A version of this article first appeared in the April BAI Executive Report: Growing quality deposits and customer acquisition. In the report, you’ll find content tackling deposit behavior trends, tech-enabled deposit growth strategies, liquidity and funding flexibility, plus more.
The age of digitization is no longer on its way; we’re firmly entrenched in it. Nearly all (91%) of consumers say mobile and online banking are critical factors when choosing a bank, which is even higher than traditional priorities, like security and fraud.
It’s not just about being sleek, though. It’s about offering a level of convenience that consumers have come to demand. If you can order food with the tap of a finger and open your garage door with your smartphone, of course your banking experiences should be just as speedy, simple and seamless. As a result, small and mid-sized banks have a clear imperative: innovate or become irrelevant.
Checking has created a slippery slope
Checking accounts have turned the pressure to innovate into an immediate mandate. Growing swaths of consumers are turning to megabanks and fintechs for new checking accounts. In 2024, fintechs captured 44% of all new checking accounts, while megabanks and regional banks combined for 43%. Community banks and credit unions captured just 4% and 5% of new checking accounts, respectively—a smaller share than in 2023. If small and mid-sized banks continue to lose this market share, their cost of funds will slowly increase, which will put them at a competitive disadvantage for lending.
Despite this slippery slope, small and mid-sized banks still have a chance to compete with (and beat) the fintechs and megabanks. But the window for action is quickly closing.
The moment is here—meet it
Consumer deposits are expected to grow in 2025, but that growth is forecast to be “sluggish” and will depend on the precarious combination of interest rates, inflation and GDP. As a result, mid-market banks need to develop another strength: digital lending.
Consumers are increasingly in the market for loans and credit cards, and making those processes simple and seamless will keep the bank top of mind when deposit needs arise. In other words, meet customers where they are in the current moment, become their go-to for frictionless experiences and reap the deposit benefits later.
Two differentiators give mid-market banks an advantage
Part of meeting customers where they are means giving them things megabanks and fintechs can’t. Small and mid-sized banks will not be able to immediately match megabank and fintech offerings—and that’s okay. In fact, they shouldn’t even try.
Instead, the immediate focus should be on two significant gaps in the market: a lack of customer service and bundled banking products. Those are two areas where megabanks and fintechs fall short, and where small and mid-sized banks are positioned to shine.
Customer service
While digital experiences play a massive role in consumers’ decision to pick one bank over another, they are not the only factor. In fact, in 2023, 39% of banking customers who switched banks did so in search of enhanced customer service. In 2024, 13% of bank customers said they were likely to switch institutions within the next 12 months, and poor customer service experiences were a significant factor in their decision.
The sheer size of megabanks makes it nearly impossible to offer personalized customer service at scale. And while digital banks may offer customer service via hotlines, email and chatbots, they cannot offer in-person support through a local branch. Small and mid-sized banks, though, have always made in-person interactions and personalized customer service a priority. Traditionally, excellent customer service has been a key differentiator for small and mid-sized banks. But now that we’re in the age of digitization, it must be combined with the right digital experience.
Bundled banking products
Nearly half (45%) of U.S. consumers want to take advantage of multiple products and services from a single provider, and the demand for bundled banking is even higher among Gen Z and Millennials. This is another area where digital banks fall short, meaning the opportunity is there for small and mid-sized banks to jump in and capitalize.
Take Chime as one example. Chime rose to popularity by offering a sleek digital interface and easy-to-use deposit and debit products. However, it does not offer consumer lending or commercial products. When Chime’s customers inevitably want to buy a home, a car, or start a small business, they will have no choice but to go elsewhere. The local community bank is the perfect alternative… but only if the digital experience passes muster.
Elevate your digital experience before it’s too late
For small and mid-sized banks to take advantage of these two opportunities—and escape the slippery slope of dwindling deposits—they must make immediate upgrades to their digital experience. Legacy systems simply can’t execute the fast, seamless experiences consumers demand. Without the right digital presence, consumers will continue to flock to megabanks and fintechs.
At first thought, this can seem like an overwhelming overhaul. This is typically when the classic “build versus buy” debate begins. Should you build a software platform in-house or buy a software platform?
Buying a platform levels the playing field for small and mid-sized banks, and quickly. Platforms come with pre-built integrations, enabling a much faster deployment than an in-house solution. Some platforms have built-in compliance and fraud controls, deeper security features and automatic updates to ensure continuous adherence to regulatory standards and fraud deterrence.
There’s also a scalability advantage, as expanding to new product offerings and into new markets does not require any significant infrastructure changes. Plus, platform providers frequently release new features, giving banks the power to innovate without the need for in-house development.
In addition to speed and scale, buying a platform comes with significant cost savings. Banks can achieve tech parity in a matter of weeks, with an investment that typically breaks even within 12 months. Plus, external providers handle all maintenance and updates, eliminating the cost of in-house support.
Combining digital excellence with top-notch service and the right products transforms a bank from a transaction processor to a trusted partner. And when trust is established, loyalty follows.
Adam Hughes is CEO at Amount.
