EMI’s annual analysis of marketing expenditure for 25 leading U.S. banks reveals that they grew marketing spending by 7% in 2019 to $15.4 billion. This rate was down from the 13% growth between 2017 and 2018.
The banks’ marketing ratio (defined as advertising and marketing spend as a percentage of net revenue) has risen steadily in recent years, growing 18 basis points (bps) to 2.92% in 2018, and by an additional 21 bps to 3.13% in 2019.
The chart below summarizes marketing ratios, marketing budgets and y/y change in marketing spending for these 25 banks.
The following are some additional takeaways from our bank marketing spend analysis:
16 of the 25 banks increased their marketing spending in 2019, with 5 increasing their budgets by more than 10%.
6 banks invested more than $1 billion in advertising and marketing. Wells Fargo joined this group for the first time in 2019, with marketing spending rising by 26%, driven in large part by the launch of the ‘This is Wells Fargo’ integrated marketing campaign in January 2019 . It has invested strongly in advertising in recent years as it seeks to rebuild its reputation following the fallout from fake account and mortgage mishandling scandals.
11 banks increased their marketing ratios in 2019, with 6 of these growing the ratios by more than 10 basis points. The largest rise was reported by Bank of America, whose 15% increase in its marketing spend led to a 38 bps rise in its marketing ratio (to 2.3%).
Banks that do not have branch networks and have national credit card franchises (American Express and Discover) had the highest marketing ratios. Capital One’s credit card bank charter – Capital One Bank (USA), National Association – had a marketing ratio of 10.3% in 2019, while its retail banking charter – Capital One, National Association – had a ratio (3.2%) more in line with peer regional banks.
It is almost impossible to project bank marketing spending for 2020, given the impact of the coronavirus pandemic on the U.S. economy in general, and the banking sector in particular. In the short term, marketing budgets will trend downwards as bank revenues are impacted by decreased economic activity. However, unlike the 2018-09 Financial Crisis, the country’s fundamentals were strong heading into this disruption, which increases optimism that the economy can recover quickly once the pandemic abates. This may lead to a robust bank marketing spending in the second half of 2020. What is more clear is banks will continue to shift their marketing budgets from traditional media (e.g., TV and print) to digital and other nontraditional media.
There’s no longer any question that banking has hit the digital tipping point. According to a 2019 American Bankers Association (ABA) survey, the banking channels used most often by consumers are online (37%) and mobile apps (36%), with bank branches now in third place at 17%. But before we declare the branch model is doomed…take note: a 2018 Celent survey found that 77% of consumers prefer visiting a branch to discuss a lengthy topic, 63% prefer a branch for investment advice, and 51% opt for a branch to open a new deposit or credit card account. And Deloitte’s Global Digital Banking Survey revealed that branch experience influences customer satisfaction more than mobile or online channels.
So while banks are investing more and faster in digital platforms, they are also looking to solve the puzzle of next-gen branch banking. Here are 3 ways that banks can reinvent their human channels to perform effectively in a digital world.
Reduce the overall number of branches, but look to open branches to expand reach.
Over the past decade, there has been a net decline of more than 13,000 bank branches in the U.S.
The pace and extent of each bank’s branch reductions have varied widely, driven largely by growth opportunities in footprint geographies and competitive intensity:
In April 2019, midwest-focused U.S. Bank announced plans to trim up to 15% of its branches by the end of 2021 as it pursues a digital-first strategy.
Wells Fargo’s branch strategy maintains significant branch presence in attractive markets, while aggressively reducing branch counts in other markets.
Lower branch density has reduced the cost of entry into some new markets. While many banks are cutting their overall branch numbers, they are also opening branches in targeted strategic markets.
In 2018, Chase announced plans to open 400 branches in 15-20 expansion markets, including Boston, Washington, D.C. and Philadelphia. As a result of this expansion, Chase’s branch network coverage will rise from 69% to 93% of the U.S. population.
Similarly, though Bank of America has reported a net reduction of more than 750 branches over the past five years, it has also opened 200 new branches, with another 400 expected to open over the next three years in markets like Cincinnati, Cleveland and Pittsburgh.
To achieve its ambition of national presence, PNC has targeted new markets with a digital-first strategy supported by a thin branch network. It recently opened branches in markets like Dallas and Kansas City, and reports these new branches are generating deposits at five times the pace that the bank would expect for a de novo branch in its legacy markets.
