Tag Archives: Bank of the West

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.

5 Key Commercial Banking Trends in 3Q21

As the U.S. economic recovery picked up speed in the third quarter of 2021, the decline in commercial line utilization that had taken place throughout the pandemic started to bottom out. Even though commercial loans continue to decline on a year-over-year (y/y) basis, banks are reporting very strong growth in their commercial loan pipelines. In the expectation that economic growth will continue to recover and this will translate to growth in commercial loans, banks are already starting to position themselves to capture their share of this growth.

With this in mind, the following is a list of five commercial banking initiatives that banks pursued in the third quarter of 2021:

  1. Revisiting commercial banking capabilities. In a commercial banking environment characterized by changing customer priorities, the advent of innovative financial technologies and the emergence of new competitors, many banks are revisiting their commercial banking value proposition. This is seen in the articulation of new commercial banking strategies in recent company filings and investor presentations as well as in recent commercial banking videos from banks like Truist and Citi.
  2. Publishing industry-specific thought leadership. By focusing resources on industries that have strong growth potential and/or that are under-served, banks can improve ROI. One of the best ways to build engagement within these sectors is by publishing industry-specific content (e.g., articles, blogs, newsletters, reports, podcasts and webinars). Many banks also look to turn this content into a prospect generation tool by listing relevant executives (often with email and direct phone numbers) in these publications.
  3. Developing a series of branded content, which both increases awareness of this content and facilitates promotion across multiple platforms. Examples of branded content series include:
  4. Providing value-added treasury management and commercial payment tools. With businesses increasingly comfortable with applying new technology solutions to enhance business efficiency and productivity, banks have launched a number of treasury management and commercial payment tools, including:
    • Request to Pay: a real-time payments service from JPMorgan Chase
    • Integrated Receivables: an account receivables solution from Wells Fargo
    • VAM 2.0: an enhanced virtual account management solution from Bank of America
    • Integrated Payables: from Citizens
  5. Increasing focus on ESG. In addition to annual ESG and CSR reports, many banks are publishing ESG-related content for their commercial clients. Examples in 3Q21 included Bank of the West’s Means & Matters Stories of Money and Sustainability and the BMO Harris Sustainability Leaders podcast. Citizens went even further by launching Green Deposits for its corporate clients.

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.