Author Archives: mronan

Leading U.S. Banks Boosted Marketing Spend in 2022

An EMI Strategic Marketing analysis of 30 leading U.S. banks found strong overall growth in marketing budgets for the second consecutive year. Following an 18% decline in 2020 in the midst of the COVID-19 pandemic, these leading banks have grown their marketing budgets by 53% over the past two years.

Five banks – American Express, Capital One, JPMorgan Chase, Citi and Bank of America – each spent more than $1 billion in advertising and marketing in 2022. Discover was just below this threshold.

These banks’ average marketing ratio (marketing spend as a percentage of net revenues) rose by 34 basis points (bps) to 3.65% in 2022.

There is significant variation in bank marketing ratios between – and within – different banking categories.

  • Card-centric banks like American Express and Discover tend to have high marketing ratios as they have national reach but no branch networks.
  • Direct banks also have relatively high marketing ratios as they lack branch networks. Newer challenger banks are also investing significantly in marketing to build customers, deposits and assets.
  • More ‘traditional’ bricks-and-mortar banks typically have marketing ratios in the 1-3% range, although even in these categories we see significant variation as individual banks pursued different marketing objectives. Regional banks like Cadence Bank (+285% to $42 million) and BMO (+23% to $128 million) ramped up budgets in 2022 to promote brand overhauls. Super regional banks like Citizens (+38% to $184 million) and M&T Bank (+41% to $91 million) significantly grew their marketing spend to support entry into new markets following recent acquisitions.

Going into 2023, the projected trajectory for bank marketing spend is less clear, with rising inflation and slowing economic growth forcing banks to look for ways to reduce expenses. In addition, because they have grown budgets in recent years, some leading banks may decide to pause or even scale back their marketing budgets in 2023. However, many have stated their commitment to maintaining or even growing their marketing investment to support specific business strategies.

  • Discover expects double-digit growth in marketing spend as it pursues growth opportunities in credit card and deposits. It also claims that it continues to see strong returns on its investments.
  • Fifth Third plans to increase marketing spend in the mid-single digits in 2023 as it targets customer acquisition in the Southeast.
  • Axos Bank is maintaining higher spend levels as it seeks to grow deposits in an increasing competitive market.

Are Commercial & Industrial (C&I) Loans Actually Declining?

In its Quarterly Banking Profile, the Federal Deposit Insurance Corporation (FDIC) reported that commercial & industrial (C&I) loans fell 2.5% y/y to $2,395 billion at the end of 1Q22. However, further analysis provides a more nuanced perspective:

  • The rate of decline has been decelerating in recent quarters:
  • The C&I portfolio at the end of 1Q22 was 9% higher than at the end of 4Q19, the last quarter before the pandemic:
  • As the pandemic took hold in March 2020, businesses tapped into their credit lines, leading to a rise in C&I loans of almost half a trillion dollars by the end of June 2020. Over the next five quarters, this process was reversed, with a cumulative decline of more than $450 billion. However, growth returned over the past two quarters, with a net increase of more than $150 billion.
  • Finally C&I loan growth was boosted in 2020 and the first half of 2021 by Payment Protection Program (PPP) loans.

Key takeaway: Don’t judge a book by its cover; delve deeper to get a more complete understanding of industry trends.

Five Key Small Business Banking Trends in 4Q21

With the ending of SBA Payment Protection Program (PPP) loans, banks’ small business loan portfolios declined significantly in the second half of 2021. However, in line with the economic recovery, the outlook for small businesses appears positive entering 2022 (pandemic permitting). With this in mind, we observed the following trends in small business marketing, thought leadership and product development during 4Q21 as both traditional and challenger banks jockeyed for position in the small business market.

Financial providers continued to market to small businesses in a variety of ways, such as:

  • Developing campaigns and messaging around small business events, such as Women’s Small Business Month (in October) and Small Business Saturday (in November).
  • Promoting small business offers via email, on websites and in social media. KeyBank presents business offers on its website under the headings “Bank,” “Borrow” and “Manage.”
  • Publishing client success stories on websites and in social media. During the quarter, Regions highlighted a series of clients on its YouTube channel, under the heading “Good Company.”
  • Connecting with local communities. Wells Fargo introduced “Hope, USA,” an initiative to revitalize local business districts in a range of cities

Financial providers are pursuing a multi-faceted approach to small business thought leadership, including:

  • Coverage of a broad range of topics of interest to small business owners
  • Increase in content targeted at different business owner segments and industries
  • Multiple content formats, led by articles and blogs, but providers are also increasingly using other content types, such as newsletters, videos, infographics and podcast series. (Bank of the West launched the Means & Matters podcast focused on women business owners. Cadence Bank introduced Good Companies, its first podcast.)
  • Continued focus on portals to organize content. Regions extended its Next Step sub-brand with the launch of the Next Step for Business portal.

With a significant majority of small businesses embracing digital channels, banks are expanding digital functionality and using these channels for both service and sales.

  • According to Citizens’ second annual Banking Experience Survey, 86% of businesses use digital channels (up significantly from 70% in 2020).
  • KeyBank reported a 50% rise in digitally active small business clients post-pandemic.
  • In a November 2021 presentation, U.S. Bank reported that the digital channel’s share of small business sales rose 2.5 times over the previous year.
  • Huntington Bank reported that digital channels accounted for 16% of new business deposit accounts, up from 12% in 2Q21 (and 0% in 3Q20).

Traditional banks are facing competition from a diverse array of challengers that are launching new products, aggressive pricing and a focus on the digital experience.

  • American Express sought to take advantage of its leadership small business payments by launching Kabbage Funding and the Amex Business Checking app.
  • Intuit launched the Money by QuickBooks mobile app and QuickBooks Checking.

Leading issuers launched new small business cards to capture a share of the expected strong growth in small business card spending in 2022.

In 2022, we expect that most of these trends will continue as new entrants look to identify and exploit market gaps, and incumbents focus on protecting and growing their small business customer bases by refining their positioning, products, offers and customer experience.