The Push to Be the Primary Bank

Every bank wants to be the primary option for their customers - both retail and commercial. But is this a realistic goal for most banks now? In this episode of The Purposeful Banker, we look at the many challenges banks face in their push to be primary.



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Jim Young: Hi, and welcome to The Purposeful Banker, the podcast brought to you by PrecisionLender. We discuss the big topics on the minds of today's best bankers. I'm Jim Young, Director of Content at PrecisionLender, joined again by Dallas Wells, our EVP of Strategy. Today's topic is looking at the all important quest for banks to be primary. And it's getting more and more difficult for a variety of reasons that we'll get into on this show.
So, Dallas, let's start off with what we mean by being primary, and then I'll tack on the question onto this, is that status as important commercial realm as it is on the retail side?
Dallas Wells: Yeah, we'll start with that definition, just because this is one of those terms that I think, depending on who you ask in the bank, you could get some different answers. Primary to me typically just means, if you ask someone where do you bank, it's the bank that they list. And, for most people in the modern world, they actually are going to have six, seven, 10 different financial relationships of some kind out there. But, where they bank is considered their primary account, and what that technically usually means, is it's a checking account or a transaction account out of which they make most of their bill payments, or where they get their direct deposit, where their paycheck lands. So, that is the primary account, and it's the starting point for all of their financial transactions.
On the business side, those relationships tend to be a little more complex, and same thing, you typically have businesses that have accounts spread at multiple different places. But, if you ask a business owner where do you bank, they will much more often answer, where do they go first when they're going to borrow money. Where do they have their primary credit relationship? I think you will find, probably more often with businesses, that they will actually have a primary financial institution where they have just about everything. Everything they can do at that institution, they will do there.
It's slightly different between the retail and commercial sides, but it's generally your main bank that you do most of your business with.
Jim Young: It's slightly sidetrack here, because as you were talking about that, I realized that I thought I was super "prime bank" for myself, and then I realized that no, my mortgage is with one bank, my checking account's with another bank, my home equity one was with another bank, and my credit cards are through another bank. Maybe actually we flip that a little bit. So, primary, is it maybe more prevalent on the commercial side, to just for them to be a little bit more like, let's just stay with one place and keep this simple?
Dallas Wells: Yeah. There's more moving parts, so it makes more sense typically to try to keep it in one place. Also, the banks will push more often for that, and they're better able to push with human beings for that to happen. I think it is probably slightly more common on the business side, but for somebody to truly do business with one bank, I think would be incredibly rare. But they, I think, maybe do the bulk of their business in one place more often.
Jim Young: Gotcha. All right. Now that we've gotten again through the "Dallas explains banking turns to Jim" section of the show that you just all know and love, let's talk about why we're talking about it.

A couple of articles in the Financial Brand, and we'll have the links as always in the show notes, but in the first one here, they talk about the numbers for smaller banks when it comes to primary banking. And community banks and credit unions, and off air talking to Dallas about this, I said, man, I feel like every few shows we have some sobering stat for community banks, and this is unfortunately for community banks, another one. They've gone from primary status with 44% of retail customers in 2013, to having that status go down to just 12% in 2020. I knew it was getting tough, Dallas, but did you think it had gotten this tough this quickly?
Dallas Wells: No, that's a shocking amount of change in seven years. I think everybody, even hardcore community bankers, would have admitted that the trend was going the wrong way for them, but that is an existential threat, is what that is. I think that speaks to some of the real core challenges for community banks.
That number did surprise me. I think some of that is just those community banks continue to get swallowed up. Again, when we were talking before we hit record here, you mentioned you had a checking account at one spot and when the bigger bank bought them, you just left it there. That's happened a whole bunch of times to a whole bunch of people. And so, some of that is just the natural, there are fewer community banks than there used to be, from 15,000 to less than 5,000 at this point.
But, that's not all that it is. Some of it's also generational. Starting with millennials and Gen Z, Y and Z, the younger generations, I like the term for it that they use in the Financial Brand article are more likely to do banking kind of ala cart, where even the checking account has been unbundled to where you can do different sorts of payments from different places. A lot of those customers will have things routing through a bank account, but they may not even know or care who or where that bank actually is. It's just the plumbing or the infrastructure for a fintech front end. But it's not just generational. It's a combination of a lot of things that cause a change of that magnitude in seven years.
Jim Young: Yeah. You mentioned the fintech here, and I think that's the thing that people quickly go to, is those millennials going to use Chime, or Venmo, or all these different apps. That's where, as you mentioned, some of the attrition. But, this article on, and I should mention the title if I was a really good podcast source, and I would do this when I first introduced it.

