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.

Six Tips for Banks to Develop a Small Business Content Program

In a recent EMI blog post, we discussed ways that banks could re-engage with the small business market.  One of these ways was to develop content of interest to small businesses.  The development and distribution of targeted content can enable banks to re-establish credibility, act as a proof point of banks’ commitment to small businesses, and reposition banks as a key source of advice for small business owners.

The following are six tips for developing a content program aimed at small businesses:

  1. Conduct due diligence.  Survey small businesses and company stakeholders to develop insights into what content topics small business owners are interested in, how they consume content, and how they perceive banks as content providers.  In addition, banks should study competitors’ content development to identify best practices as well as approaches to avoid.  And banks should also assess content topics and styles deployed by dedicated business media, such as Inc. and Entrepreneur.
  2. Develop a content portal.  Large banks—such as Bank of America (Small Business Community), Capital One (Spark Business IQ), JPMorgan Chase (Chase for Business Resource Center), U.S. Bank (Connect), and Wells Fargo (Wells Fargo Works for Small Business)—have all developed small business portals.  These portals publish a regular stream of small business-related content, which aim to drive small business awareness, interest and engagement.  Establishing content templates and guidelines—covering content length, styles, colors, fonts, logo treatment, images and graphics, and approval processes—facilitate timely content development and publication.
  3. Focus on topics of interest to small businesses.  Content developed for small business owners tends to be focused on key business life stages (e.g., starting a business, growing, selling), and related business challenges and financial needs.  Such content positions the bank as a trusted advisor for small businesses at different stages of evolution, and can act as a catalyst for small business engagement.
  4. Utilize a range of content types.  Banks have a range of different content types at their disposal, each of which offers specific advantages in terms of developing and presenting content.  These include articles and blog posts, case studies and success stories, podcasts and webcasts, videos and infographics.  Wells Fargo has a dedicated “Wells Fargo Stories” section on its website, which include thumbnail summaries, which link to additional detail, including video.   Content should be presented in easy-to-consume formats for small business owners who are bombarded with information on a daily basis.
  5. Promote content across multiple channels.  Banks should aim to present this content across a number of channels, including social media (in particular LinkedIn and Twitter), the company website, small business media, and small business-oriented events.  In addition, this content should be adapted for use by the bank’s small business bankers in branches or on the road.  Some banks that maintain small business content and advice portals extend this branding into social media.  A standout example here is the @WellsFargoWorks Twitter handle, which mirrors the bank’s Wells Fargo Works for Small Business portal.
  6. Carry out small business surveys.  Many of the large banks now conduct and publish regular (annual, quarterly or even monthly) surveys that track business sentiment and key challenges.  These surveys help demonstrate the banks’ commitment to the small business market.  And findings from the surveys provide fodder for content development that can be used across a range of channels.  Many of these have been in place for more than a decade (PNC has published a semi-annual PNC Economic Outlook since 2003), and some include a metric that is tracked over time (e.g., the Bank of the West Small Business Growth Index).  A number of banks create market-specific versions of these surveys (U.S. Bank publishes versions of its annual small business survey for 11 markets in its footprint), which help raise the bank’s profile in these markets.  Banks have also conducted one-off surveys of current hot topics (e.g., the TD Bank EMV Survey in November 2015) or focused on targeted segments (the August 2016 Bank of America Women Business Owner Survey).

Developing relevant and engaging content across multiple media enable banks to position themselves as aware of small business ambitions and needs, and committed to partnering with small business owners to develop pathways to business success.