Despite recent history, it seems to me small banks might have trouble luring customers away from the perceived security of the big banks if they can get the same service on-line at either.
Here’s my experience in recently switching to an online-only bank. My impetus for changing was that my bank account had been compromised and I needed a new account number. When my credit card information gets stolen, I call up the credit card company and they express ship me a new card with a new number, no issues. When I told my bank, their solution was to apply for a brand new account, keep both accounts open until I could set up my direct deposit and debits with my new account. They didn’t seem concerned that someone had my account number and personal information.
I didn’t have time to set up a new account since I was at work, so I had some time to think about it. I’d been inside a bank branch perhaps 3 times in the past 10 years, mostly because they simply didn’t allow some transactions to be processed online.
I was also annoyed with all the fees. Since I didn’t keep most of my money in the big bank (interest rates too low), I would get nickel and dimed with small fees unless I was careful. The last straw was when I had to go into a branch to pick up a cashier’s check. Wait in line for 15 minutes, then get charged $10 to watch someone type information I provided into a computer and hand me a printed check.
I signed up for an online bank. Interest rates are higher. I can use any ATM and have fees refunded. If I can wait a couple days for a cashier’s check, there’s no fee, and fees are overall lower. Customer service is faster online via chat (which I prefer), hold times are significantly shorter, and both are available at all hours. The web site is more comprehensive and easier to use, and the app is better too.
The downside thus far is not being able to deposit cash. I personally try to use cash as little as possible (suffice it to say, you learn how dirty paper bills can be when you work in a county hospital). It’s only come up a couple times and I’ve figured it out.
My sense is that the younger generation, more used to immediate access to service at all hours and with a less reliance on cash, will lean more toward online banks. Perhaps the big banks will boost their online presence and make things easier and better compete, but it will mean their branches become less and less useful. As Saul points out, those branches cost money.
I also recently read that there’s government regulation stating that banks must maintain enough branches in certain low income areas, even if less profitable, or face penalties. I don’t remember the specifics, but the bottom line was that banks without branches simply didn’t face those issues.