Tag Archives: BMO Harris

5 Business Banking Trends in 3Q21

Established and challenger banks responded to key changes in the small business landscape (ongoing economic recovery and the ending of PPP loans) in the third quarter of 2021 with new business banking solutions and thought leadership.

  1. Banks published surveys that gauged small business owner optimism and addressed current hot topics, such as inflation (PNC), supply chain disruptions (Umpqua Bank), access to funding (Goldman Sachs) and relationship with their financial service provider (Kabbage).
  2. FinTechs took on the established banks with new solutions. This effort was led by Square, which launched both Square Banking and Cash App Pay during the quarter. Other products from challengers during the quarter included the QuickBooks Card Reader, Credit Karma Money for small business employees and Brex Venture Debt.
  3. Leading small business credit card issuers launched new cards with high earn rates to capture a greater share of the increased card spend following the pandemic. Noteworthy examples include Capital One Spark Cash Plus (2% cash back on all purchases) and U.S. Bank Triple Cash Rewards Visa Business (3% cash back on four core categories). In addition, American Express launched a business-to-business marketing campaign (“Built for Business”) promoting its business cards.
  4. Financial firms continued to generate small business content, with new podcast services added to the suite of content options during the quarter (e.g., Regions Next Step for Business and Comerica’s Small Business Summer Series on LinkedIn).
  5. Banks rolled out initiatives for historically-underserved business segments, including black-owned business (Ally’s $30 million commitment to help grow black-owned businesses) and women-owned businesses (BMO Harris’s Women in Business Credit Program).

Leading U.S. Banks Report Modest Increase in Marketing Budgets in 2017

Marketing spend by the top 40 banks reached nearly $14 billion in 2017, up 1.8% on average from the previous year–and once again, 5 banks spent over a billion dollars on marketing. EMI analysis of bank spending reveals:

  • 30 of the 40 largest banks grew marketing spend in 2017, with 17 reporting double-digit growth.
  • As in past years, banks with national credit card franchises lead all others, in both absolute terms and in their marketing intensity (marketing spend relative to revenues). In 2017, spending among these card leaders declined, as focus shifted from acquisition to portfolio marketing.
  • Two banks notable for substantial 2017 marketing increases are Goldman Sachs Bank focused on promotion of its online lending platform, Marcus by Goldman Sachs, and U.S. Bank capitalizing on brand-building around the Super Bowl, held last week at the Minneapolis stadium bearing the bank’s name.

EMI annual analysis of Federal Financial Institutions Examinations Council (FFIEC) call report data for 40 leading U.S. banks distills both absolute spending and marketing intensity ratios, as measured by spend percentage of net revenues (net interest income plus noninterest income).  Results are reported below.

Advertising and Marketing Spending Highlights

19 banks/bank charters had advertising and marketing budgets of more than $100 million.  5 had billion-dollar-plus budgets (JPMorgan Chase, American Express, Capital One, Citigroup and Bank of America).

Of the 17 banks reporting double-digit growth, the two with the largest absolute increases in their marketing budgets were:

  • U.S. Bank: +$107 million, with a focus on growing national profile behind the increased marketing spend, including heavy branding around the Super Bowl, which was held last Sunday at the U.S. Bank Stadium in Minneapolis.
  • Goldman Sachs Bank: +$80 million, driven by an advertising campaign to promote Marcus by Goldman Sachs, its online personal lending platform.
  • First Republic was also notable for its 46% increase–a strategy that seems to have paid off with 18%+ revenue growth reported by the San Francisco-based bank in 2017.

Other banks boosted marketing spend to support new campaigns in 2017.

  • Fifth Third (+10% to $115 million) launched a campaign in May 2017 that played on its “5/3” name, promoting “Banking that’s a Fifth Third Better”
  • BB&T (+10% to $89 million) introduced a new brand campaign and tagline (“All we see is you”) in September 2017.
  • SunTrust (+38% to $220 million) rolled out its ‘Confidence Starts Here’ ad campaign in March 2017, building on its onUp movement focused on building financial well-being.

Marketing spend declines were led by:

  • Capital One: decline of $139 million, with a strong drop in spending in its card unit partially offset by a $23 million rise in its retail banking unit.
  • American Express: down $111 million, although this follows a ramp up of marketing and promotion spending in recent years.  American Express is also increasing its focus on targeting existing clients, which typically involves lower marketing spend.

