Tag Archives: bank

U.S. banks are reducing, repositioning branches

An EMI analysis of recently-published quarterly bank data by the FDIC found that U.S. banks are continuing to reduce branch numbers.

U.S. branches are very heavily concentrated in a limited number of banks:

  • Just 50 banks (<1% of all banks) hold more than than half of all branches (51%).
  • More than 6,100 banks (93% of all banks) have five or fewer branches.  And, of these, more than 1,400 branches have just one branch.

Bank branch numbers change based on bank merger-and-acquisition activity, purchase and sale of portions of branch networks, as well as organic growth.

  • Over the past year, the vast majority of banks (83%) did not change branch numbers.
  • 548 banks (8% of all banks) grew their networks by a total of 2,359 branches.  PNC had the largest growth (+421 branches), largely due to its acquisition of RBS Bank as well as an Atlanta branch network from Flagstar Bank.  Chase also had strong growth (+185 branches), driven by organic growth in key expansion markets like California and Florida.
  • 609 banks (9% of the total) reduced their branch networks by a total of 3,092 branches.  Aside from bank sales/closures, the bank with the largest decline was Bank of America, which is in the process of cutting its branch numbers by 10-15%.

Even following the reduction in branch numbers, there are almost 98,000 bank branches in the U.S., so clearly the branch channel is not going away anytime soon.  However, more and more customers are gravitating to self-service electronic channels for their everyday banking needs, so a reassessment of branches’ traditional role is needed.  At the same time, branches have untapped potential as sales, advice and marketing channels.  The following are some key areas that banks need to focus on to both right-size their branch networks and equip these branches to realize their full sales, service and marketing potential:

  • Network density.  Banks will need to determine optimal branch density in key markets, in order to maintain a significant physical presence, and deter competitive market entry, while avoiding significant overlap between branch catchment areas.
  • Branch size. Less traffic in branches will necessitate smaller branches in some markets.  Some banks are already creating a variety of branch formats to reflect different market opportunities (as defined by market profiling that covers information like the number/projected growth of people and businesses within a radius of the branch, the bank’s overall strength in the market, as well as competitive intensity).
  • Branch design.  The design and layout should reflect branches’ new sales and advisory role, with less space for teller counters, and a layout more conducive to staff-customer face-to-face interaction.  Recognizing that branches play an important branding and PR role for the banks, many banks are redesigning branches to convey a more customer-friendly image and promote connections with the local community.
  • Staffing. Again, the changing role of the branch will mean that there will a reduced need for tellers with a greater role for specialists, such as mortgage bankers, investment advisors and small business bankers.  Staff training and support tools will need to reflect their new roles in the branch.
  • Technology and channel integration. As banks change the design and staffing of branches, they are incorporating technology to showcase new products and services, connect with remote staff (e.g., using videoconferencing in the branch to connect to financial advisors), and promote other bank channels (Bank of America is using QR codes in teller counters to enable customers to download its mobile banking app.)

Trends in Bank Marketing Spend

As banks look at their advertising marketing spending, they are impacted by a number of different forces. On one hand, they are under pressure to reduce expenses in the absence of strong revenue growth. On the other, there are some signs of economic recovery (although dangers remain), as well as growing consumer and business confidence. If this confidence translates into growing demand for financial services, banks will want to be in a position to benefit from this market growth, and so will seek to grow their marketing investment. Another key issue for banks is how they direct their advertising/marketing spending, given the ongoing demise of traditional marketing categories, such as print, and the emergence of new media.

With these issues in mind, EMI Strategic Marketing studied marketing spend levels for 13 leading banks for the first 9 months of 2012, relative to the same period in 2011.  Ours analysis reveals that:

  • Overall marketing spend fell 5% y/y.
  • 5 banks reduced spending, but, significantly, these included 4 of the top 6 banks.
    • The largest percentage declines were reported by Chase and Bank of America, who both decreased spending 17%.
    • Chase had the largest dollar decline, reducing spend by $400 million. However, it is notable that Chase’s 2012 decline follows a 77% rise in marketing spend between 2009 and 2011.
  • Among the 8 banks increasing spending are:
    • Regional banks PNC, Regions and KeyBank, who grew marketing spend by double-digit rates.
    • Capital One, which has traditionally been a heavy advertiser, but dramatically scaled back its spending significantly in the wake of the financial crisis.  Since then, it has gradually returned its advertising spend to pre-financial crisis levels.

Banks pull back on marketing spend in 2Q12

A scan of second quarter 2012 marketing spend data for leading U.S. banks revealed that most reported year-on-year declines.  These declines have been driven by both general economic uncertainty, as well as the fact that many banks have recently put ambitious cost-cutting initiatives in place.  Of the 12 banks studied, only four reported y/y increases in spending.  And Capital One’s spend excluding the impact of the HSBC card portfolio acquisition was also lower than in 2Q11.

The largest declines among the banks studied were at SunTrust and Bank of America.

  • SunTrust reduced marketing and customer development spending 30% y/y in 2Q12.  Its spend for the first half of 2012 was also down 30% from the same period in 2011.  In the presentation of its financials, the bank provided an update on its PPG Expense Program, which it expects to generate $300 million in annualized savings by the end of 2013.
  • Bank of America is following a similar a pattern, with marketing spend down 20% y/y in 2Q12, and down 19% y/y in the first half of 2012.  Like SunTrust, Bank of America devoted a section of its earnings presentation to discussing its New BAC cost reduction program, which has a goal of generating $5 billion in annualized cost savings by the end of 2014.

For other banks, the declines in 2Q12 follow significant recent growth in marketing spend.

  • JPMorgan Chase’s marketing spend in 2Q12 was down 14% y/y.  This follows a rise in 28% spending in 2011.
  • Citigroup reduced its marketing budget 6% in 2Q12, following a jump of 40% in 2011.

For some banks, marketing spend patterns can be related to timing of campaigns.

  • U.S. Bancorp’s marketing and business development spend was down 11%.  However, looking at the first half of the year, spend is up 22% over the same period in 2011).
  • Capital One actually grew spending 2% over the same period in 2011, and it reported that spending in the second half of 2012 would increase, due to the timing of some marketing campaigns.
  • KeyBank increased marketing spend 6%, which it attributed to a spring home equity lending campaign.

Finally, American Express reduced spend 3% y/y, but (at $773 million) its marketing and promotion expense still represented 10% of net revenues, a much higher percentage than at other leading financial institutions.  American Express’s goal is for its marketing and promotion expense to be around 9% of revenues.