How Credit Unions and Community Banks  Can Compete with Big Bank Mergers


As big banks look to improve their services, lower capital, and increase profits, mergers and acquisitions (M&As) have increased over the years. In 2019, a total of  35,800 M&A deals were announced in the banking sphere; while in 2018, the average M&A deal size was valued at  $114 million  – up from $63 million in 2014.

For example, in 2019, BB&T merged with SunTrust Banks to become Truist – a  $66 billion deal  which made Truist the sixth- largest bank in the US. Elsewhere, Charles Schwab acquired TD Ameritrade in the same year, in the hope of offering more robust services from the discount brokers.

These kinds of M&As can be especially intimidating to smaller community banks and credit unions, who face greater competition when big banks pool their resources and knowledge. However, there are notable downsides to M&As that smaller banks can use to their advantage. Smaller banks provide services big banks can’t, meaning they can champion niche markets. Not to mention, the M&A market is very volatile; an influx of megadeals can occur over a given period, followed quickly by a dip in volume.

Here’s how credit unions and community banks can stay relevant among big bank mergers:

Focus on flexibility

When major players in banking combine, bureaucracy and protocols can become particularly convoluted. The process of integrating practices from two separate banks is complex and requires a lot of time to officially order. Even once banks have merged, customers may notice a difference in the bank’s efficiency.

Larger banking entities are subject to long waits, thorough checks, and stop-start processes. Post an M&A deal, meetings, application approval, and general advice may become slower and more restricted for customers due to extra layers of bureaucracy. This lack of flexibility is problematic when customers at smaller banks experience faster, more attentive customer service.

A difference is clear in the call times alone: the average wait time at small banks is  111.9 seconds , while at bigger banks that number rises to 191.5 seconds. The one-and-a-half-minute difference is crucial considering customers expect swift and effective customer support.

Likewise, account-holders at smaller banks can directly speak to decision-makers when requesting a loan or different service, and so have access to answers more quickly. Moreover, because small banks are more informed about the conditions of their local markets, customers can receive detailed advice about how best to proceed with their money. Big banks operate at more of a macro level.

Also worth noting, a general downside of M&As is that some customers view it as a way for big banks to monopolize the market. Small banks have the upper hand then, because they are a diverse offering in a seemingly saturated market. Community banks and credit unions should not underestimate their position as entities oriented around people and not around mass power.


Prioritize customer trust

Comparable to flexibility, smaller banks are more equipped to nurture customer trust than banks that have undergone M&As. Small banks are dependent on community relations, and are generally more transparent with customers to retain their business. Big banks on the other hand, tend to have a higher staff turnover and a less personalized service, so customers don’t build any sense of familiarity with them.

Stronger customer ties means credit unions and community banks can negotiate terms for loans and services more easily. A more personal approach to banking enables these smaller institutions to accurately assess who is suitable for which products and who is potentially high risk.

Another thing to consider, is that big banks are more commonly targeted for fraud and theft. Although customer payments aren’t necessarily safer with small banks than with big ones, data breaches occur more regularly for big-name banks with a vast client base. In 2014, for example, JP Morgan Chase announced a breach that affected  seven million  small businesses. No financial information was leaked, but the attackers were able to access the bank’s systems – suggesting they could have gained new points of entry to later exploit.

These types of vulnerabilities have not gone unnoticed in M&A deals. In fact, a survey by Forescout Technologies found that more than  50 percent  of executives said undisclosed data breaches put M&A deals in jeopardy.

Invest in innovation

According  to Anandakumar Jegarasasingam, Head of Financial Institution Ratings, Malaysian Rating Corp Bhd, “as long as [smaller local banks] have profitability, innovation and a niche market, they will be able to survive.”

Innovation is no longer a luxury in banking but a necessity. The digital capabilities gap between large and small banks has never been bigger, and small banks have to adopt new technologies to compete. Not only do community banks and credit unions have to battle M&As in the modern age, but also the emergence of fintechs.

Rather than resist progress, some community banks have chosen to partner with fintech ventures to build a stronger front against big bank M&As. Radius Bank, a community bank based in Boston, has  paired  with Narmi, a startup developing mobile and online banking platforms. The collaboration gives Radius Bank nimbler features to improve clients’ banking experience, including person-to-person payments, tools for budgeting and tracking financial health, and faster access to the customer support team.

In the current climate, online banking, AI, chatbots, and blockchain are just some of the most sought-after tech. Even if smaller institutions can’t afford these functionalities, they can digitize consumer data to improve marketing and customer satisfaction. Small banks actually have an advantage in that their in-house data is free and typically specialized in a certain area (such as local agriculture).


Innovation can also take the form of community-focused programs, allowing smaller banks to invest in tech that pertains to their closest markets. In 2019, The Independent Community Bankers of America launched the  ICBA ThinkTech Accelerator , a 12-week program where fintech companies receive mentorship, training and feedback. Participants are given an initial monetary investment from the bank, in the hope that their idea feeds back into the smaller finance sector.

Convey real value

Despite being impressive on paper, big bank mergers and acquisitions have significant pitfalls that can benefit community banks and credit unions. Slower services and less personalization are the outcome of large M&As that lose sight of the importance of human interaction with customers. In response, smaller banks that concentrate on flexibility, customer trust, and innovation, can keep up with daunting M&As.

Alternatively, some predictions suggest that smaller community banks can level-up by creating their own internal M&A activity. By joining forces with other small institutions, these banks can position themselves for further growth. So long as small banks continue to bridge the disparities between their services and that of big banks in M&A deals, they are set to convey real value to customers and be serious competitors for big banks.

  Drew Sementa  is CEO of  Tidal Commerce , a merchant solutions and payment processing company that focuses on helping small and medium-sized businesses grow.