The article, "Does Being a Primary Financial Institution Mean What it Used To?" But, what this article says is, the big winners here are the ones that are taking that share from community banks, are actually the big banks, which is interesting to me, because again, I think that the easy narrative is the fintechs and that sort of thing, and millennials are going away from traditional banks. But, this article seems to say that actually, no, it's the biggest and most traditional that seem to be sweeping up a lot of this.
Dallas Wells: Yeah. It's without a doubt the big banks that are the winners. Every way you want to try to measure that, it's true, they are swallowing the industry, but especially the retail side of the industry. Their share of that market just gets bigger and bigger year by year. Part of that is, you can't ignore the fintechs. They're a big player now, too. But when you look at the technology spending and investments by the top four banks, they dwarf all of the fintechs put together, by orders of magnitude. The real cutting edge technology rarely lives with the fintechs. It actually lives at Bank of America, and Chase, and Citi.
As much as community bankers may be reluctant to admit that, that's where the cutting edge stuff is, and that's where the most feature rich stuff is for those customers who care about those sorts of things. And that's not just on the retail side. That's on the commercial side of the house as well. They've made big investments there that are visible to those customers. That doesn't surprise me. But again, I think if you dig into the stats from the last 10 years, since the financial crisis where people got so upset with the big financial institutions. What'd they do about it? They moved all their business there. That's ultimately what's happened.
Jim Young: Yeah. That pivots us to a second article from Financial Brand, which I will read the title this time when I introduce it. And it's, "Why B of A, Not FinTechs or Amazon, Should Keep Bankers Awake at Night." And, Dallas, I always thought it was, again, the narrative's out there that it was Amazon or Apple, or, those guys that were going to get a charter, and that was going to be the big existential threat. You got into this a little bit, but why B of A?
Dallas Wells: Yeah. B of A tends to be the poster child for this, for whatever reason. If you look at the numbers, they are not the only big guy here. It's the top three or four banks, but especially the visible names to most retail customers is Bank of America, Wells, and JP Morgan Chase. And then Citi's the other really big one, and then we've seen some consolidation at the very top end of the regional bank market as well. So, now you've got Truist, and PNC is getting a lot bigger. So, those at the very top end, it's getting to be an even more top heavy market.
The surprising thing is, those institutions were so big that a lot of community bankers sort of laughed them off as real competition to them. They're like, look, there's big bank customers and they're small bank customers. And, I don't compete against Bank of America, I compete against the bank across the street from me. That is just not true anymore. The geography moats that community banks had around them of, well, I'm local and they're not. They're Wall Street and I'm Main Street. Bank of America has become both. JP Morgan has become both, and pretty darn effectively.
We've seen some of this firsthand. I won't name the names, but we do business with clients in that top four group. We also do business with some of the small, heartland, rural community banks, and the core problems that they solve for their customers are really the same. The challenges of how to go about doing that are very different, but they are serving the same customers. And so, they are your competition, and the reality is, is that in the aggregate they are winning, and it's not even close.
Jim Young: Yeah. But, I think also one of the reasons, B of A, is somehow they have that public image as being Goliath. And, to take you guys back to your old Testament, Goliath for all of his size and strength, was not a very agile person. I'm going to go out on a limb and say that I don't think he was probably an innovator either. You mentioned about how the big banks have now been able to be both big and national, but also local, and it feels like what they're saying here is that B of A has managed to be big and massive, but also agile and innovative.
Dallas Wells: Yeah. We've seen this happen in real time. PrecisionLender opened the doors in 2009, and in some of our earliest conversations with these really big institutions, they'd come and they'd look, and they were interested, but they didn't really know what to do with that. It's like, well, how do we actually even buy this stuff? They certainly had the budget to do it, but it was like, well, whose budget's actually going to go to do that? It just rarely happened. But, somewhere there was a change where they had some innovation arms and some, like chief digital officer became a thing. Then, what really changed it is, is in the big banks, each business unit got those same functions. They had folks that were in charge of strategy and buying technology for that business unit.
