Community bankers often argue that customer service is the differentiator between their small institution and the national bank down the street. They hold up the promise of personal, one-on-one engagement with customers as the best weapon in their effort to triumph over big banks' convenient locations and high-tech tools.

But the strategy is not working.

There are a few facts to consider. First, the obvious: Even if large national banks do provide inferior customer service, it's not slowing their growth. The number of small banks – those under $10 billion in assets—declined 24% between 2000 and 2013, according to a report from the Mercatus Center at George Mason University.   Almost 2,000 small banks disappeared during that time period.  While community banks' share of domestic deposits was nearly cut in half, the five largest national banks more than doubled their market share.   The five largest banks now hold 44% of U.S. banking assets and 40% of domestic deposits—up from 23.5% and 19.5%, respectively, in early 2000.

Moreover, while some customers may vow to ditch big banks because of poor customer service, they rarely make good on the threat. Forty-three percent of megabank customers say they are unsatisfied with their institution, according to the 2014 Consumer Banking Insights Study. But 63% of those customers said they had never considered switching to a local community bank or credit union. They stick with their banks despite dissatisfaction because it's simply "too much of a hassle" to change, according to 59% of respondents.

It's also true that customer experience at big banks is getting better. National banks have focused on improving customer service since their reputations took a blow during the most recent financial crisis. And they have been successful. Consumer satisfaction with big banks now sits at an all-time high, according to the J.D. Power 2014 U.S. Retail Banking Satisfaction Study.While big banks have historically trailed small banks in customer satisfaction, the gap between big banks and smaller ones has narrowed each year.

Customer satisfaction among all retail banks is at 785 on a 1,000-point scale, according to the J.D. Power study. Big banks experienced the largest increase in satisfaction, which improved by 23 points to 782. Satisfaction with midsize banks, defined as those with between $33 billion and $2 billion in deposits, improved by only 11 points to 796. The gap between national and smaller institutions is narrower than ever.

Finally, the rising popularity of digital transactions is providing community banks with fewer opportunities to distinguish themselves with superior in-person customer service. Boston Consulting Group estimates that the percentage of sales and transactions conducted at bank offices will decrease from 28% in 2012 to 4% by 2020.  In the meantime, consumers are placing increasing importance on online experience and consumer-friendly apps. Sixty percent of smartphone and tablet users say that mobile banking capabilities are now “important” or “extremely important” in their decision to switch institutions, according to the 2013 Mobile Financial Services Tracking Study conducted by AlixPartners. That's the highest level seen since the study was launched.  As banks continue rolling out mobile phone deposits and other digital tools, customers will be in less frequent contact with customer service representatives.

Higher-quality customer service may be a viable differentiator between local competitors. But it’s not a winning long-term strategy to prevent national banks from gobbling up smaller competitors. Customers want convenience, instant gratification and products designed for their lifestyle.  That’s what community banks need to deliver. 

Of course, customer service still matters a lot to customers in some demographics. Baby boomers, for example, fondly remember the days of personal banking relationships. But if that’s community banks' primary market, they'd better hurry: boomers are getting older by the minute.

Kevin B. Tynan is senior vice president for marketing at Liberty Bank for Savings in Chicago. He can be reached at