I’ve spent 26 years watching mid-size financial institutions make the same mistake over and over again.
They see what the big banks are doing with technology. They watch fintechs move at lightning speed. And they convince themselves they can compete on both fronts.
They can’t.
The data tells a brutal story. Mid-size banks’ share of primary checking accounts dropped from 24% in 2015 to just 15% in 2024. Meanwhile, megabanks increased their share by ten percentage points.
But here’s what most consultants won’t tell you: the answer isn’t to spend more on technology or try to move faster. The answer is to stop trying to be everything to everyone.
The Army You Can’t Beat
I started noticing this pattern while consulting with smaller institutions. They’d come to me wanting to buy the same tools and employ the same tactics as their bigger competitors.
The problem was obvious: they didn’t have the manpower or financial resources to mimic those competitors.
It was like watching a small battalion try to take on a much larger army using the exact same battle plan. The outcome was predictable.
Banks globally spend between 4.7% to 9.4% of operating income on IT. That’s far more than insurance companies or airlines. Yet despite decades of technological advancement, the aggregate efficiency ratio of U.S. banks has stayed around 68% from 1950 to present.
Translation: throwing money at technology hasn’t made banks more efficient. It’s just enabled them to do more of the same things at scale.
The institutions I worked with eventually realized they had to do something different. They couldn’t do exactly what the bigger players were doing.
They needed ingenuity. They needed differentiation.
The Speed Advantage Nobody Talks About
Most people think the competitive advantage comes from technology.
They’re wrong.
Smaller institutions are tied very closely to the communities they serve. This creates a different kind of speed advantage—one that has nothing to do with processing power or mobile apps.
You can create experiences and products that address pain points or challenges the local community has. Then you respond and proactively address any issues you see coming.
Larger competitors can’t do that because they’re so process driven it takes forever to make a decision to react to something.
Take small business loans. This is something very specific to a local institution. Larger banks only want huge businesses and really small businesses don’t qualify for funding.
There’s an opportunity in the middle where the local competitor can underwrite funding because they’re familiar with the local challenges, issues, and risks.
The proof is in the numbers. Esquire Bank, a niche-focused institution, achieved a net interest margin hovering around 6%—double the level of many peers. Its loans grew more than 15% in 2024, while community bank lending overall advanced only about 1%.
This isn’t theoretical. Specialization delivers measurably superior financial performance.
Why Banks Keep Making the Wrong Choice
Most mid-size banks still try to offer everything: mortgages, wealth management, business loans, consumer banking.
I ask them why they don’t narrow their focus.
The answer is always the same: they believe customers want them to be everything for everyone.
But in reality it’s best for a small institution to find its niche and be a comprehensive provider for that niche. If it’s small business then maybe some of the ancillary services tied to consumers isn’t needed.
Here’s where it gets interesting. Sometimes this belief comes from customer feedback. But surveys or customer sentiment is different than behaviors.
You often see instances where a survey says customers want it all but when something is offered the uptake is low.
That’s because the institution is better suited to offer other products and services. Even though customers think it might be nice to have everything, they don’t actually want it from that provider.
Customers are essentially saying “sure, I’d use that” but then they go elsewhere when they actually need it.
This gap between what customers say and what they do is killing mid-size institutions.
The Four Signals That Tell You Where to Focus
When I work with institutions that discover this gap, I help them figure out what they should actually be focusing on.
The approach is straightforward: analyze the data, find out where there are opportunities, find out where competition is lower and where you can stand out in the crowd.
I look for four specific signals:
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Gaps in competition – Where are the big banks ignoring customers or overserving them with complexity?
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Ability to make a profit – Can you actually make money on this product or service at your scale?
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An eager audience – Is there genuine demand or are you creating a solution looking for a problem?
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Ability to provide at a higher level than competition – Can you actually deliver better than alternatives?
That last one trips people up. How does a mid-size institution with limited resources honestly assess whether they can deliver better than a big bank or fintech?
The answer is simpler than you think.
The bigger companies provide broad solutions so they can cover a wide range of scenarios. If the local institution provides a solution for a specific local problem they stand out.
