Banks Are Reducing Branch Networks…But Remain Committed to Human Channels

January 29, 2018

In reporting their quarterly and annual financials, leading U.S. banks reported continued declines in their branch networks.

These declines are driven by banks’ need to cut costs, as well as reflecting the significant shift to digital channels by consumers and businesses for their everyday banking needs. However, There is plenty of evidence that banks remain fully committed to their human channels, especially the branch channel.

JPMorgan Chase announced last week that it plans to open up to 400 branches in the next five years in new markets.
At its 2017 Investor Day, Citigroup discussed its retail banking campaign in Manhattan, which featured three new Citigold Centers as well as the addition of 70+ relationship managers and financial advisors. This campaign led to a 16% rise in checking deposits, 18% growth in assets under management, and 35% increase in personal and home equity loans.
Wells Fargo has a branch presence in more than 460 markets, which it considers to be a competitive advantage over national banking competitors such as Chase and Bank of America, both of whom are in less than 250 markets. Wells Fargo also highlights that it is in the 15 fastest-growing U.S. markets.
Fifth Third presented its “bricks and clicks” approach at its Investor Day, which articulated the roles of both digital and branch channels as well as the importance of integrating these channels.

Why do banks remain committed to human channels?

While digital channels are effective for day-to-day banking needs, bank clients tend to prefer human channels for their more personal and complex banking needs.
With the switch to digital channels for everyday banking, banks no longer need highly-dense networks in order to establish or maintain a physical presence in new markets.
Reflecting their changing role, branches are increasingly staffed with specialists (e.g., mortgage bankers, small business bankers, investment bankers) who increase branch effectiveness as a sales channel.
Maintaining a branch presence in a market is key to raising and maintaining brand awareness and affinity.

Banks need to invest in both human and digital channels, in order to reflect customer needs, preferences and behaviors. A truly integrated channel strategy and structure, which is built around the customer journey, and which reflects the unique attributes of both human and digital channels, is vital for banks to optimize returns on their channel investment.

Banks Use Surveys to Cover Small Business Topics of Interest

November 28, 2017

In May 2017, EMI published a blog that discusses how banks use surveys to build small business engagement. In that blog we reported that many leading banks publish recurring surveys that track general business optimism as well as key challenges and opportunities. In addition, banks also carry surveys that cover specific topics on a one-off basis. The following table looks at the topics covered over the past six months:

The banks cover these topics of interest to achieve a number of objectives, including:

Raising general awareness of the bank and affinity among small businesses
Positioning the bank as a small business banking thought leader
Communicating their understanding of the changing issues impacting small businesses
Highlighting their areas of strength
Differentiating the bank from its competitors

In fact, the desire for differentiation is leading banks to conduct surveys on specific small business sub-segments or on specific product areas. Recent standalone surveys of this type include:

U.S. Bank surveys of Asian-American small business owners (October 2017) and Hispanic small business owners (October 2017)
Surveys by both Bank of America (September 2017) and American Express (November 2017) on women-owned businesses
Bank of America Small Business Payments Spotlight (October 2017)
American Express Small Business Saturday Consumer Insights Survey (November 2017)

The proliferation of small business surveys that cover specific topics of interest indicate that they are effective tools in helping banks build awareness and engagement with their small business clients and prospects.

Banks ramp up advertising and marketing spend in 2016

March 1, 2017

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.