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).
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.
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.
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.
According to the FDIC, small business lending rose 5.3% between end-2Q15 and end-2Q16. Since falling to a post-Financial Crisis low of $279 billion in the third quarter of 2012, small business loans have risen 18%—to $328 billion—at the end of June 2016.
In the light of this steady loan growth, many banks are refocusing attention on the small business market. But how can banks—many of which virtually abandoned the small business credit market following the 2008 Financial Crisis—rebuild awareness, trust and engagement with small business owners? The following are five marketing approaches for banks to consider in (re)building their small business banking franchise:
Develop a small business brand. In recent years, several leading banks generated significant small business awareness by developing a dedicated small business brand. For some, these brands cover the bank’s entire small business operations. Capital One created the Spark Business brand for its small business solutions, and has launched a number of Spark-branded products and services, the most recent of which is the Spark 401(k) service. Another option is to develop a branded small business portal, and extend that branding into the bank’s small business social media presence. Wells Fargo created the Wells Fargo Works for Small Businessportal, and applied this brand to social media platforms, including a dedicated blog and @WellsFargo Works Twitter handle.
Target small business segments. Banks’ commercial banking units tend to target firms based on size and industry sector, as these are seen to have distinct financial needs. In targeting small businesses, banks are better served by focusing on small business life stages, or by targeting underserved segments, such as women-owned businesses. KeyBank has established Key4Women, a nationwide community of women in business.
Create content of interest to small businesses. Banks can build trust and engagement with small businesses by developing and distributing information, news, and advice relevant to small business owners. This content should be focused on addressing common business challenges, and should ideally be brief and easy to scan (to reflect today’s content consumption patterns). Two recent good examples of small business-focused content are five tips from First Republic on how to run a better business, and tips from Capital One on buying or leasing office space. And banks should explore a range of content types, such as case studies, articles and blog posts, webinars, videos and succinct reports/white papers.
Develop a local presence. There are a number of ways for banks to establish a local presence:
Partner with key influencers (such as chambers of commerce)
Market branch presence. Small businesses tend to have heavier branch usage than consumers, and banks can leverage this branch affinity by promoting small business solutions (including technology tools) in branches, deploying branch-based small business specialists, and hosting small business events.
Promote small business-focused community groups or programs. In August 2016, Webster Bank announced a partnership with the University of Connecticut and Connecticut Innovations to establish a $1.5 million UConn Innovation Fund for new business startups.
Before developing and implementing these small business initiatives, banks should conduct research to understand how and how well they are perceived by small business owners, and to identify deficiencies in their product and service capabilities relative to competitors. Banks should also gain insights from key internal stakeholders to assess its ability to address these issues using existing resources. These analyses support investment decision making, and inform small business banking program development and implementation.