a connected banking ecosystem, fintech relationships can help regional banks deliver more value to customers. But regional banks can go further by integrating with third-party data-sharing networks like Plaid.
With customers' consent, these networks use financial data to enable account aggregation, faster payments and more in whatever application customers choose. The impact is a seamless customer experience, regardless of the institution the customer works with.
Of course, to make these partnerships work, regionals will have to ensure their culture is ready for the shift. It will be critical to ensure every business unit of the bank understands its role as a collaborative and innovative partner wherever customers handle their finances.
But most customers won't wait to see how their bank meets the current market reality. To retain their deposits, bank leaders must act quickly to build an ecosystem that gives customers more convenience, power and choice.
