As financial institutions seek to position themselves as trusted providers of financial advice and solutions, one of their key areas of focus is financial education. Many of these firms have focused attention on establishing comprehensive financial education programs. However, equal attention should be given to how these programs are communicated. If you want to maximize the impact of your financial education program, consider the following methods to build client awareness and engagement.
Partner with national and local organizations seeking to grow financial literacy. Partnering with these organizations can take many forms, including publishing surveys or providing funding. In June 2017, Wells Fargo announced a $100,000 donation to Junior Achievement of Chicago. Operation Hope has partnerships with a number of leading banks (including SunTrust, Regions Bank and First Tennessee Bank), who all offer the Operation Hope Inside financial well-being program in several of their branches.
Host or sponsor events. Events constitute one of the key ways for firms to build direct engagement with their financial education programs. Firms have many options on how they wish to scale and direct their investment. MassMutual hosts FutureSmart Challenge events to provide financial education to middle school students, reaching 40,000 students in 17 cities to date. In June 2017, SunTrust launched the “onUp on Tour” to promote its onUp movement in 45 cities. And In October 2017, American Century Investments partnered with Investopedia to launch a Financial Fitness Tour, featuring a 45-foot bus, called “The Financial Coach.” These firms have extended the impact of these live events with tweets and postings on online portals, and also host virtual events, including podcasts and webinars.
Generate engagement through games and contests. In our highly interactive world, online games and contests can be very effective in enabling people, especially the younger demographic, to gain important financial knowledge in entertaining ways. For the past four years, H&R Block has been running the H&R Block Budget Challenge, an online game that teachers can use to teach financial concepts to high school students. In December 2017, The Hartford partnered with Junior Achievement USA to launch JA MyBiz Builder, an online experience that teaches entrepreneurial concepts to teens. And GOBankingRates recently launched a competition (with a top prize of $1,000) to identify the best tips, tricks and tactics for navigating one’s personal finances.
Reinforce the financial education message via social media. A number of financial firms are using Twitter hashtags to generate interaction around their financial education programs. Examples include Ally Financial’s #WalletWiseWednesday twitter series and Regions Bank’s @FinancialFitness hashtag (part of its Financial Fitness Fridays program). Other ways of using social media to promote financial education include events (Jump$tart Coalition’s Facebook Live event to discuss deposit insurance) and social communities (Canvas Designed by Citi, a beta-testing community that enables Citi customers to co-create products and digital capabilities promoting financial wellness).
Leverage online and mobile banking platforms. As consumers become comfortable with using online and mobile banking to perform a wide range of financial activities, some providers are starting to incorporate financial education tools into these platforms. Bank of America recently added a money management and financial education tool into its mobile banking platform. And Wells Fargo is planning to launch Greenhouse by Wells Fargo, a mobile banking experience that includes financial management tools.
One of the most notable trends in leading U.S. banks’ quarterly earnings conference calls was the extent to which digital channels have become central to their current operations and future growth plans. The reason? Digital channels provide numerous benefits to banks, including:
Allowing banks to reduce branch density…and more easily expand into new markets. With the growth of online and mobile banking, branches account for a significantly decreased share of everyday banking transactions, so most banks have been able to reduce their branch density, which saves costs while enabling banks to maintain a physical presence in markets. Bank of America reported that its branch network has declined from 6,100 to 4,400 during the past decade, but also referred to plans to open 500 branches in new markets. Similarly, Regions discussed plans to open 20 de novo branches in new markets in 2018, while also closing 30-40 branches.
Building a national presence. Banks that already have a limited branch presence are looking to leverage their brand strength and develop a national presence by creating a digital bank. Citibank recently announced that it was creating a national digital bank. Similarly, PNC reported that it would begin rolling out a national digital strategy later in 2018, which it claimed would enable it to take advantage of its brand awareness and serve more customers beyond its traditional retail banking footprint.
Enhancing the customer experience. Banks are investing in digital service channels not only to provide a wider range of functionality to clients, but also to enrich the customer experience. In doing so, banks can improve customer satisfaction and boost retention levels. Regions discussed its goal of providing a consistent experience, with customers seeing the same information and having access to the same capabilities across all channels. The shift to electronic self-service channels also reduces servicing costs; Citibank reported that call center volume fell by 12 million phone calls in 2017.
Communicating through new marketing channels. Banks are significantly changing their media mix and messaging to reflect the channels where people are now consuming information and entertainment, and to communicate to clients and prospects in fresh new ways. In its 1Q18 earnings conference call, BB&T discussed that it is ramping up its digital marketing campaigns; 86% now have a digital component.
