Category Archives: Banking

FDIC Publishes Detailed Branch Data: Key Takeaways

The FDIC recently published detailed branch and deposit data for different geographic levels for all U.S. banks. EMI’s analysis of this data revealed the following trends:

  • There is a continued (but slowing) decline in the number of bank branches. Over the past 10 years, the total number of domestic branches for FDIC-insured institutions declined by almost 24% to fewer than 78,000 branches. This equates to an annual average decline of 2.1%. In 2Q21 and 2Q22, the y/y rate of decline exceeded 3%, but this slowed to 1.7% y/y to the end of June 2023.
  • Some of the largest banks had the strongest percentage declines in branches. Our detailed analysis of 30 leading banks (see below) found a 3.1% y/y decline in branches (from 35,039 to 33,920) at the end of 2Q23. However four banks with networks of more than 2,000 branches reported declines of more than 4%: Wells Fargo (-4.4%); PNC (-6.7%); Truist (-5.4%) and U.S. Bank (-8.1%). Santander Bank reported the largest percentage decline (-8.9%).
  • Some banks are growing their branch networks. While the overall trend has been for banks to trim their networks, some banks are maintaining or even growing their commitment to this channel. TD Bank grew its network by 11 branches, adding branches in 8 existing markets, as well as opening its first branch in The Villages, FL. Following the collapse of its planned merger with First Horizon earlier this year, TD announced plans to open 150 U.S. branches by 2027 with a focus on Southeast markets.
  • Banks are maintaining their presence in the vast majority of their markets. While banks are reducing branch density in their existing markets, few are completely leaving these markets. Seven of the 30 banks exited a market over the past year, but only one left more than one market: City National Bank closed its branches in both Reno and Carson City, NV.
  • Branch closures were spread across many existing markets. Overall, the 30 banks closed branches in 22% of their existing markets, through several had higher percentages of existing markets impacted by closures, including Santander Bank (56%), Truist (39%) and PNC (32%).
  • Banks concentrated their reductions on markets with the largest branch networks. Banks reduced branch densities in many of their main markets, enabling them to cut costs while maintaining a significant presence. Although more than a third of Wells Fargo’s branch reductions took place in just 8 markets, each of those markets continues to have more than 100 branches.
  • Some banks are opening new branches in existing markets. The 30 banks increased branch numbers in 4% of existing markets, led by TD Bank (increased branch numbers in 14% of their existing markets) and Fifth Third (13%), who are both expanding their presence in key southeastern U.S. markets. JPMorgan Chase increased branch numbers in 22 markets (10% of its existing markets), including Washington (+11 branches), Minneapolis (+9), Kansas City (+7) and St. Louis (+7).
  • J.P. Morgan Chase is leading the way in market expansion. Over the past year, the bank opened branches in 10 new markets, including Buffalo and Virginia Beach (4 new branches in each market). This is part of a longer-term strategy to grow its branch footprint: the bank reported at its 2023 Investor Day that its population coverage rose from c. 60% in 2017 to c. 80% in 2022, with the bank now aiming for 85% population coverage.

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.

5 Key Digital Banking Trends in 4Q21

As the banking ecosystem moves to a digital-first profile, we have identified the following five trends that shaped digital banking during the most recent quarter. Furthermore, we expect that these trends will persist into 2022.

Not only has digital banking achieved critical mass, recent surveys have found that it has become an indispensable tool in people’s lives.

Recent years have seen digital challengers engaged in a land grab in a market characterized by very strong growth and relatively low barriers to entry. Several digital banks have attained significant scale while others have established a strong presence within a specific market niche. However, we are now seeing signs of a shakeout in the digital bank sector in 4Q21 with pullbacks, market departures and consolidation.

  • Monzo and N26 both announced during the quarter that they were quitting the U.S. market.
  • MoneyLion announced the acquisition of Even Financial for $440 million.
  • Google dropped plans to offer bank accounts to its users.

Traditional banks are addressing the threat from digital banks by continuing to grow their digital user base, adding new digital functionality, improving the digital user experience (UX) and acquiring/partnering with fintechs.

  • Bank of America continues to lead the way in digital banking engagement among the main U.S. banks. In October, it reported that 5 million clients were using Life Plan, its personalized digital financial planning experience.
  • U.S. Bank is also a leader in driving digital banking penetration among its customer base; digital customers represented 70% of its total active customers at the end of 3Q21.
  • According to an Atos survey, 66% of bank leaders named transforming the digital experience as a top priority.

Younger demographic segments represent the key battleground between traditional and digital banks.

  • Traditional banks tend to have higher levels of trust and loyalty among older segments, a fact that is increasingly recognized by the banks themselves; a Bank Director survey found that 95% of financial executives believe that they have the tools in place to effectively serve baby boomers. However, only 43% believe that this is case for Millennials.
  • According to a Plaid survey, younger segments have the highest fintech adoption, led by Millennials at 95%, followed by Gen X at 89%, and Gen Z at 87%. (Boomers’ fintech adoption rate was 79%.)

While traditional banks migrate to a digital-first approach, they believe that clients will continue to value the branch channel.

Many banks are announcing branch reductions as they reduce branch density. Our analysis of FDIC SDI data on domestic U.S. branches shows that there has been a decline of almost 10,000 branches over the past five years, with some evidence in recent quarters that the rate of bank closures has accelerated (a decline of at least 1% of total branches in three of the past four quarters). However, it is important to note more than 82,000 branches remain in operation.

  • According to a Capital One survey, 42% of consumers reported that they missed being able to visit their bank branch during the pandemic.
  • Branches are also crucial to establishing a foothold in new markets. Citizens’ CEO Bruce van Saun claimed at a December 2021 conference that the bank could not target the New York City metro market without the branches it is acquiring from HSBC. JPMorgan Chase has similarly used flagship branches to gain a foothold in expansion markets.

We expect that many of these trends will continue and even intensify in 2022 as both established and emerging players adapt their product offerings, channel strategies and customer experiences to changing customer behaviors and preferences as well as an increasingly dynamic competitive environment.