Banks Cut Marketing Spend in 2020, But Expect to Ramp Up Investment in 2021

A detailed analysis of FFIEC call reports revealed that leading banks significantly reduced their advertising and marketing expenditure in 2020. However, as the economy rebounds strongly from the economic downturn caused by the coronavirus pandemic and increased competition from new entrants, banks seem poised to ramp up their marketing spending in the second half of 2021 and beyond.

Change in Marketing Spending Between 2019 and 2020

EMI Strategic Marketing studied data from 28 leading banks and found a 17% decline in advertising and marketing budgets, to $451 billion. This decline follows increases of 7% in 2019 and 15% in 2018.

Although most banks cut their marketing budgets, some banks bucked this trend, actually increasing their 2020 marketing spending:

  • Most notable in this regard was American Express, which at nearly $3.5 billion already has the largest advertising and marketing budget among leading U.S. financial firms. It spent $1 billion in 4Q20 alone as it ramped up investments in new card acquisition. Furthermore, it plans to continue this investment and recently reported that it could spend up to $4.5 billion in marketing in 2021.
  • Direct bank Ally Bank launched a new online advertising campaign in September 2020, which contributed to an 8% y/y increase in its marketing spend, to $161 million.
  • Challenger bank Radius Bank increased its advertising and marketing budget by 45% to $1.9 million in 2020, although its marketing ratio fell from 2.6% to 1.7% as its revenues jumped by 127%. (Radius Bank was recently acquired by LendingClub.)

It is also worth noting that some banks cut marketing budgets in 2020 following a ramp up in spending the previous year. A good example is BBVA, which grew its marketing budget from $83 million in 2017 to $111 million in both 2018 and 2019 as it changed its brand name from BBVA Compass to BBVA. It then cut the budget back to $76 million in 2020.

With Wells Fargo cutting its budget by 45% to $600 million, it reduced the number of banks with billion-dollar marketing budgets to five (American Express, JPMorgan Chase, Capital One, Bank of America and Citi).

Trends in Bank Marketing Ratios

The average 2020 marketing ratio was 2.8%, down more than 40 basis points from 2019, and back at levels seen in 2017.

Only 3 of the 28 banks – American Express, Ally and Bank of the West – increased their marketing ratios in the past year.

American Express and Discover – which have national card franchises that account for a significant percentage of assets and do not have to support branch networks – have the highest marketing ratios. Capital One’s marketing ratio is a mix of its card unit (6.8%) and retail bank unit (3.1%). Regional banks tend to have marketing ratio of 1% to 3%.

It is interesting that digital banks like Ally Bank, Axos Bank, Radius Bank and CIBC U.S. – which like American Express and Discover do not have to support branch networks – have marketing ratios that are in line with their regional bank competitors. This can be attributed to a number of factors, including devoting significant time and resources into improving the digital experience rather than brand advertising.

Bank Marketing Spend Trends for 2021

Looking forward to 2021, we expect that bank marketing spend will recover as the economy gradually reopens following COVID-19 (The Congressional Budget Office expects real GDP to return to pre-pandemic levels by mid-2021). Many banks have signaled their intent to increase their marketing spending in 2021. JPMorgan Chase stated that it expects marketing spend to return to pre-COVID levels in 2021. And while Citi’s marketing spend fell by 20% in 2020, it actually grew spending 2% y/y in 4Q20.

Bank marketing budgets will be impacted by growing merger and acquisition activity in the industry. Mergers that are expected to be completed in 2021 include First Citizens and CIT, Huntington and TCF Financial, PNC and BBVA USA, and M&T Bank and People’s United. Merging banks typically highlight long-term cost savings, but there will be a critical short- to medium-term need for marketing investment as they create new branding, launch new advertising campaigns, update branch signage, and revamp digital and social media channels).

While overall bank marketing spend is likely to recover in 2021, the composition of marketing budgets should change, in particular due to banks investing more in digital and social media marketing channels to match customer preferences and behavior. In addition, banks will be developing new messaging to address post-pandemic financial challenges and to communicate an effective and consistent experience across all their service channels.

An Analysis of Leading U.S. Banks’ 2018 Marketing Spending

EMI analyzed 2018 marketing spend by 27 of the leading U.S. banks, and found that most banks are ramping up their investment in marketing.  The rise in marketing budgets is driven by a number of factors, including:

  • The continued growth of the U.S. economy.
  • The ongoing scaling back of bank’s branch networks.  This reduces their on-the-ground presence, so banks need to invest more in marketing to maintain brand awareness.  In addition, cost savings from smaller branch networks can be redirected to other functions, including marketing.
  • The need for established banks to reposition themselves in a changing financial services ecosystem, characterized by the emergence of fintech firms and direct (branchless) banks.

Overall, marketing spending by the banks rose 13% to $13.0 billion in 2018. 

  • 17 banks grew their marketing budgets.
  • 14 banks increased their marketing spend by double-digit rates, led by Wells Fargo (+40%), BBVA Compass (+34%) and Capital One (+30%).

5 banks spent more than $1 billion on marketing: JPMorgan Chase ($3,290MM), American Express ($2,578MM), Capital One ($2,174MM), Bank of America ($1,513MM) and Citibank ($1,419MM).

The 27 banks’ cumulative marketing spend represented 2.9% of their 2018 net revenues, which represents a 17 basis point rise from the banks’ 2017 marketing ratio. 

