Some community and regional banks are redefining market share with digital-first metrics like wallet share, customer retention, and online engagement. Others prioritize using in-person and relationship banking as their primary competitive edge.
Community and regional banks face a pivotal moment as the industry continues to consolidate. Market share of the five largest commercial banks has jumped from under 15% in 1990 to nearly 50% in 2023, while community banks now hold less than 15% of total assets.
The growth of digital banking has reshaped the industry beyond how small and large banks operate — but also how they measure success. Traditional metrics like market share, historically tied to geographic deposits and branch locations, no longer tell the full story when today’s consumers can bank from anywhere.
In response, some community and regional banks are redefining market share with digital-first metrics like wallet share, customer retention, and online engagement. Others prioritize using in-person and relationship banking as their primary competitive edge. These approaches highlight how banks can adapt to changing customer expectations while focusing on delivering value.
An Outdated Performance Metric
Digital banking can expand opportunities for community and regional banks to reach customers beyond their traditional footprints. However, for many industry leaders, conventional market share metrics don’t always capture bank performance as they used to, so banks are taking different approaches to measure success.
“In today’s digital-first environment, market share really is no longer very relevant as a performance metric,” Charles Potts, executive vice president and chief innovation officer at Independent Community Bankers of America® (ICBA), tells The Financial Brand. Potts emphasizes, “When talking about market share and community banks, you have to take into consideration their business lines, products and services offered, and the communities they serve to assess the true market opportunity.”
This shift reflects broader changes in how banks define their markets. “Markets in banking are undergoing significant redefinition, with geography still playing a role but becoming less relevant,” says Carey Ransom, managing director at BankTech Ventures, a strategic investment fund focused on transforming community banking through innovative technology investments. Instead, Random suggests focusing on “customer retention and wallet share — how much of a customer’s total potential business a bank captures.”
The emergence of digital banking has also complicated how customers interact with financial institutions, especially with consumers now holding multiple accounts across banks. “The movement toward digital banking may continue to blur the lines of traditional market boundaries,” Marla Pieton, senior director of influencer marketing at Alkami, a digital banking solutions provider tells The Financial Brand. “It is not uncommon today to belong to five or more institutions for one account or another, scattering the full value of their accounts,” she says.
Expanding the Competitive Set
As the concept of community in banking continues to change, regional and community banks are adapting. “The competitive set is exploding, with new players such as out-of-market banks, fintechs, non-bank institutions, and even competitors at the individual product level,” Ransom says.
This broader competition can reshape how banks think about customer relationships, where convenience and accessibility also compete with proximity. Ransom highlights one example: “Consider a business banking customer whose company is just across the street from a branch. This customer might take out a small business loan from an online lender at 7 p.m. while sitting at their office, looking out at the closed branch.”
At the same time, the definition of community is evolving. “Many community banks are not only redefining their competition but the very definition of “community” is continuously being reshaped and redefined as well,” says Potts. “This is especially true with the banking industry’s ongoing digital transformation and evolution, which allows banks to extend their physical footprint to cater to their customers — whether that’s a specific market, lending niche, private wealth management, or any of the other numerous verticals.”
This fragmentation of banking relationships can make traditional market share calculations less meaningful. However, millennials represent a key opportunity for community banks to grow their market share in new ways. According to Alkami’s Generational Trends in Digital Banking Study, millennials are 2.5 times more likely than GenX or baby boomers to add new financial providers in the next year and 56% more likely to deepen their relationships with their primary financial institutions. Nearly half of millennials cite digital banking as their top reason for choosing a primary financial provider, so community banks investing in digital experiences can still stand out.
The Case for Traditional Metrics
Many banks are redefining market share in the digital era, but some regional and community institutions still focus on traditional metrics, especially in local markets. For these banks, geographic presence and deposit share still play a role in gauging performance.
“Market share is primarily regional and physical location-driven for us. In fact, with fraudulent activity on the rise and AI, our clients want a relationship with their banker—now more than ever,” DJ Kurtze, senior vice president / San Francisco Bay Area president at Five Star Bank, told The Financial Brand.
Five Star Bank relies on FDIC deposit data to track market share within its local areas. “If we can continue to grow deposit share in our local customer base, then we are serving our clients correctly, receiving new referrals, and winning new business.” However, Kurtze notes that for community-focused banks, personalized service and deep customer relationships still drive a significant competitive edge, offering a higher level of customer support that’s challenging for digital-only banks to deliver.
Though lending is down from spikes during 2020’s Paycheck Protection Program (PPP), community banks still hold a larger percentage share of total small business loans than those with significantly more assets. This highlights their ability to leverage local knowledge and relationship-based lending to serve their markets compared to larger financial or digital-only institutions.
Though traditional metrics still matter for some community banks, it doesn’t mean digital competition should be ignored. “Digital platforms for a community bank help us punch above our weight class and offer products more commonly provided by larger banks,” Kurtze says. “When you couple those high-tech products with the ability to get your banker on the phone with the right answers at a moment’s notice, you have a true recipe for success.”
Taking a Balanced Path Forward
While traditional metrics like geography and deposit share are still relevant for many community banks, the rise of digital banking has introduced new ways to measure success. Metrics like wallet share and customer retention can provide more insights into how banks can grow their customer base along with focusing on creating more personalized relationships with customers.
“By focusing on share of wallet, banks and credit unions can identify how deeply they’re integrated into an account holder’s financial life,” says Pieton. “These insights allow financial institutions to calculate a more accurate and actionable market position by their relevance in account holders’ financial journey.”
For regional and community banks, the challenge is balancing modern digital-first strategies with their traditional strengths in relationship banking. High-tech solutions can improve customer engagement, but they’re most impactful when paired with personalized service that builds loyalty and trust. So, for community banks, the path forward may be a hybrid approach that leverages innovation while staying true to building local relationships.
Source: THE FINANCIAL BRAND
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