The bigger they are, the harder they fall. The old and oft-repeated adage frequently rings true, but a recent trend in the global banking landscape has seen a rare contravention of the theory.
According to a March 2015 report from the Mercatus Center at George Mason University in Virginia, small banks in the U.S. have suffered a marked decline since the turn of the Century, with a 27% decrease in the number of banks with $10 billion or less in assets between 2000 and 2014. This reduction (from 8,263 to 5,961) is in stark contrast to the number of big banks, which increased from 76 to 101 (32%) in the same time frame. In monetary terms, this 14-year period saw small banks’ share of total U.S. banking assets fall from 27.5% to 18%, while the five largest banks in the U.S. increased their share to 45.5%.
Among the key reasons cited for the decline in small banks is not only the financial crisis, but also the ongoing implications of the Dodd-Frank reforms that were implemented in its wake. As the regulations came into play between 2010 and 2014, 14% of small banks in America failed to survive amid a landscape of what the Washington Post interpreted as a time of “extreme uncertainty” for local banks. Underscoring the impact, Forbes reported that small banks’ marketshare fell at double the rate it had between 2006-2010 following the implementation of Dodd-Frank—placing small banks in an ongoing “regulatory purgatory.”
While the factors driving the decline in small banks are multi-faceted, perhaps the more pertinent question is, why should we care? And the answer may be relatively simple.
In their 2014 Finance and Insurance Report, the American Customer Satisfaction Index (ACSI) found that smaller banks continued to boast more happy customers than bigger banks. As the report states, small banks “remain far ahead of larger institutions in offering better customer service and lower charges.” Among those customers are many business owners, lots of whom have been hurt by the dwindling numbers of small banks—and while the reasons may sound rather parochial at first glance, the sentiments of financial journalist Felix Salmon in a Reuters article of 2013 reflect a commonly held view. According to Salmon, “…at the local level, what we really need is bankers who know their neighborhood and can help it grow by funding the best businesses. And small banks are better at that than big banks, where underwriting decisions tend to be automated, with local branch managers having very little discretion.”
Echoing that sentiment, the ACSI paper goes on to highlight personalized individual service, better interest rates, and fewer fees as advantages of community banks, but there are those who argue for the customer-specific benefits of big banks too. As website Bankrate put it in a 2014 article, the pros of bigger banks include more branches, more services, and innovative tech tools that some would argue smaller banks simply don’t have the resources to offer.
Perhaps the sweet spot, then, lies somewhere in-between the two models. That’s certainly the ground we’re striving to enable at Traxpay.
By offering businesses the most cutting-edge online solutions for B2B transactions, we equip them to carry out payments and financial transactions that integrate with current back-end systems and adapt to their needs with a level of flexibility that traditional service providers simply can’t match. At the same time, customer satisfaction lies at the very heart of everything we do. Only by responding quickly to the specific complexities of each and every transaction we execute can we hope to fulfill our ambitions of being the most dynamic, versatile, and dependable platform there is for B2B commerce. You might say we’re thinking big and small at the same time.
So if a buyer or supplier wants to connect, collaborate, and transact B2B business in a way that can offer the real benefits of one-to-one customer service, and the big advantages of a global banking infrastructure and market-leading tech innovation, we believe we’re in the perfect position to meet those needs.