Banks ramp up advertising and marketing spend in 2016

March 1, 2017

According to EMI Strategic Marketing’s analysis of data from the Federal Financial Institutions Examination Council (FFIEC), U.S. banks spent $17.1 billion on advertising and marketing in 2016. This expenditure represented 2.4% of bank revenues. Five banks (JPMorgan Chase, American Express, Citigroup, Capital One and Bank of America) each spent more than $1 billion, and together accounted for more than half of the industry’s total expenditure. The following chart looks at 2016 marketing-to-revenue ratios for 20 leading U.S. banks (note that for JPMorgan Chase and Capital One, marketing spend data is provided for both their retail bank charters and card-issuing units).

Most banks grew their marketing spending in 2016, as they looked to drive revenue growth in an improving economy. 10 banks reported double-digit percentage rises in their advertising and marketing budgets. In some cases (e.g., KeyBank and Huntington), the strong increases were in part the result of significant bank acquisitions.

13 banks grew their marketing-to-revenue ratios in 2016.

Half of the banks in the chart (mostly branch-based banks) have marketing-to-revenue ratios of between 1.5% and 3%.
Several banks have been ramping up their marketing spend in recent years. Between 2014 and 2016, Santander Bank’s spend nearly doubled between 2014 and 2016, and its 2016 marketing-to-revenue ratio of 4.0% was the highest among branch-based banks.
At the other end of the scale, both Wells Fargo and BB&T have ratios consistently below 1%.

Credit card-focused banks/bank charters have the highest marketing-to-revenue ratios.

Chase Bank USA (JPMorgan Chase’s card-issuing bank) had a ratio of almost 20% in 2016. The sharp rise in the ratio from 2014 and 2015 was due to both a 6% rise in advertising and marketing spend (to support the launches of Freedom Unlimited and Sapphire Reserve), as well as a sharp decline in noninterest income.
American Express increased in its advertising and marketing spend by 15% in 2016, and its ratio rose to nearly 12%.

As banks look to scale back their branch networks both to save costs and adapt to changing bank channel usage (in particular for everyday banking transactions), they are also cognizant of the potential loss of the branch’s role as a branding beacon in local markets. Therefore, it’s likely that a portion of the cost savings from branch network reductions will be diverted to advertising and marketing budgets. As a result, we may expect banks’ marketing-to-revenue ratios to gradually increase in the coming years.

Leading Credit Card Issuers Focusing Growth on Multiple FICO® Score Segments

November 10, 2016

In a recent blog, EMI discussed some key takeaways from leading credit card issuers’ 3Q16 earnings, one of which was the relatively strong growth in credit card outstandings. In this blog, we look deeper into outstandings trends to identify what FICO Score segments issuers are focusing on to grow outstandings.

Firstly, it is notable that leading issuers reported y/y growth in credit card outstandings across multiple FICO Score segments. However, there were important variations among the issuer categories:

Largest issuers: The following chart looks at y/y changes in outstandings by FICO Score for both Bank of America and Chase. (Citibank also published data on the FICO Score composition of its credit card outstandings, but these were skewed by the acquisition of the Costco portfolio from American Express, so we did not include Citibank in the analysis.) Bank of America generated low growth across most segments, as it struggles to grow overall outstandings following a protracted period of declines. Chase’s growth was concentrated in the 660+ FICO Score segment, boosted by the recent launches of both Sapphire Preferred and Freedom Unlimited.

Monolines: Capital One and Discover both generated strong growth in the lower FICO Score (660 and under) segment. This segment now accounts for 36% of Capital One’s total credit card outstandings, significantly higher than Discover (18%) and Chase (14%).

Wells Fargo: in spite of the fallout from the recent fake-account scandal, Wells Fargo continued to growth credit card outstandings in 3Q16. It reported strong growth across most FICO Score segments, with particularly strong growth in the subprime segment. However, it continues to struggle to grow superprime outstandings, as it lacks a card that can truly compete against high-profile affluent cards like American Express Gold and Platinum, and Chase Sapphire Preferred.

