As I visit conferences from time to time, I will sometimes hear attendees talking about their competitive advantages. I perk up when I (over)hear these conversations. I sometimes join the conversation. When I join in, I will often ask what their number one competitive advantage is. More often than I would like to admit, I am told that the attendee’s competitive advantage is “service.” Now, I’m always respectful in my reaction, but it is fascinating that so many financial institutions believe that their service level is their competitive advantage.

As a refresher, the resource-based view of a firm defines a competitive advantage as any process or asset a firm controls that is (1) organizational, meaning the organization uses it; (2) valuable, meaning it is valuable to the firm’s operations; (3) inimitable, meaning that it is hard to copy/imitate; and (4) rare, meaning it is uncommon in the marketplace. So, if 80% of financial institutions tell me their service level is their competitive advantage, it doesn’t feel like such an asset is inimitable or rare: Everybody is doing it.

I think firms believe this because it’s just easier than trying to define a product, feature, or policy they have that is an actual competitive advantage. What they really are trying to say is that their service level provides a comparative advantage versus those competitors whose service level is worse than theirs.

Here’s the fun part: A recent Raddon study found that just about the entire universe of humans thinks their financial institution (FI) gives them good service. So, it is not that rare, or inimitable, or even special. For a vast majority of FIs, a service differentiator is not much of a differentiator, no matter how deeply it is believed or how often it is stated. 

Figure 1: Perception of experience in a branch 

Close to 90 percent of consumers feel they have a great experience when visiting a branch in person 

Source: “High-Touch” Raddon Research Insights, 2024

Recent Raddon research demonstrates that 87% of consumers have a “great” experience when visiting their FI branch. True for all kinds of FI types: big bank, small bank, credit unions – doesn’t matter (see Figure 1). About 53% of consumers said their experience inside an FI branch was significantly or somewhat better than at a fast-food restaurant (Figure 2). So, about 47% felt that the fast-food experience was better or about the same. Wow, is our service substantially better than the service at a fast-food restaurant? Even if it is by some mystery shopping measurement, 87% of consumers in your marketplace are getting awesome service at their (other) FI too. Doesn’t sound very rare or inimitable to me.

Figure 2: Experience at retail compared to financial institutions

What is Trader Joe’s doing for their customer service model?

Source: “High-Touch” Raddon Research Insights, 2024

This equality of service perception that exists in the consumer base may explain part of what we are seeing with large banks becoming the primary FIs for more and more consumers (Figure 3). This creates a shrinking pie for the community institution space. Just resting on service laurels (no matter how many awards or great service-quality survey results we have) is unlikely to stem that trend, as even the bigs are getting strong service-quality results.

Figure 3: Percentage considering a big bank to be PFI*

Big banks are winning the war for younger generations

* PFI is Primary Financial Institution.  Big banks include Chase, Bof A, Wells, Truist, PNC, or US Bank. Source: Raddon Research Insights, 2024

So, the question then becomes, what makes your FI different because the evidence, your honor, suggests that it is not service. Let me try it this way since this is such a personal topic for FI management: What do you think your competitors think their strategic advantage or value add is?

What would those competitors think your competitive advantage is if they were asked that question? Let’s focus on that hypothetical. Real examples of competitive advantages can include service locations, brand, specific products that are not offered elsewhere in your markets (and are difficult to launch), technology, or other innovations.

It is true that service levels must be sufficiently high or we are in danger of losing business because consumers can go elsewhere. It is a difficult dilemma. We need to be awesome in our service just to keep up. Even if your institution’s service level is perceived to be freakishly good by your customer base, the next question is: How are you leveraging it? Is your service level extended to electronic channels with superb digital banking, chat, and relevance-based marketing? Often when these conference attendees are referring to “service,” they are just talking about their in-branch service level. They are not asking how their digital service connects to their call center or to the in-branch experience. The national fast-food franchises have been able to translate service to digital and meld that into their in-person experience.

I remember being wowed by an insurance company a while back. I was switching firms to one that really promotes its service level as being responsive. I went online to fill out the application and information. I ran into a problem where it asked a question I did not understand. I had spent several minutes on the online form. I really did not want to call because I felt like I was wasting all this time I had spent on the form. The first thing the call-center agent requested when I called was the alphanumeric code at the top of the screen. That number allowed her to find all the application responses I had been providing and help me finish the rest without starting over or having to repeat anything to her on the phone. That’s pretty cool integration that boosts a customer’s perception of a firm.

So, what is my point? Your customers need to perceive your service as awesome just to be in the game. You should be measuring your service levels to identify potential areas where it is not awesome (Raddon, coincidentally, offers solutions for this). It’s like having electricity: If you don’t have power, you’re unlikely to keep customers. However, having power to run your branches, call center, and servers is not a differentiator. And apparently neither is awesome customer service. You must think beyond service to maintain and deepen relationships with your customers; acquire new customers; and set your institution apart in the marketplace.