I'd guess that being in a niche brings you a better understanding of the environment but the downside is that if that niche tanks, you're toast.

Credit unions (or their closest form) in Europe, (co-op banks and various incarnations such as Sparkasses or Caisses d'Epargne) are now spreading their risks, and to alleviate the geographical niche issue merged together (several dozens Caisses d'Epargne in France 15 years ago, about ten now for instance).

Other forms of pseudo co-op banks such as Credit Agricole (which started as a network of farmers credit unions) or Caja Rural are now banking behemoths doing everything from retail banking to investment, HFT: Credit Agricole is now probably in the top 10 largest banks worldwide.

Perhaps, but serving a specific niche is exactly the origin and general mission of credit unions in the US. Most CUs now try to have as broad a membership as possible but this is a recent trend.

When I mentioned a laser focused niche, I meant that by being niche focused (like Venmo or Paypal) you can avoid a lot of the overhead needed for having a wider selection of banking services. The common example here is no physical locations, no tellers, less overhead. But it also applies that if you don't do mortgage lending you don't need mortgage specialists and you have less interest rate risk to manage

[edit] re: ldayley comment, I'm referring to vertical niches of service rather than horizontal market niches