Capturing new sales opportunities and lowering average cost per acquisition. As customers increasingly use digital channels for their banking activities, they become more receptive to using these same channels to open new accounts and/or upgrade existing products and services. As a result, many banks are reporting strong growth in digital sales. Wells Fargo recently launched a digital mortgage application and noted that 10% of its mortgage applications in March 2018 came through that capability. The number of BB&T business accounts opened online rose 43% y/y and retail savings accounts grew 96%. Bank of America reported that digital accounted for 26% of all sales. It also rolled out an auto shopping app, with auto loans sourced digitally accounting for 50% of all direct auto loan originations in the first quarter.
Banks Need an Integrated Digital-Human Channel Strategy
While strategic investments in digital channels can lead to significant bottom-line benefits, banks should be careful not see this progress as proof that they no longer need human channels. A recent J.D. Power survey found that satisfaction levels are lowest for retail banking clients who exclusively use online or mobile channels and highest for “branch-dependent digital customers.” Moreover, the gap in satisfaction levels is highest for Millennial customers, underscoring this demographic segment’s affinity for branches. And while digital sales for many banking products are growing strongly, human channels are still vital for a bank’s success.
This means that banks must develop an integrated channel strategy, with digital and human channels acting in synch—and indeed actively promoting each other. Bank of America provided a great example of this synergy in operation in its 1Q18 earnings conference call: clients used its digital channels to schedule an average of 35,000 branch appointments per week during the quarter. Full integration of digital and human channels recognizes the particular strengths and limitations of different channels, and can optimize a bank’s return on its investments in marketing, sales and the customer experience.
According to the latest FDIC Quarterly Banking Profile, U.S. credit card loan growth accelerated in 4Q17, rising 8.2% to $865 billion.
Given the strong overall growth in credit card receivables, are issuers focusing their growth ambitions on particular FICO Score categories? To address this question, EMI analyzed 10K SEC filings for leading credit card issuers. Overall, we found that issuers reported strong credit card loan growth across their FICO Score segments. We also studied trends in different issuer categories.
In the aftermath of the Financial Crisis, the three leading issuers—Chase, Bank of America and Citi—focused attention away from near-prime and sub-prime segments and towards superprime consumers. This led to significant declines in both outstandings and charge-off rates. More recently, as economic growth and consumer confidence returned, these issuers have refocused on loan growth and are once again targeting lower FICO Score segments. This is seen in the chart below that shows changes in outstandings by FICO Score segment between end-2016 and end-2017. As these issuers are pursuing loan growth, their credit card net charge-off rates have also increased (+26 bps y/y at Bank of America, +30 bps to at Chase, +59 bps at Citi-Branded Cards North America). However, charge-off rates remained below 3% for each of these issuers in 4Q17, and issuers should continue to focus on loan growth while charge-off rates continue at these low levels.
Second-tier national credit card issuers—Discover, Capital One and Synchrony—reported relatively strong growth, but with different FICO Score segment trends. Discover reported 9% y/y growth, with no y/y change in share of outstandings for the <660 and 600+ segments. Capital One had a similar overall growth rate (8%), but this was driven in part by the acquisition of the Cabela’s card portfolio, which boosted the >660 FICO segment’s share of outstandings. It is also worth noting that the <660 FICO segment accounted for 34% of Capital One’s credit card portfolio at the end of 2017, compared to 25% of Synchrony’s portfolio, and 18% at Discover.
Regional credit card issuers present a mixed picture when it comes to the FICO Score segment composition of their credit card portfolios. This is driven by a number of factors, including a large variation in portfolio sizes, as well as their credit card underwriting standards. Most issuers report growth across their portfolios, with strong growth rates in the low FICO Score segments. Fifth Third reported very strong growth for its <660 segment, but this segment only accounts for 3% of its portfolio. Regions’ 20% growth in its <620 FICO segment was driven by its launch of a credit secured card in July 2017.
Finally, as most issuers reported strong growth in their credit card portfolios in 2017, charge-off rates are also on the rise, growing 45 bps y/y to 3.61% at the end of 2017. While the overall charge-off rate has risen from a low of 2.19% in 3Q15, it is down both from post-recessionary highs of 13.13% in 1Q10, and even the 4% levels in 2007, prior to the Financial Crisis. With charge-off rates still below 4%, the leading issuers continue to be comfortable with promoting credit card loan growth.