It’s been pretty clear for a while that in the post-Dodd-Frank banking world, the big banks have a material competitive advantage over mid-sized and community banks. Large banks can more easily bear the added regulatory costs that Dodd-Frank imposes, for one thing. Plus, they have more resources to fund new technology initiatives, such as mobile banking, that customers are demanding. For the first time in memory, large banks are steadily gaining market share in retail banking from their mid-sized and community competitors.
I mention all this because the J.D. Power survey of the banking industry, released last week, seems to support the bigger-is-better thesis. As recently as last year, midsized banks were clearly better regarded by consumers than big banks were; their overall J.D. Power score was 802 (on a 1,000-point scale) compared to 787 for large banks. This year, though, large and mid-sized banks are basically tied, with big banks scoring 793 and midsized banks scoring 797. Note that while large banks’ score rose from a year ago, mid-sized banks scores went down. Large banks scored especially well, J.D. Power says, in mobile (aggregate score: 851) and on-line satisfaction (838).
This isn’t a temporary blip, in my view. If anything, the gap between large and mid-sized could widen in coming years as, for instance, electronic channels proliferate and consumers become more demanding in the features they provide. Keeping up will take lots and lots of money.
I’ve been a large-bank basher for most of the time I’ve followed the banking industry. For years, large banks could be counted on to regularly dilute their shareholders with ill-advised deals and then pad their own bureaucracies as they stitched their acquisitions together. But those days are over; regulators won’t likely look kindly on any mega-transactions in banking. Rather, large-bank managements are, for the first time I can recall, spending their time actually running their businesses and competing. As the J.D. Power numbers indicate, they have some real advantages. I feel like hell has frozen over at last.
Whjat do you think? Let me know!