Banks Use Surveys to Cover Small Business Topics of Interest

In May 2017, EMI published a blog that discusses how banks use surveys to build small business engagement.  In that blog we reported that many leading banks publish recurring surveys that track general business optimism as well as key challenges and opportunities.  In addition, banks also carry surveys that cover specific topics on a one-off basis.  The following table looks at the topics covered over the past six months:

The banks cover these topics of interest to achieve a number of objectives, including:

  • Raising general awareness of the bank and affinity among small businesses
  • Positioning the bank as a small business banking thought leader
  • Communicating their understanding of the changing issues impacting small businesses
  • Highlighting their areas of strength
  • Differentiating the bank from its competitors

In fact, the desire for differentiation is leading banks to conduct surveys on specific small business sub-segments or on specific product areas.  Recent standalone surveys of this type include:

  • U.S. Bank surveys of Asian-American small business owners (October 2017) and Hispanic small business owners (October 2017)
  • Surveys by both Bank of America (September 2017) and American Express (November 2017) on women-owned businesses
  • Bank of America Small Business Payments Spotlight (October 2017)
  • American Express Small Business Saturday Consumer Insights Survey (November 2017)

The proliferation of small business surveys that cover specific topics of interest indicate that they are effective tools in helping banks build awareness and engagement with their small business clients and prospects.

Banks ramp up advertising and marketing spend in 2016

According to EMI Strategic Marketing’s analysis of data from the Federal Financial Institutions Examination Council (FFIEC), U.S. banks spent $17.1 billion on advertising and marketing in 2016.  This expenditure represented 2.4% of bank revenues. Five banks (JPMorgan Chase, American Express, Citigroup, Capital One and Bank of America) each spent more than $1 billion, and together accounted for more than half of the industry’s total expenditure. The following chart looks at 2016 marketing-to-revenue ratios for 20 leading U.S. banks (note that for JPMorgan Chase and Capital One, marketing spend data is provided for both their retail bank charters and card-issuing units).

bank_marketing_spend_2016

Most banks grew their marketing spending in 2016, as they looked to drive revenue growth in an improving economy.  10 banks reported double-digit percentage rises in their advertising and marketing budgets.  In some cases (e.g., KeyBank and Huntington), the strong increases were in part the result of significant bank acquisitions.

13 banks grew their marketing-to-revenue ratios in 2016.

  • Half of the banks in the chart (mostly branch-based banks) have marketing-to-revenue ratios of between 1.5% and 3%.
  • Several banks have been ramping up their marketing spend in recent years.  Between 2014 and 2016, Santander Bank’s spend nearly doubled between 2014 and 2016, and its 2016 marketing-to-revenue ratio of 4.0% was the highest among branch-based banks.
  • At the other end of the scale, both Wells Fargo and BB&T have ratios consistently below 1%.

Credit card-focused banks/bank charters have the highest marketing-to-revenue ratios.

  • Chase Bank USA (JPMorgan Chase’s card-issuing bank) had a ratio of almost 20% in 2016.  The sharp rise in the ratio from 2014 and 2015 was due to both a 6% rise in advertising and marketing spend (to support the launches of Freedom Unlimited and Sapphire Reserve), as well as a sharp decline in noninterest income.
  • American Express increased in its advertising and marketing spend by 15% in 2016, and its ratio rose to nearly 12%.

As banks look to scale back their branch networks both to save costs and adapt to changing bank channel usage (in particular for everyday banking transactions), they are also cognizant of the potential loss of the branch’s role as a branding beacon in local markets.  Therefore, it’s likely that a portion of the cost savings from branch network reductions will be diverted to advertising and marketing budgets.  As a result, we may expect banks’ marketing-to-revenue ratios to gradually increase in the coming years.

Key Considerations for Effective Financial Education Programs

Banks and other financial providers have recently increased their focus on developing financial education programs, driven by a number of factors:

Numerous studies have highlighted deficiencies in financial literacy among U.S. consumers.  FINRA Foundation’s National Financial Capability Study found that only 37% of people were considered to have high financial literacy in 2015, down from 42% in 2009 and 39% in 2012.  Studies also show that consumer exposure to and engagement with financial education programs leads to smarter financial decision making.  Therefore, the onus is on a range of entities (government, educational institutions, nonprofit organizations, industry associations, and of course financial firms) to develop programs to improve financial literacy.

Many financial firms are looking to (re)position themselves as trusted providers of not just products and services, but also of information and advice that can help people better manage their finances.  To that end, financial education programs can act as a means to help banks cement relationships with their clients.

The following are some key considerations for financial firms in establishing a new financial education program—or in enhancing an existing one:

  • Conduct research to gain insights into consumers’ financial literacy levels, attitudes to financial services, preferred channels for consuming financial information, and favored sources of financial information and advice.
  • Create a dedicated and branded financial literacy program that brings together the diverse range of financial education initiatives under one umbrella.  These programs can take the form of an online portal, such as the TD Bank Learning Center, John Hancock Retirement Plan Services’ My Learning Center and MassMutual’s FutureSmart program.
  • Conduct financial education surveys.  Surveys are an effective way to raise consumer awareness and interest, highlight commitment to raising financial literacy, and gain insights that inform financial education program development and execution.  U.S. Bank recently published two financial education surveys: the Parent Financial Education Survey (July 2016, focused on the parents of college students aged 18-14) and the Student and Personal Financial Survey (September 2016).  Last month, Bank of America published the Bank of America/USA Today Better Money Habits report, which was versioned for 7 of its markets.
  • Ensure that financial education content reflects the different ways that consumers process information.  Keep content short, with easy-to-follow tips and soundbytes.  Incorporate images, infographics or video to enhance its visual appeal.
  • Distribute content through a range of channels.  These channels can include online portals (as described above), events, in-person and online courses, and social media platforms. (PNC announced in August that it would be using Pinterest to promote its financial and early childhood education initiative.)  In addition, a number of banks (e.g., First Tennessee, First National Bank and SunTrust) have partnered with Operation Hope to open HOPE Inside offices in its branches.  SunTrust recently announced an ambitious plan to expand the Operation HOPE Inside program from 7 branches today to 200 by 2020.  The number of individuals receiving financial counseling through these offices is expected to rise from 6,000 to 150,000.
  • Partner with schools and nonprofit organizations that promote financial literacy in communities.  This partnership can take the form of joint programs, funding or employee volunteer hours. Fifth Third recently introduced an initiative to deliver its Empower U financial literacy course through 60 local nonprofit organizations throughout its footprint.  And Allianz Life recently awarded $275,000 in financial literacy grants to 14 nonprofit organizations in the Twin Cities.

Well-constructed, well-delivered financial education programs improve financial literacy.  This in turn leads to smarter financial decision making, benefitting both consumers and their financial providers.