Reimagine branches.
Branches have long since begun transformation from service centers to…well, something else. Some banks have set an immediate course for sales, driving service transactions to smart ATMs and contact center hotlines and pulling real estate from tellers to sellers. Other FIs have redesigned select branches or entire networks as everything from experiential attractions to coffee houses to community centers.
Universal trends are fewer square feet and more open space. Matching those changes, branch headcount is lower and skill levels higher. From the nation’s largest banks to some of the smallest, branches are being reinvented.
On the regional end of the scale, 132-branch Berkshire Bank is introducing new “storefronts” in greater Boston. No tellers, but if you need to make a conference call, you’ll find free co-working spaces and event rooms. Just be prepared to have a “needs assessment” with your friendly Berkshire banker coming or going.
Global bank, HSBC deployed “Pepper,” a humanoid robot in New York City, Seattle, Beverly Hills and Miami. Likely more of a marketing play than a scalable technology innovation, the bank claimed that the presence of Pepper boosted business by 60% in New York alone.
Chase–ever practical–launched Digital Account Opening in branches, so the technology can handle the busywork leaving bankers time for providing advice (read selling). And Bank of America is in the middle of a six-year plan to renovate 2,800 branches, flat-out taking humans out of many, leaving only machines.
Oregon-based Umpqua takes a contrarian view that people want to bank with people, and invites branch traffic with cookies, chocolate coins, movie nights and marketplaces where small business clients can share their wares with retail customers.
Make physical and digital work together. Human matters.
Intuitive technology is good for reducing cost, but humans are better at driving sales, creating relationships and building loyalty. Beyond the small businesses and aging boomers who still prefer the corner bank to the cool app is the reality that in “money moments that matter,” people turn to people–whether it’s in a branch or a contact center. But those humans must be consistently positive, empathetic and “know” everything that the technology channels know. Winning banks will:
Design an onmichannel approach that enables customers to use the channel they choose with consistent experience
Recognize the brand value and acquisition horsepower of branch networks
Give your customers great digital experiences, but power your human channels with the best in technology and insights to make the most of those moments that matter
EMI analyzed 2018 marketing spend by 27 of the leading U.S. banks, and found that most banks are ramping up their investment in marketing. The rise in marketing budgets is driven by a number of factors, including:
The continued growth of the U.S. economy.
The ongoing scaling back of bank’s branch networks. This reduces their on-the-ground presence, so banks need to invest more in marketing to maintain brand awareness. In addition, cost savings from smaller branch networks can be redirected to other functions, including marketing.
The need for established banks to reposition themselves in a changing financial services ecosystem, characterized by the emergence of fintech firms and direct (branchless) banks.
Overall, marketing spending by the banks rose 13% to $13.0 billion in 2018.
17 banks grew their marketing budgets.
14 banks increased their marketing spend by double-digit rates, led by Wells Fargo (+40%), BBVA Compass (+34%) and Capital One (+30%).
The 27 banks’ cumulative marketing spend represented 2.9% of their 2018 net revenues, which represents a 17 basis point rise from the banks’ 2017 marketing ratio.
The marketing ratios of the 27 banks ranged from 11.2% for American Express to 1.0% for Wells Fargo.
A majority of the banks (16 of the 27) had marketing ratios in the 1.5% – 2.5% range.
The variation in marketing ratios is due to on a number of factors, including product concentration, size of branch networks, perceived importance of strong brand equity, as well as the timing of marketing investments (such as the launch of new advertising campaigns).
For example, American Express and Discover have no branch networks, are primarily focused on selling credit and charge cards, and have traditionally invested to maintain strong brand awareness. Therefore, their marketing ratios are more in line with fast moving consumer goods firms, rather than financial institutions.
15 banks increased their marketing ratios between 2017 and 2018.
Wells Fargo, which has traditionally had a low marketing ratio as it focused resources of its large branch network, increased its marketing spend by 40% to more than $850 million in 2018, and its marketing ratio grew by 30 bps. The strong rise in spend was in large part due to the launch of the “Re-Established” integrated marketing campaign in May 2018. It is worth noting that Wells Fargo remains well below national bank peers, such as JPMorgan Chase and Bank of America.
Other banks with strong increases in their marketing ratios include Capital One (+161 bps to 7.7%) and BBVA Compass (+57 bps to 3.3%).
