A Chink in the Armor?

By Mark Gibson

Bank of America’s recently announced changes to its basic checking account have caused a firestorm of comment, mainly regarding its possible abandonment of the lower end of the mass market.

But how should we translate this move from a strategic standpoint?

Why did Bank of America do it, and what does it mean for the rest of the industry?

Contrary to the media hype, Bank of America hasn’t turned its back on Middle America. It still has one of the largest branch and ATM franchise in the country. Some think it’s the closest America has to a “national bank.”  (Wells and Chase could contest this since they both have more branches.) But there are two important facts that have been lost in this discussion:

  1. The product being discontinued wasn’t even free. The customer needed to meet stipulations, including not visiting a branch, in order to avoid the $8.95 monthly service charge.
  2. This move supports the bank’s differentiation strategy, which is one of convenience and digital supremacy, not price.

Put another way, when you have one of the largest branch networks and consistently rank at the top of the pack for brand and technology, you don’t have to have the lowest price. The fact that Bank of America isn’t offering free checking doesn’t mean that it has abandoned any part of the market—it is merely an accurate reflection of the bank’s strategy.

As an aside, doing so doesn’t come without a certain public relations and financial cost. As reported by numerous news outlets, including the Wall Street Journal, the move infuriated longtime Bank of America customers at all balance levels, inciting what I would call righteous indignation. But although customers may say things like, “I can’t believe you would do such a thing to poor helpless people! I’m taking my money elsewhere!” Bank of America likely anticipated that this negative reaction would be brief and manageable. It would seem that they calculated that the negative repercussions would be small.

And they are probably right.

So, what about the rest of us?

What opportunities does this provide to other banks?

To answer that, first consider what you’re up against:

  • The reaction to Bank of America’s changes to its checking account pricing reflects how powerful its franchise and value proposition are in the U.S.
  • Bank of America is betting that customers with balances smaller than $1500 will be willing to pay $12 a month for the benefit of branches and ATMs on every corner and leading-edge mobile banking.
  • There’s abundant research showing that millennials (and likely the Gen Zs behind them) flock to Bank of America in droves because of its omnipresence and technology.

These assumptions, however, underscore a strategic opportunity that exists for America’s smaller regional and community banks. As national and large regional banks maintain substantial footholds based on convenience, technology, and scale, other powerful and attractive value propositions remain available for the taking.

For instance, commercial clients don’t care about branch convenience. They want an experienced knowledgeable banker who is accessible, responsive, and flexible in dealing with issues—and more importantly, capitalizing on opportunities that arise.

Smaller businesses may need to visit the branch, depending on the type of business. But what is far more important to a small business owner is having a banker who knows them and their business—one who is watching out for them with regard to funds availability and problem resolution.

What every good retail banker knows.

There is a significant proportion of consumers at all income and age levels who value personal service, attention, and flexibility—even above technology and convenience.

Some banks translate that into “free checking,” which is a benefit to consumers if they don’t have to worry about monitoring bank rules and stipulations to avoid nuisance fees.

Other banks take more of a “private banking” approach, emphasizing a high level of personal attention and customization.

There are myriads of other value propositions between those two ends of the spectrum—each with the potential to attract certain customer segments, form the basis of a differentiation strategy, and support robust revenue growth.

The recent Bank of America move is a supreme wake-up call for smaller banks. Yes, small banks do still have an important place in the world, and all they need to do is define (or perhaps refine) and communicate their value proposition in order to reap the benefits.

Mark Gibson is senior consultant at Capital Performance Group1, a strategic consulting firm that provides advisory, planning, analytic, and project management services to the financial services industry.