They had a lot of authority within their own walls of their own business unit to do what they felt was best. All of a sudden they went from looking and kicking the tires, to being serious buyers with actual budget and they could write checks. That changed in the last, I don't know, five, six years, and they've made big investments. They've gotten really good at rolling this stuff out. They've gotten to where, it used to be they had the resources, but they made slow decisions. Now, they have the resources and they've gotten pretty quick at making those decisions, and they do a surprisingly good and effective job at this.
Jim Young: All right. We've kind of rolled through all of this and the image you have painted is sort of a big snowball that's rolling down the hill and growing faster. If you're not one of those big banks, or one of the regionals that have consolidated in an effort to become one of the big banks, what's the message here? Is it go ahead and concede, or if the big guys are now also acting smarter and quicker, then what's left for everyone else?
Dallas Wells: Yes. It can start to feel like that, right? If you don't have 500 billion in assets, why bother? One of the things I said earlier, I was intentional about, which was saying, in aggregate, they are winning. Big banks versus small banks, that's not a fair fight, and it's clear that it's not a fair fight. But, there are individual institutions who've done really well. And what they typically do, and this is not a new strategy, but more and more banks are actually doing it instead of just talking about it. That is, they are niche players. They focus on something. They have a specialization somewhere. You can't try to be, as a $500 million bank, you can't try to be all things to all people. And that was the play a lot of times, where the community bank will do all the things, and will do them in a competent way, and so we will just own all the business in this geography. You you can't do that. Bank of America and JP Morgan will eat your lunch at being all things to all people.
But specializations, they don't always do as well. And you can carve out a niche and it can be, you're really good at doing local home loans, and you understand the local home loan market. There's lots of community banks that have taken that strategy and run with it. They end up being the primary checking account and where you get your mortgage, and that's still a good, healthy business for a lot of community banks. In the commercial world, it can be industry specialization where there's a certain sector that you know and understand really well, and you have all the connections there.
But, when you have limited resources, you have to say no to some things, and you just have to own the thing that you were good at top to bottom, and be willing to concede some other things. And that's hard for a lot of community banks and career community bankers who've been at this for 30 years to do, to say, we're just not going to be in that business anymore, because it's not one that we can be the best at.
I understand that it's a lot easier for me to sit here and say it than for folks to actually put it in practice. But, those are the banks that are surviving this onslaught, and will survive in and find some places to thrive the cracks in between what these big banks can do really well. There's always a place for local relationships, but you have to be able to turn that around with at least in the same realm of competence in the technology world. Some of the online banking, and the mobile apps, and the cash management stuff on your commercial side is just not up to speed, and you have to be realistic about those, and be willing to make meaningful investments in those.
What big banks have done to pay for that, is they've closed a whole bunch of branches. Have the community banks been willing to do the same thing? Not as often. There are hard decisions and trade-offs that need to be made there to be able to keep up in the table stakes stuff, and then specialize where you can be the best at something and have some true growth potential there.
Jim Young: Okay. Well, that will do it again for this week's show. Dallas, thanks again for coming on.
Dallas Wells: You bet. Thanks, Jim.
Jim Young: Thanks, again, so much for listening. And now, for your friendly reminders. You want to listen to more podcasts, check out more of our content, visit the resource page at, or head over to our homepage to learn more about the company behind the content. If you like what you've been hearing, please make sure to subscribe to the feed in the Apple podcast, Google Play, or Stitcher. Love to get ratings and feedback on any of those platforms. Until next time, this is Jim Young and Dallas Wells, and you've been listening to The Purposeful Banker.

About the Author

Jim Young

Jim Young, Director of Content at PrecisionLender, is an award-winning writer with experience in a range of positions in media and marketing, from reporter to website editor to content marketer. Throughout his career Jim has focused on the story – how to find it, how to understand it, and how best to share it with others. At PrecisionLender, he manages the many ways in which the company shares its philosophy on banking and the power of relationships. Jim graduated Phi Beta Kappa from Duke University and holds a masters degree in journalism from Columbia University.

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