In the UK, there's this odd thing where some big high street banks have sub-brands that use the same core bank, but have their own customer service, online banking, etc. The Co-Operative has Smile, HSBC has First Direct. And these sub-brands generally have fantastic customer service!

Why? Why not just have great customer service for the main bank?

These sub-brands aren't, AFAIK, aimed at better-off customers who are worth more (there are examples of that too - Santander has Cater Allen), so it's not like there's some greater payoff to decent customer service.

They are phone and online only, without physical branches, so there are lower costs. Perhaps it's that?

besides the lower prices due to operational efficiency that you mention, it's probably about having a different marketing mix (the 4 Ps--product, price, placement and promotion) to attract a different cusotmer segment. many of their customers probably don't even know or care that the sub-brand is owned by a high street bank. the sub-brand might also be part of a strategy to funnel younger, new customers into the fold.

i'd say the main reason the main banks don't have good customer service is that they simply don't have to, and the actors therein have selfish aims. the fiefdoms of the large organization will typically divert resources to themselves (increase revenue, decrease operational expenses, and increase managerial compensation/headcount). consumer inertia allows this to happen (which is why i advocate moving away from big banks to promote competition and better service).

My impression was that most credit unions and small banks had pretty limited online banking, headaches with ATMs (not that I use them as much these days), etc. They are too small develop those services in-house, so I imagine they buy them as SaaS? Are they good enough now? I have Wells accounts I'd be happy to jettison...

yes, it's not the sexiest online banking, but you can do everything you need to do, including setting up automated bill pay. my credit union has an app that allows me to do mobile deposit as well, so i almost never need to go to a branch. the credit card i also have with them shows basic account info, but uses a connected (i.e., single sign-on), but separate, website for setting up autopay and other services.

for getting cash, most credit unions are part of the co-op network for atms: https://co-opcreditunions.org/locator/ so you have similar availability to a major bank (but admittedly a little more obscured).

You're right that traditionally credit unions and community banks have used antiquated consumer facing tech (online banking, mobile banking, loan applications, online account opening, etc) owned by 1 of 3 OG financial technology companies in the U.S.: Fiserv, FIS, and Jack Henry. They are all multi-billion dollar public companies that have formed primarily via acquisitions.

I started a company to challenge the incumbents after running a credit union as CTO.

yes, i've indirectly dealt with both fiserv and jack henry on past consulting projects and they're definitely slow-moving dinosaurs. =)