  • The marketing ratios of the 27 banks ranged from 11.2% for American Express to 1.0% for Wells Fargo. 
  • A majority of the banks (16 of the 27) had marketing ratios in the 1.5% – 2.5% range.

The variation in marketing ratios is due to on a number of factors, including product concentration, size of branch networks, perceived importance of strong brand equity, as well as the timing of marketing investments (such as the launch of new advertising campaigns).

  • For example, American Express and Discover have no branch networks, are primarily focused on selling credit and charge cards, and have traditionally invested to maintain strong brand awareness. Therefore, their marketing ratios are more in line with fast moving consumer goods firms, rather than financial institutions.

15 banks increased their marketing ratios between 2017 and 2018.

  • Wells Fargo, which has traditionally had a low marketing ratio as it focused resources of its large branch network, increased its marketing spend by 40% to more than $850 million in 2018, and its marketing ratio grew by 30 bps.  The strong rise in spend was in large part due to the launch of the “Re-Established” integrated marketing campaign in May 2018.  It is worth noting that Wells Fargo remains well below national bank peers, such as JPMorgan Chase and Bank of America.
  • Other banks with strong increases in their marketing ratios include Capital One (+161 bps to 7.7%) and BBVA Compass (+57 bps to 3.3%).

Leading U.S. Banks Report Modest Increase in Marketing Budgets in 2017

Marketing spend by the top 40 banks reached nearly $14 billion in 2017, up 1.8% on average from the previous year–and once again, 5 banks spent over a billion dollars on marketing. EMI analysis of bank spending reveals:

  • 30 of the 40 largest banks grew marketing spend in 2017, with 17 reporting double-digit growth.
  • As in past years, banks with national credit card franchises lead all others, in both absolute terms and in their marketing intensity (marketing spend relative to revenues). In 2017, spending among these card leaders declined, as focus shifted from acquisition to portfolio marketing.
  • Two banks notable for substantial 2017 marketing increases are Goldman Sachs Bank focused on promotion of its online lending platform, Marcus by Goldman Sachs, and U.S. Bank capitalizing on brand-building around the Super Bowl, held last week at the Minneapolis stadium bearing the bank’s name.

EMI annual analysis of Federal Financial Institutions Examinations Council (FFIEC) call report data for 40 leading U.S. banks distills both absolute spending and marketing intensity ratios, as measured by spend percentage of net revenues (net interest income plus noninterest income).  Results are reported below.

Advertising and Marketing Spending Highlights

19 banks/bank charters had advertising and marketing budgets of more than $100 million.  5 had billion-dollar-plus budgets (JPMorgan Chase, American Express, Capital One, Citigroup and Bank of America).

Of the 17 banks reporting double-digit growth, the two with the largest absolute increases in their marketing budgets were:

  • U.S. Bank: +$107 million, with a focus on growing national profile behind the increased marketing spend, including heavy branding around the Super Bowl, which was held last Sunday at the U.S. Bank Stadium in Minneapolis.
  • Goldman Sachs Bank: +$80 million, driven by an advertising campaign to promote Marcus by Goldman Sachs, its online personal lending platform.
  • First Republic was also notable for its 46% increase–a strategy that seems to have paid off with 18%+ revenue growth reported by the San Francisco-based bank in 2017.

Other banks boosted marketing spend to support new campaigns in 2017.

  • Fifth Third (+10% to $115 million) launched a campaign in May 2017 that played on its “5/3” name, promoting “Banking that’s a Fifth Third Better”
  • BB&T (+10% to $89 million) introduced a new brand campaign and tagline (“All we see is you”) in September 2017.
  • SunTrust (+38% to $220 million) rolled out its ‘Confidence Starts Here’ ad campaign in March 2017, building on its onUp movement focused on building financial well-being.

Marketing spend declines were led by:

  • Capital One: decline of $139 million, with a strong drop in spending in its card unit partially offset by a $23 million rise in its retail banking unit.
  • American Express: down $111 million, although this follows a ramp up of marketing and promotion spending in recent years.  American Express is also increasing its focus on targeting existing clients, which typically involves lower marketing spend.

Marketing Intensity Highlights

Even though 30 banks increased their marketing budgets in 2017, only 14 increased their bank marketing ratios, meaning that growth in marketing spend did not match the rise in net revenues.  Banks with the strongest growth in their marketing ratios were Goldman Sachs Bank (+183 basis points), SunTrust (+61 bps) and U.S. Bank (+44 bps).

Most retail banks have marketing ratios of 1-3%. Those with the highest marketing ratios include Santander Bank (4.1%, due to continued growth in the bank’s U.S. marketing budgets in recent years) and BMO Harris (3.4%, following a 17% rise in marketing spend in 2017).  4 banks have marketing ratios of less than 1%.  Most notable in this category is Wells Fargo, which has traditionally–and infamously–focused on sales and required much lower advertising budgets than its peers.  Wells Fargo did launch a new integrated marketing campaign in April 2017, which it reported was focused on “rebuilding trust.”  This contributed to a 4% rise in its advertising and marketing budget in 2017, but its spend levels remain well below comparably-sized banks.

We expect that banks will maintain or even increase their marketing budgets in 2018 to build brand awareness and affinity, as well as to promote new products and services–in particular those focused on digital transformation.  However, many banks remain focused on improving efficiency ratios, and marketing budgets are often on the firing line when banks look cut costs.  However these cuts–when executed without a careful strategy for maximize marketing ROI–often sacrifice market share gain and longer-term growth.