5 channel takeaways from 1Q15 U.S. bank financials

April 29, 2015

The quarterly reports of the leading U.S. banks revealed a number of important channel trends:

Mobile banking is continuing its strong growth. Three of the leading U.S. banks provided quarterly updates on active mobile banking users, and each reported double-digit y/y growth in 1Q15: Chase +22% to 20.0 million; Bank of America +13% to 16.9 million; and Wells Fargo +19% to 14.9 million. According to eMarketer, more than half of adult mobile phone users are expected to use mobile banking in 2015.
Consumers are transitioning to self-service channels for a growing range of transactions. PNC reported that 50% of its consumer customers used non-branch channels for a majority of their banking transactions in the first quarter of 2015, up 7 percentage points y/y. PNC also reported that the non-branch (ATM and mobile) channel share of deposit transactions doubled from 20% in 1Q13 to 40% in 1Q15.
Many banks are slowly shrinking their branch networks. Leading banks who reported significant branch reductions in the most recent quarter include: Citibank (down 61 during the quarter, as its pursued its strategy of consolidating its presence in 7 U.S. markets), PNC (-37 branches), Regions (-33) and Chase (-31 ). Although Bank of America has closed more than 800 branches over the past three years, the net branch decline fell to 20 in the first quarter of 2015.
Some banks are growing branch numbers…and in-branch sales staff. In spite of the general perception that the branch channel is in the process of terminal decline, some banks are in fact acquiring or opening branches in order to capture growth opportunities. Huntington Bank reported the addition of 43 new in-store branches in Michigan. And even though Bank of America reduced branch numbers by 260 over the past year, it grew sales specialists by 5%.
Banks remain committed to the branch network as consumers use multiple banking channels. While electronic self-service channels have a dominant share of everyday banking transactions, branches still play a key role in areas like new account generation, customer relationship management (including cross-sell), and branding. Wells Fargo claims that its most loyal customers are not those who have the most products, but rather those who use the most channels most often. It reported that mobile banking sessions rose 38% in 2014, while branch visits remained steady.

Banks Grew Marketing Budgets and Marketing Ratios Modestly in 2014

February 26, 2015

EMI analysis of recently-published FDIC data on 2014 marketing spending for 17 leading banks found that banks are beginning to grow their marketing budgets in order to drive revenue growth in a growing economy. The scale of the increase was relatively modest, a trend that we expect to continue in 2015, as banks look to marry their desire for revenue generation with a continued need to exercise a tight rein on costs.

Specific findings from our analysis:

Total marketing spending for these 17 banks rose 4% between 2013 and 2014. 10 of the 17 banks increased their marketing budgets, 6 cut their budgets, while SunTrust’s marketing expenditure was unchanged.
Net revenues for the 17 banks fell 2%; as a result, their marketing-to-revenue ratios rose by 16 basis points to 2.84%.
Chase had by far the largest marketing budget at nearly $2.8 billion, up 2% from 2013. Four other leading banks (American Express, Citigroup, Capital One and Bank of America) had marketing budgets of more than $1 billion.
Of the 10 banks that grew their marketing budgets in 2014, 5 also showed increased revenues. The 4 banks with the lowest marketing-to-revenue ratios reported revenue declines between 2013 and 2014.
The variation in marketing-to-revenue ratios among these banks is huge. American Express and Discover are primarily credit card issuers and lack branch networks; they tend to have marketing-to-revenue ratios of 8-10%, in line with fast-moving consumer goods (FMCG) companies. National bank marketing ratios tend to be around 3%, while regional bank ratios are generally between 1% and 2%.
Even within these bank categories, there are significant variations. Capital One is a regional bank with a very significant credit card portfolio, so its marketing-to-revenue ratio (6.1%) falls between a monoline and a regional bank. Wells Fargo trailed its national bank peers in marketing spend. Although it grew its 2014 marketing budget by 8% to $613 million, its marketing-to-revenue ratio remains below 1%.

Are banks poised to boost marketing budgets?

December 3, 2014

In recent years, banks have been primarily focused on cost cutting. However, as the U.S. economic recovery continues to gain momentum, banks are identifying opportunities for revenue growth. As banks look to capture this, they will obviously be looking at the size and composition of their marketing budgets.

EMI’s analysis of the latest FDIC data for 20 leading retail banks found little evidence that banks are growing their marketing budgets. In fact, marketing spending for these banks over the first 9 months of 2014 was 2% lower than the same period in 2013. As seen in figure 1, 10 of the 20 banks reported growth in their marketing budgets, led by PNC and Capital One.

These 20 banks invested an average of 1.5% of their net revenues in marketing during the first 9 months of 2014. Although this marketing-to-revenue ratio rose 2 bps y/y, it is well below the 2% average that existed prior to the financial crisis. For banks looking to grow revenues, they will need to return marketing-to-revenue back to this 2% level.

Figure 2 shows that 14 of the 20 banks have marketing-to-revenue ratios of between 1% and 2%. For Chase, Bank of America and Capital One, the ratios are for their retail bank charters; marketing-to-revenue ratios for these banks’ credit card charters are much higher (as seen in figure 3).

Of course, banks looking to increase their marketing investment in order to grow revenues also need to ensure that these marketing budgets are effectively deployed, in order to optimize marketing ROI. The following are some considerations for banks as they prepare marketing budgets for 2015:

Consumer perceptions of banks have changed. In the aftermath of the financial crisis, banks suffered reputational damage as they were seen as key contributors to the crisis. In recent years, banks have worked hard to change their business models in order to focus on their core competencies (and this has been recently seen in improved customer satisfaction ratings). Marketing will play a key role in communicating banks’ key positioning as trusted providers of financial services and support.
Consumer banking behavior has changed. Consumer adoption of self-service-channels (online, mobile, ATM) has now attained critical mass and these channels account for a majority of everyday banking transactions. These channels create significant advertising and cross-selling opportunities (and challenges) for banks.
Bank branches have untapped marketing potential. As everyday bank transactions move to self-service channels, banks are cutting branch numbers and reinventing various aspects of the branch (size, layout, staffing, integration with other channels). Banks should also consider the fact that the branch is the key physical expression of the bank brand, and should allocate a portion of their marketing budgets to capturing branches’ marketing potential.
Bank need to embrace non-traditional marketing channels. Younger demographic segments (such as millennials) have very different media consumption patterns than their older peers, with significantly higher usage of online/mobile and social media. However, banks’ innate conservatism has resulted in their failure to fully embrace new embrace new media. Banks need to both significantly increase their investment in non-traditional marketing channels, but also find innovative ways to convey their core messages to a new audience.