Why Being Broad Actually Weakens You
Most people think scale is always an advantage. Bigger budgets, more resources, better technology.
I’m arguing the opposite. Being broad actually weakens you in specific battles.
This is hard for mid-size institutions to believe and act on because most people think otherwise.
But we’re in an era where people want customized solutions or very specific solutions, not an all-in-one approach that applies to the masses.
This shift happened when technology took over. Expectations changed and people want things that are tailored to them instead of making something standard work for them.
Here’s the irony: technology created the expectation for customization, but mid-size banks are trying to use technology to copy the big banks’ standardized approach.
The demographic crisis makes this even more urgent. 42% of mid-size bank customers are baby boomers, compared to just 32% millennials and Gen Zers. At megabanks, 50% of customers are millennials or Gen Z.
You’re not just losing market share. You’re losing an entire generation.
What Technology Should Actually Do for You
If specialization is the actual strategy, what should mid-size banks be doing with technology?
Technology should enable your specialization, not replace it.
Use technology to deepen your understanding of your niche. Use it to serve your specific customer segment better than anyone else can. Use it to make your local decision-making faster and more informed.
Don’t use it to try to match the feature set of a megabank.
Research from successful niche banks proves this works. Merchants State Bank concentrated 78-80% of its loan portfolio in agricultural lending and successfully weathered economic storms that devastated generalist competitors.
The advice from successful niche bankers: “Do it to the best of your ability and live and breathe it every single day.”
The Playbook: From Stuck in the Middle to Irreplaceable in Your Niche
Here’s what I tell clients who are ready to make the shift:
Step 1: Analyze your actual performance data, not your aspirations
Look at where you’re actually making money. Look at where customers are actually choosing you over alternatives. Look at where your loan officers or relationship managers have genuine expertise.
The data will tell you a different story than your strategic plan.
Step 2: Identify the battles you need to abandon
This is the hardest step. You need to actively retreat from unprofitable battlegrounds.
If you’re offering a product just because “banks are supposed to offer it,” stop. If you’re serving a customer segment that consistently chooses you last, let them go.
Strategic retreat is a competitive advantage.
Step 3: Go deep on 2-3 specific products or customer segments
Pick your lane. Small business loans for local companies between $500K and $5M in revenue. Commercial real estate for specific property types in your geography. Agricultural lending for family farms.
Whatever it is, go so deep that you become the obvious choice.
Step 4: Build processes and expertise around your specialization
Train your team to become genuine experts in your niche. Create underwriting processes that account for local knowledge. Develop products that solve specific problems for your target segment.
This is where being smaller becomes an advantage. You can make decisions faster because you’re not managing complexity across dozens of product lines.
Step 5: Use your community ties as a moat
Your relationships in the local community are the only sustainable defense against commoditization.
Big banks can’t replicate the fact that you know the local commercial real estate market intimately. Fintechs can’t replicate the fact that you’ve been financing local businesses for decades and understand the seasonal patterns of the regional economy.
This local knowledge creates an information advantage that neither scale nor technology can easily replicate.
The Reality Check
The financial services industry is at an inflection point. Bank M&A activity is rising—125 deals were announced in 2024, up from 98 in 2023.
For mid-size banks, the message is clear: scale or specialize.
More than half of community bank executives say their biggest challenge in 2025 is growing deposits. Just three years ago, the challenge was making more loans to offset a flood of deposits.
This dramatic flip reveals how vulnerable mid-size institutions are to macroeconomic shifts they can’t control.
You can’t control interest rates. You can’t control regulatory changes. You can’t outspend the megabanks or out-innovate the fintechs.
But you can control where you compete and how you compete.
The institutions that survive the next decade won’t be the ones with the biggest technology budgets. They’ll be the ones that figured out exactly who they serve and became irreplaceable to that audience.
Stop trying to be everything to everyone. Find your niche. Go deeper than anyone else is willing to go.
That’s the playbook.
I’ve spent over 26 years helping financial services organizations develop sustainable growth strategies without massive technology investments. If you’re ready to stop playing both sides and find your competitive edge, let’s talk. Contact me at fpena@rokture.com or visit rokture.com.
