USAA succeeds in retail banking

FORTUNE -- In late 2010, the words "New! ChaseMilitary.com" suddenly popped up on J.P. Morgan Chase's homepage. The new site offers one-stop shopping -- and a much higher profile -- for Chase's offerings to the military. That may have something to do with the continued success of financial services company United Services Automobile Association (USAA), which caters to military members and their relatives. From its 1922 start insuring officers, USAA has expanded into many other areas, including adding a banking unit, USAA Federal Savings Bank, that has grown to $43.6 billion in assets and is now the country's 31st-largest bank in terms of deposits.

Those stats have prompted the country's biggest banks to take notice -- even if they won't say so. (A Chase spokeswoman says that it has served its military customers for years and that USAA isn't a direct rival.) "If they're not [paying attention]," says Brad Strothkamp, principal analyst at Forrester Research, "they should be."

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In recent years, San Antonio-based USAA, led by CEO Josue Robles Jr., has steadily grown its pool of consumers. In 1996 it opened up to the enlisted. Now it has expanded from insurance to investments to checking, and to everyone who has honorably served, their dependents, their children, and their children's children. As Bob Meara, a senior analyst at Celent, says, "Now it's pretty much if you know anyone who is in the service."

That relaxing of restrictions gives USAA (No. 17 on Fortune's list of Best Companies to Work For) room to grow: There are 61 million people in the U.S. military community. USAA, with nearly 8 million, could expand dramatically by catering to that group alone.

They're not the only ones who see the potential. Wells Fargo's (WFC, Fortune 500) Alicia Faugier, who heads up Wells' military banking operation, says it is stepping up its financial services training for service members and spouses. Many other banks are also developing an app so users can deposit checks via their smartphones -- useful in places like Iraq.

Yet that technology, which Chase (JPM, Fortune 500) is also trumpeting, came first from USAA. With only eight physical locations and many members overseas, USAA was, says the bank's president David Bohne, "an Internet company before the Internet was created." The company has another edge when it comes to the major players: customer service. Forrester tracks satisfaction by how strongly people feel about the statement "My financial provider does what's best for me, not just its own bottom line." USAA consistently outpaces the big banks, thanks to devotees like Sonia Nelson, a Vero Beach, Fla., widow of a 1950s vet and 50-year member who can't remember ever being placed on hold. Banks such as HSBC (HBC) and Citi (C, Fortune 500) are near the bottom.

With a 2% market share of total checking accounts to Chase's 14%, USAA is far from conquering the market, and mobile banking is not yet replacing branch banking. But the company is increasingly going head-to-head with the big guys. "The only sandbox we want to be in," Bohne claims, "is with our military men and women." That sandbox is getting bigger and bigger.