Regional Bank Card Issuers: SunTrust, Regions and PNC all reported strong overall growth. SunTrust reported very strong growth across all segments. Regions’ outstandings growth was concentrated in the low-prime and subprime segments. However, PNC’s outstandings growth was concentrated in higher-FICO Score segments, driven by the April 2016 launch of the Premier Travelers Visa Signature® card.

As issuers seek to continue to increase overall credit card loan growth, it is likely that they will continue to focus on multiple FICO Score segments. They will also be looking to identify underperforming segments, diagnose reasons for this underperformance (e.g., deficiencies in cards, offers or communications targeting these segments), and develop initiatives to improve performance. Similarly, issuers will want to identify if they are overly dependent on certain segments for outstandings growth or share, and whether this dependence leaves them vulnerable to changes in the macroeconomic or competitive environments.

Marketing Suggestions for Banks Looking to (re)Engage with Small Businesses

October 6, 2016

According to the FDIC, small business lending rose 5.3% between end-2Q15 and end-2Q16. Since falling to a post-Financial Crisis low of $279 billion in the third quarter of 2012, small business loans have risen 18%—to $328 billion—at the end of June 2016.

In the light of this steady loan growth, many banks are refocusing attention on the small business market. But how can banks—many of which virtually abandoned the small business credit market following the 2008 Financial Crisis—rebuild awareness, trust and engagement with small business owners? The following are five marketing approaches for banks to consider in (re)building their small business banking franchise:

Develop a small business brand. In recent years, several leading banks generated significant small business awareness by developing a dedicated small business brand. For some, these brands cover the bank’s entire small business operations. Capital One created the Spark Business brand for its small business solutions, and has launched a number of Spark-branded products and services, the most recent of which is the Spark 401(k) service. Another option is to develop a branded small business portal, and extend that branding into the bank’s small business social media presence. Wells Fargo created the Wells Fargo Works for Small Business portal, and applied this brand to social media platforms, including a dedicated blog and @WellsFargo Works Twitter handle.
Target small business segments. Banks’ commercial banking units tend to target firms based on size and industry sector, as these are seen to have distinct financial needs. In targeting small businesses, banks are better served by focusing on small business life stages, or by targeting underserved segments, such as women-owned businesses. KeyBank has established Key4Women, a nationwide community of women in business.
Create content of interest to small businesses. Banks can build trust and engagement with small businesses by developing and distributing information, news, and advice relevant to small business owners. This content should be focused on addressing common business challenges, and should ideally be brief and easy to scan (to reflect today’s content consumption patterns). Two recent good examples of small business-focused content are five tips from First Republic on how to run a better business, and tips from Capital One on buying or leasing office space. And banks should explore a range of content types, such as case studies, articles and blog posts, webinars, videos and succinct reports/white papers.
Raise awareness through small business surveys. Many leading banks are conducting small business surveys, which aim to both raise awareness and promote their understanding of small business concerns and needs. Many of these surveys are carried out on a quarterly or annual basis, and feature recurring metrics (e.g., Wells Fargo/Gallup Small Business Index and Capital One’s Small Business Confidence Score). Banks also seek to tackle other small business-related topics either in these recurring surveys or in standalone surveys (examples of the latter include TD Bank’s Small Business EMV Survey and Bank of America’s Women Business Owners Spotlight).
Develop a local presence. There are a number of ways for banks to establish a local presence:
1. Partner with key influencers (such as chambers of commerce)
2. Market branch presence. Small businesses tend to have heavier branch usage than consumers, and banks can leverage this branch affinity by promoting small business solutions (including technology tools) in branches, deploying branch-based small business specialists, and hosting small business events.
3. Promote small business-focused community groups or programs. In August 2016, Webster Bank announced a partnership with the University of Connecticut and Connecticut Innovations to establish a $1.5 million UConn Innovation Fund for new business startups.

Before developing and implementing these small business initiatives, banks should conduct research to understand how and how well they are perceived by small business owners, and to identify deficiencies in their product and service capabilities relative to competitors. Banks should also gain insights from key internal stakeholders to assess its ability to address these issues using existing resources. These analyses support investment decision making, and inform small business banking program development and implementation.