As banks consolidate, some customers aren’t so sure they’re happy

There were about 18,000 banks in this country back in 1986, 40 years ago. Today, there are just over 4,200. And over the past couple of years, the trend’s been picking up even more momentum.

One reason is higher interest rates: banks are making more money, and when banks make more money, they often decide to acquire other banks. Plus, the Trump administration’s bank regulators have pretty much given mergers and acquisitions the green light.

These kinds of deals can help banks cut costs, modernize their technology, and pull in more deposits. But they also have an impact on the banks’ customers.

Steve Chu, the owner of a sandwich chain in Baltimore called Ekiben, had been banking with a small, local financial institution for about five years. But last year, that bank was purchased by a bigger, regional one. Chu said in a lot of ways, things have improved.

“One of our gripes with the smaller bank was, like, the online platform’s terrible, the website’s horrible,” Chu said. “But now that they got purchased, the tech is better, the app is better, the website’s better.”

On the other hand, Chu said the new bank feels less personal. For instance, he said if he wanted to get a loan at his old bank, he could just pick up the phone and call one person.

“They could fast track us, and navigate us through the bank bureaucracy,” Chu said. “But now, what we’re finding out is we just run into that bureaucracy more and more, and it makes banking a lot less smooth.”

That loss of a personal relationship to a banker has real effects on small businesses.

“It’s become more difficult for them to access capital,” said Matt Hetrick, the president of Harmony Group, an accounting and advisory firm.

Hetrick said at a smaller bank, even if you’ve had a bad year, that relationship can help businesses convince loan offers to let them borrow money.

“You’re able to tell them, ‘hey, this what’s going on, here’s how we’re rectifying it, and here’s some results you can see’, and just talk about it,” Hetrick said. “And they understand that, ‘hey, the loan’s not one that we have to think of as troubled’.”

Hetrick said about 30 to 40 of his clients, mostly restaurants, have been through bank mergers. Now, they’re doing business at much larger financial institutions.

“For clients, what will happen a lot of times is you lose the one banker you’ve built a relationship with, you’ll get introduced to a new one, but that person doesn’t check in as often, they don’t know about you, so they’re not as willing to lend to you,” Hetrick said.

Bank mergers can also mean higher fees for small businesses, said Jeremy Kress, a professor of business law at the University of Michigan’s Ross School of Business.

“So even if the bank is answering the phone when you call, if you’re not paying attention to the fine print, you may be getting worse terms than you thought when you signed up,” Kress said.

Kress said there are also consequences for the bank’s local community. Small banks re-invest locally. Big banks? Not so much.

“I live in Ann Arbor Michigan. If my local bank is acquired by a New York City bank, we can expect that that New York bank will divert the deposits from Michigan to lending in New York,” Kress said.

Some small bankers are using this moment to try to win over new customers.

Robert James II is president and CEO of Carver Financial Corporation, which owns banks in Birmingham, Alabama, and Savannah, Georgia, where it’s now the only locally owned bank in the city.

“There was one other bank that was a locally owned bank, and a little over a year ago, they got acquired by a bigger, regional bank,” James said. “And then that bank got acquired within less than a year.”

James said his bank’s been stepping up its marketing, on social media, at local events, and with local business groups.

“We’re emphasizing that we’re the only locally owned bank in the market, we’re the only one where you know for sure that all the decisions are being made locally,” James said.

James said the bank has been able to convince some new customers to deposit money. And he said one day, he hopes to be able to show them the results of that decision.

“We’ll be able to show that keeping your money local is improving your community, and improving access to capital for people here in the local market,” James said.

And so far, James said those new deposits are helping the bank get more loans out into the community.