Big banks think small

We all know the big banks entrenched their dominant market position by swallowing their smaller rivals during the global financial crisis.

We all know the big banks entrenched their dominant market position by swallowing their smaller rivals during the global financial crisis.

Despite this stranglehold, however, there is one area in which the smaller players have the upper hand: they have happier customers.

For more than a decade, Roy Morgan figures have shown that customers of building societies, credit unions and foreign banks are happier with their financial institution than those of big banks.

So what do the little guys do that makes their customers so chirpy?

Experts believe there are a few reasons for the trend - and it seems the banks are cottoning on to what has worked for the smaller institutions.

For one, customer-owned banks such as building societies and credit unions have a reputation for providing good service. Because they don't have to pay dividends to shareholders, they have generally not cut costs as aggressively. For example, banks infuriated many customers with a wave of branch closures in the 1990s and the increasing use of overseas call centres.

The other area in which smaller players have the upper hand is their local presence. Customer-owned financial institutions often come from a specific geographic area or serve an occupational group, such as teachers or police officers. Big banks can't match these characteristics.

But though we love complaining about banks, Roy Morgan says satisfaction with them has steadily climbed to almost 80 per cent after falling below 60 per cent early last decade. There's a good chance this recovery has come about because, at least in part, the big banks are learning from their smaller rivals.

After a backlash over branch closures, for instance, their numbers have actually expanded, with banks opening a total of 65 branches around the country in 2012, the largest expansion in three years.

The big guys have also tried to borrow some of the small lenders' tactics, such as having a more "local" presence. Westpac promotes its Bank of Melbourne and St George brands to customers who don't want to bank with a big lender; Commonwealth Bank has Bankwest.

But research suggests customers are not "tricked" by this. Most people know they are still banking with a company that's owned by one of the giants. Nonetheless, customers of these smaller offshoots seem to be happier than those of the big four, who are still a relatively gloomy bunch.

Happy campers