Category Archives: Marketing

Bank M&A Activity Increasing in 2021: Marketing’s Key Role in Merger Success

(The blog was originally posted in April 2021, and updated in July 2021.)

In recent months, there has been a series of significant U.S. bank M&A deals:

There has also been a regular stream of smaller bank acquisitions. Deals announced in recent weeks include:

  • Valley National Bancorp ($41.2 billion in assets) and Westchester Bank Holding Corp. ($1.3 billion)
  • SouthState Corp. ($40.4 billion) and Atlantic Capital Bancshares ($3.8 billion)
  • FNB Corp ($38.4 billion) and Howard Bancorp ($2.6 billion)
  • United Community Banks ($18.6 billion) and Aquesta Financial Holdings ($752 million)
  • Columbia Banking System ($17.3 billion) and Bank of Commerce ($1.8 billion)

In addition, banks are not just acquiring other banks in their entirety, but are also acquiring financial assets to plug gaps in their geographic reach or product portfolios. Recent examples:

  • In May 2021, Citizens Financial announced the acquisition of HSBC’s East Coast branch network as well as its national online deposit business.
  • In June, Regions Bank announced the acquisition of EnerBank USA, a home improvement lender.

We expect M&A activity to remain elevated throughout 2021, driven by the following factors:

  • The disruption in normal M&A activity in 2020 due to the COVID-19 pandemic likely means that potential deals put on ice over the past 12 months may come back to the fore.
  • Multiple industry surveys show a strong appetite for bank deals.
  • The current very-low interest rates will hinder organic growth opportunities.
  • Regional banks want to build scale to compete with the super-regional and national banks.
  • Acquisitions can help banks fill gaps in their product portfolio.
  • Banks are also interested in divesting units that they do not consider to be part of their core operations, and these units may be attractive to other banks looking to expand in these areas.
  • The potential for more deals between banks and fintechs is great, as banks look to build their digital capabilities, and fintechs look to grow their banking operations.
  • There has been a long-term trend of bank consolidation. Although the number of U.S. banks has declined by 35% over the past decade, there is a broad consensus that there are still too many banks in the U.S.

In announcing their deals, bank have been highlighting a number of potential benefits and opportunities. The following are some key areas where marketing departments will play a crucial role to turn this potential into reality:

  • Auditing of Marketing Assets…Including Personnel. Banks should conduct detailed audits to identify each bank’s relative strengths in various marketing categories (e.g., a legacy bank might be strong in content generation and social media, but weak in advertising campaigns and branch merchandise). It is also important to assess each marketing department’s levels of expertise and experience.
  • Brand and Logo. The first question for marketing to address: what is the brand post-merger? Most mergers simply use the acquiring bank’s brand, but there are situations where the acquired bank has stronger brand equity. And there also also examples of merging banks creating a new brand (e.g., BB&T and SunTrust merging to form Truist).
  • Positioning and Value Proposition. The merged bank’s marketing team will need to develop new positioning, value proposition and messaging that not only encapsulate the combined bank’s new identity and priorities, but that also aim to recognize the heritage of each bank.
  • Customer Migration. One of greatest threats to a successful bank merger is the disruption and potential attrition in migrating clients to the new bank (with clients dealing with potential unfamiliar platforms, processes and personnel). To optimize retention, marketing needs to conduct a comprehensive audit of all customer touchpoints and develop a detailed plan to update all customer-facing systems, processes and correspondence.
  • Branch Rationalization (and Investment). Bank mergers typically have specific cost-cutting objectives, and branch closures are one way to help achieve this objective, by eliminating overlapping branches and reducing branch density. However, the branch network will continues to perform key roles for bank in service, sales and marketing. The merger provides a perfect opportunity for banks to reposition, redesign and re-equip branches to perform these roles into the future.

In summary, marketing plays a critical role in ensuring the ultimate success of any bank merger. Furthermore, the head of marketing/CMO should have significant input into the merger process, both pre- and post-merger.

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.

Five Strategies for Turning a Virtual “Oh Well” Event into a Success

Almost six months into our new reality of social distancing and virtual everything, we are now seeing articles, including a recent one from Wealth Management , wondering whether in-person conferences are dead. This speculation is fueled by questions about when it will be safe to mingle inside with hundreds of other people and by a growing recognition that virtual conferences – when executed creatively and thoughtfully – not only can have advantages over in-person but that there are ways to mitigate the disadvantages. The key, as we discussed in a previous post, is to think about virtual not as a “better-than-nothing” substitute, but as a viable alternative.

In this vein, we have developed a list of the key components for developing a strong virtual conference strategy that can help sponsors and speakers to maximize their value:

  • Get intimate. To a great extent, conference experiences are defined by physical limitations of space: 50 breakout sessions with 5 people in each or 100 one-on-one private discussion sessions would be very difficult to manage. But, within reason, you can in a virtual environment. Speakers can break an hour-long session into three 20-minute sessions each serving a smaller, more homogenous audience. Speakers and sponsors can also set up and promote virtual office hours for private discussions.
  • Short and sweet. Combat the disengagement effects of distractions and lack of physical proximity by making the presenting part of sessions shorter and the Q&A longer. Leverage the polling and “hand raise” features of most virtual meeting platforms to solicit and field comments and feedback to better engage the audience. (Pro tip: If you’re a speaker, make sure you have some “friendly” attendees who will get the interaction started with questions in case other attendees are hesitant.)
  • No limits. In a virtual world, time and space are no longer a barrier to engagement. Sponsors should powerfully leverage more senior management, who only need to make themselves available for short periods rather than committing to days of travel and attendance. Speakers are also likely to obtain greater participation from a broader range of partners and panelists who don’t have to weigh the benefits against the days out of the office.
  • The Journey not just The Destination. With live conferences, there’s a tendency to under-leverage the pre- and post-conference opportunity because you know that the time spent together in (fill in hotel in Florida here) will be what makes the event worthwhile. Sponsors can work to make up for the loss of that capstone opportunity by making better use of the pre- through post-conference communications to engage and spur conversation. Pre-conference, ask attendees what they want to get out of the conference and develop a connection to a sales resource. During the conference, use social media to initiate conversations. Post-conference, ask what they found valuable and send out related content.
  • Value-added on-demand. One of the best things about virtual conferences is that everything can be recorded and shared afterwards. Sponsors can use that as an opportunity not only to broaden the reach of their content, but also to further engage with their customers. Consider offering commentary and curated lists of sessions/topics that would be of interest, both to customers who registered/attended and even those that did not.

The bottom line is that many 2021 conferences have already announced as virtual. For B2B companies, the investment in these events is too great to just cross our fingers and hope that things return to normal soon. Necessity is the mother of invention: It’s time to develop approaches that make the most of our “new normal”.