Smaller Banks: How to Win Against Megabanks with Smart Offense & Data

Smaller financial institutions often find themselves at a disadvantage when competing with the vast resources of megabanks and agile fintechs. These industry giants command colossal marketing budgets and possess sophisticated data analytics capabilities, allowing them to precisely target customers and dominate market share. However, as Sean Sanchez, SVP and Head of Client Services at FirstBank, explains, smaller players don’t have to surrender. Instead, they can turn the tables by moving from a defensive stance to an aggressive, data-driven offensive.

The Megabank Monopoly: Budgets and Data Domination

The challenge is undeniable. Institutions like Chase, Bank of America, and Capital One can deploy immense marketing chips across every segment, reaching customers with unparalleled frequency and sophistication. For a $16.2 billion-in-assets bank like FirstBank, headquartered in Nashville, Tenn., matching these budgets head-to-head is simply not feasible. Beyond marketing spend, megabanks wield a crucial, often underestimated, weapon: data.

“They know who everyone’s best customers are, and they can slice and dice them, doing all the quantiling and getting really, really specific,” says Sanchez. “And then they can throw a bunch of money and effort into messaging those clients.” This detailed understanding allows larger institutions to anticipate needs and offer highly personalized financial solutions, further widening the gap.

Shifting to Offense: Leveraging Internal Data for Targeted Growth

The solution for smaller banks lies not in trying to outspend the giants, but in outsmarting them. The key is a deep dive into an institution’s own customer data to identify the most promising clients and prospects, delivering highly relevant messaging. As Sanchez emphasizes, “You have to play defense by going on offense.”

Sanchez, a veteran retail banker, has implemented a system across multiple banks, including FirstBank, that helps level the playing field. This strategy hinges on understanding customers’ episodic financial needs, which can often be anticipated based on their existing behavior and relationship with the bank. The goal is to deliver meaningful messages that highlight the bank’s ability to solve problems when new financial needs arise, blending bank value propositions with customer solutions.

Unlocking Customer Insights: Capacity, Propensity, and Modality

FirstBank’s strategic partner, OptimaFI, helps the bank mine its extensive internal data to uncover three critical customer dimensions:

• Capacity: This refers to the potential for growth within a customer relationship. While direct share of wallet data may be elusive, OptimaFI’s industry database provides proxies, allowing FirstBank to infer a customer’s total financial holdings. For instance, if a customer holds $10,000 with FirstBank, it’s reasonable to assume they have similar amounts deposited elsewhere.
• Propensity: This measures how likely a customer is to expand their relationship with the bank, given the right product offer. Based on observations from other financial institutions, the data can suggest if a customer with one or two products is likely to adopt a third or fourth.
• Modality: This categorizes customers by their primary engagement type – depositors, borrowers, or transactors. While distinct, these categories often overlap, presenting opportunities to deepen relationships and move more customers towards a central, highly engaged relationship.

This granular data analysis empowers FirstBank to orchestrate highly targeted marketing campaigns. The bank runs four master campaigns annually, each comprising five to seven sub-campaigns, which have consistently demonstrated success in driving impressions and balance growth.

From Product Design to Strategic Partnerships: Meeting Modern Demands

Beyond data analytics, a crucial part of FirstBank’s offensive strategy involves revamping its product lineup to meet evolving consumer demands. Sanchez advocates for moving beyond isolated products, instead focusing on offerings that foster “engaged relationships.”

A prime example is the FirstUp Savings product, launched last July. This innovative offering provides checking account holders with a competitive 3.82% APY on balances up to $25,000, provided they commit to transferring at least $50 monthly from a FirstBank checking or money market account. This strategy has more than doubled monthly new account unit and balance production, proving the power of rewarding engaged customers.

The battle for customers increasingly extends beyond traditional banking products. Smaller institutions must also “close the back door,” meaning preventing the loss of funds to non-bank entities like Schwab, Coinbase, Kraken, and Robinhood. This necessitates exploring partnerships with fintechs to offer alternatives like cryptocurrency access or investing services, maintaining the core customer relationship.

Sanchez envisions his role as a “casting director,” identifying and partnering with the best external providers to wrap more value around FirstBank’s checking accounts. This includes offering tiered solutions (“good, better, best”), facilitating switching from other banks, and even tools to manage subscription spending. As younger generations become the focus, improving the digital customer experience through fintech partnerships is also a critical priority.

By combining sophisticated data analysis, innovative product design, and strategic external partnerships, smaller financial institutions can build a powerful offensive strategy, effectively competing and thriving against the industry’s largest players.

Source: Thefinancialbrand.com