How do you get a competitive advantage when your product’s a commodity?

Finding a competitive advantage in your backyard
Having a competitive advantage is what keeps companies going. Every enterprise, from JPMorganChase to the two guys selling coffee and donuts on Madison Avenue outside our office, needs some kind of competitive advantage, something they have that nobody else does. To me, this seems like a real challenge for banks, because your product – money – is completely commoditized. All money is by definition identical. You cannot offer a better form of money than the bank down the block. You can offer better terms, or better services, or just be so big your size on its own is your competitive advantage. Or a toaster. But you have to offer something beyond the money itself.

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Some banks are opening new branches in new markets or just buying banks as a way to accrue more deposits and acquire more scale. But some are trying a different tack, our Allissa Kline reports. Citi, the nation’s third largest bank, and Citizens Financial Group, the 17th, are trying to capitalize on their existing branch networks, looking to tap more business in the communities in which they already operate.

Citi’s plan is to revamp its existing network of 650 U.S. branches. Citizens is revamping its branches, looking to grow in high-potential areas while closing other sites. “Our biggest opportunity is not by acquiring a ton of new clients,” Citi’s Kate Luft told American Banker. “We’re really focused more on the deepening of relationships and making sure we have the right coverage and scale.”

Of course, it doesn’t hurt to already be the nation’s third largest bank. Size is its own competitive advantage.

AI and competitive advantage
For a lot of companies, AI has thrown their competitive advantage into disarray, or threatens to throw it into disarray. One way for a company to keep itself from being made obsolete by some new piece of technology is to co-opt the technology. For software companies, this is actually easier than it may sound, because most people who use software don’t actually understand it. It’s like cars: everybody drives them, but few people know how to build or maintain them.

I’m thinking about FIS and Fiserv, two companies that make software specifically tailored for clients and then sell a package of the software and the services to those clients. Banks are major clients for these companies. Both companies have introduced new AI-based products that work within their existing software offerings, our Penny Crosman reports. 

One big question has been that if AI is so good at coding, if people who know nothing about C+ or Cobol or any other programming language could suddenly spin up programs in a day using some AI chatbot, well, then is there any need for a company such as Fiserv? This became an acute question earlier this year when some bank employees started using an open-source AI program called OpenClaw.

I’d mused about whether or not this would be a threat to software makers. Could banks just hire their own small teams of coders and start building systems internally that worked as well as the expensive, multi-year plans they paid Fiserv and FIS for? I’d think the answer to that is in a perfect world maybe, but in the real world where executives, and especially bank executives, don’t want to think about things like risk, it makes sense to farm out that job to people who do it all the time and understand the industry. 

However, technology doesn’t stand still, which is why Fiserv and FIS are figuring out ways to incorporate AI programs within their existing offerings. FIS launched an AI bot designed to ferret out financial crimes. Fiserv released an agentic AI operating system that works with its core and payments software. 

The key route to profits for any company is maintaining a competitive advantage, making your service or product so important to your clients that they never let you go. For banks, this involves things like building relationships through your branch network, being competitive on interest rates – both the rates you pay depositors and charge borrowers – and being big enough to profitably leverage the money coming in your doors. For software companies, it’s making sure the people who buy your software can’t live without you. For the guys selling coffee and donuts on the corner, it’s finding the right corner. But everybody needs some kind of competitive advantage.