Bank Competition

1. 1

   A slight majority of small-business owners use two or more financial institutions when conducting their firm’s financial affairs. Thirty (30) percent use two and 22 percent use three or more financial institutions. However, 47 percent still use one exclusively. In almost all cases (94%), the principal financial institution is a bank.

2. 2

   Forty-one (41) percent of the owners use a small bank (assets of $1 billion or less) with over 15 percent using very small banks (assets under $100 million). Thirty-eight (38) percent of the owners use very large banks (assets over $10 billion).

3. 3

   Small-business owners perceive a median of seven different banks (not branches) operating in their local market areas. Only 7 percent report just one or two banks. Almost 70 percent indicate that the number of bank locations operating in their local market has grown over the last three years, adding to their choices.

4. 4

   Small-business owners report that competition for their banking business has increased during the last three years. Forty-three (43) percent say that competition has increased; 45 percent say that it has not changed; and 8 percent think there has been a decline in competition.

5. 5

   Small employers who believe that competition is greater today than three years ago cite as evidence more: mail solicitations and advertising (74%), banking locations (70%), phone calls soliciting their banking business (65%), financial products and services targeted to small business (65%), and in-person solicitations at events or in their firms (57%).

6. 6

   Twenty-one (21) percent of owners shopped for a new principal financial institution in the last three years. The two most common reasons for shopping were (1) the hope that a better deal was possible elsewhere and (2) dissatisfaction with the current bank.

7. 7

   The primary reason that small-business owners did not shop for a new principal bank in the last three years was that they were satisfied with their existing bank (70%). Eighteen (18) percent did not shop because they did not want the hassle of switching and only 5 percent did not shop because of too few alternatives.

8. 8

   Those who shop the bank market do not necessarily change principal banks. Only one-third of those who shopped changed banks, but many of those who changed did not shop. About three of four who changed banks did so as a result of shopping.

9. 9

   Ten (10) percent of small-business owners switched principal banks in the last three years. Service and credit issues were the primary reasons that owners give for switching banks. Sixty-four (64) percent say that a reason for change was to obtain better service quality and 47 percent say it was the number and type of services at the new bank. Among other reasons for changing banks, 50 percent mention an expectation that they could more easily satisfy credit needs at the new bank and 53 percent say the new institution would provide better loan terms and rates.

Volume 5, Issue 8, 2005
ISSN 1534-8326

Jonathan A. Scott
Temple University

William C. Dunkelberg
Temple University

• 1Compared to three years ago, is there much more, slightly more, about the same, slightly less, or much less competition for your firm's banking business?
• 2A(evidence of more competition) You have received more in-person solicitations at events or in your firm.
• 2B(evidence of more competition) You have noticed more radio and TV advertising focused on smaller firms.
• 2C(evidence of more competition) You can get rate quotes over the Internet from lenders all over the country.
• 2D(evidence of more competition) You have received more mail solicitations and advertising.
• 2E(evidence of more competition) There are more products and services targeted to small businesses.
• 2F(evidence of more competition) You have received phone calls asking for your business.
• 2G(evidence of more competition) There are more banking locations in the area.
• 3Within the last three years did you or someone on your behalf shop for a new primary financial institution?
• 3aWhy did you shop for a new primary financial institution? Was the most important reason because you:?
• 3Ab(reason for dissatisfaction) Turnover in account managers a reason for your dissatisfaction.
• 3Bb(reason for dissatisfaction) Your credit needs not satisfied a reason for your dissatisfaction.
• 3Cb(reason for dissatisfaction) The fact that you needed more or different services a reason for your dissatisfaction.
• 3Db(reason for dissatisfaction) The fact that you wanted better loan terms or interest rates a reason for your dissatisfaction.
• 3Eb(reason for dissatisfaction) The fact that you were treated like a stranger a reason for your dissatisfaction.
• 3Fb(reason for dissatisfaction) Poor quality of service a reason for your dissatisfaction.
• 3Gb(reason for dissatisfaction) An inconvenient location a reason for your dissatisfaction.
• 3Hb(reason for dissatisfaction) A merger or acquisition a reason for your dissatisfaction.
• 3Ib(reason for dissatisfaction) Bank fees getting out of hand a reason for your dissatisfaction.
• 3cWas the most important reason that you did not shop because:?
• 4Within the last three years, have you changed your principal financial institution?
• 4aIn what year did you change?
• 4Ab(reason for change) You wanted more stability in account managers.
• 4Bb(reason for change) You could more easily satisfy your credit needs.
• 4Cb(reason for change) You needed more or different services than offered by your old bank.
• 4Db(reason for change) It offered better loan terms or interest rates.
• 4Eb(reason for change) You were treated like a stranger at the old bank.
• 4Fb(reason for change) It had a better quality of service.
• 4Gb(reason for change) It had a better location.
• 4Hb(reason for change) It charged more reasonable bank fees.
• 4Ib(reason for change) A merger or acquisition occurred.
• 4Jb(reason for change) It actively solicited your business.
• 5How many different banks, those with different names, not just branches, are you aware of that operate in the area where you do business?
• 5aCompared to three years ago, has the number of banks, not bank branches, _________?
• 5bHow many different banks or financial institutions does your firm use for loans or services?
• 5cIs your primary financial institution a bank or some other type of institution, such as a credit union?
• 6Since 2002, essentially post 9-11, has your principal financial institution merged or been acquired by another?
• 6aHas the merger or acquisition change affected your banking activities?
• 7What is the size of your current primary financial institution?