Banking Customers Opt for Smaller Lenders As Giants Get Too Big

As the country’s banking giants expand, some consumers are looking for smaller alternatives.

It’s a trend at the center of a Tuesday (March 5) Wall Street Journal (WSJ) report, which says that these banking customers have found that switching to community lenders and credit unions offers a more personal touch and greater savings.

“There’s too many bells and whistles and we just need to back up and go back to customer service,” Ohio golf course operator Jana Dalton told the WSJ.

She switched from PNC, which has $562 billion in assets, to Farmers & Merchants Bank, a local lender with assets of $291 million.

The WSJ noted that people who want a smaller banking experience are seeing their choices limited by a growing number of banking mergers. For example, Capital One’s $35 billion deal to acquire Discover Financial Services last month has already made 2024 a bigger year for bank mergers than the previous two years put together, the report said.

But even though the banking giants are growing, smaller lenders are also expanding, the WSJ added.

Community banks — which tend to have assets of under $10 billion — saw deposits climb by 1% year-over-year in the third quarter, with credit union deposits showing a similar increase. Loans at both types of lender increased by 10% and 9%, outpacing the larger banking sector, the report said, citing federal data.

PYMNTS noted this trend last year, writing in November that national banks dominate the consumer credit space, credit unions (CUs), “and community banks are becoming an increasingly popular choice for issuing credit cards.” 

The share of consumers with a CU or community bank card as their primary card increased from 8.3% in 2020 to 13% in 2023, according to PYMNTS Intelligence/Elan Credit Card Research. In addition, 24% of consumers said they would likely turn to these financial institutions the next time they applied for a credit card.

More recently, PYMNTS looked at the way the personal touch of a smaller financial institution can help consumers reach the economic lifestyle they desire.

“From a credit union perspective, one of our areas of focus is on the post-purchase scenarios associated to buy now, pay later (BNPL) … leaning into the fact that credit unions own that relationship,” Nelson Fisher, product development director at PSCU/Co-op Solutions, told PYMNTS.

With 360 million consumers having used BNPL and the value of those installment loans growing, his organization recently unveiled an offering that lets cardholders enjoy greater flexibility and convenience when making purchases.