Marketing Intensity Highlights

Even though 30 banks increased their marketing budgets in 2017, only 14 increased their bank marketing ratios, meaning that growth in marketing spend did not match the rise in net revenues.  Banks with the strongest growth in their marketing ratios were Goldman Sachs Bank (+183 basis points), SunTrust (+61 bps) and U.S. Bank (+44 bps).

Most retail banks have marketing ratios of 1-3%. Those with the highest marketing ratios include Santander Bank (4.1%, due to continued growth in the bank’s U.S. marketing budgets in recent years) and BMO Harris (3.4%, following a 17% rise in marketing spend in 2017).  4 banks have marketing ratios of less than 1%.  Most notable in this category is Wells Fargo, which has traditionally–and infamously–focused on sales and required much lower advertising budgets than its peers.  Wells Fargo did launch a new integrated marketing campaign in April 2017, which it reported was focused on “rebuilding trust.”  This contributed to a 4% rise in its advertising and marketing budget in 2017, but its spend levels remain well below comparably-sized banks.

We expect that banks will maintain or even increase their marketing budgets in 2018 to build brand awareness and affinity, as well as to promote new products and services–in particular those focused on digital transformation.  However, many banks remain focused on improving efficiency ratios, and marketing budgets are often on the firing line when banks look cut costs.  However these cuts–when executed without a careful strategy for maximize marketing ROI–often sacrifice market share gain and longer-term growth.

Banks’ Branch Strategies Must Involve More Than Just Closing Branches

According to the FDIC, U.S. banks have been cutting branches steadily in recent years.  Offices in FDIC-insured institutions reached a high of 99,500 at the end of 2Q09, but have declined by almost 8% since then, to less than 92,000.

offices_in_FDIC_institutions_2Q07-2Q16

Bank branch reductions are primarily driven by two factors: cutting costs in a low-revenue-growth environment; and the belief that customers’ increase use of electronic channels for everyday banking needs means that banks need fewer branches.  According to the American Bankers Association, 73% of U.S. adults identified the Internet and mobile as their preferred banking methods, with only 14% naming branches. However, customers remain committed to branches.  According to a March 2016 Accenture survey, 87% of North American banking customers expect to still use bank branches two years in the future.  A branch strategy that simply consists of branch cuts fails to take into account customers’ ongoing branch affinity, as well as ignores the significant role that branches can play in helping banks meet sales and service goals. Here are four strategies that banks can follow to optimize their branch investments:

  • Create specialist branches.  Some banks are opening offices to target specific segments, such as commercial clients or high-net-worth individuals.  For example, BMO Harris opened a commercial banking office in Dallas in June 2016, while Wells Fargo opened a Middle Market Banking office in Albany in August 2016.  These branches are located, designed and staffed to cater to the characteristics and unique financial needs of these segments.  Unlike traditional branches that tend to form part of a network, these specialists branches can operate on a standalone basis, thereby ensuring that costs stay under control.
  • Use branches to promote digital services.  Recognizing the transition to electronic channels for everyday banking transactions, banks can leverage their branch network to demonstrate the ease-of-use and value of these digital services to customers who are slow to embrace technology, while also showcasing innovations to early adopters of new technologies.  Bank of America has deployed 3,800 ‘digital ambassadors’ in its branches who help customers understand and use its online and mobile banking services.
  • Overhaul branch staffing.  Smaller branches require fewer personnel, but the staff must be comfortable with performing a range of service and sales activities.  Embracing this model, PNC plans that half of its branches will have converted to ‘universal branches’ by 2020 (18% have done so to date)
  • Scale down the overall branch footprint. As they seek to reduce branch costs, banks need to take into account the benefits of having a physical presence in markets.  This can involve using smaller branch formats (one extreme example is PNC’s portable 160-foot  “Tiny Branch” on the West Virginia University’s Morganstown campus), reducing branch density, replacing a series of existing branches with one big flagship store, or even opening new branches in high-growth/high-potential markets.  Decisions on the number, location and format of branches should be based on analyzing a number of key factors, including: competitive intensity; market size, growth and composition; current branch usage; short-term costs; and longer-term savings.