An EMI Strategic Marketing analysis of 30 leading U.S. banks found strong overall growth in marketing budgets for the second consecutive year. Following an 18% decline in 2020 in the midst of the COVID-19 pandemic, these leading banks have grown their marketing budgets by 53% over the past two years.
These banks’ average marketing ratio (marketing spend as a percentage of net revenues) rose by 34 basis points (bps) to 3.65% in 2022.
There is significant variation in bank marketing ratios between – and within – different banking categories.
Card-centric banks like American Express and Discover tend to have high marketing ratios as they have national reach but no branch networks.
Direct banks also have relatively high marketing ratios as they lack branch networks. Newer challenger banks are also investing significantly in marketing to build customers, deposits and assets.
More ‘traditional’ bricks-and-mortar banks typically have marketing ratios in the 1-3% range, although even in these categories we see significant variation as individual banks pursued different marketing objectives. Regional banks like Cadence Bank (+285% to $42 million) and BMO (+23% to $128 million) ramped up budgets in 2022 to promote brand overhauls. Super regional banks like Citizens (+38% to $184 million) and M&T Bank (+41% to $91 million) significantly grew their marketing spend to support entry into new markets following recent acquisitions.
Going into 2023, the projected trajectory for bank marketing spend is less clear, with rising inflation and slowing economic growth forcing banks to look for ways to reduce expenses. In addition, because they have grown budgets in recent years, some leading banks may decide to pause or even scale back their marketing budgets in 2023. However, many have stated their commitment to maintaining or even growing their marketing investment to support specific business strategies.
Discover expects double-digit growth in marketing spend as it pursues growth opportunities in credit card and deposits. It also claims that it continues to see strong returns on its investments.
Fifth Third plans to increase marketing spend in the mid-single digits in 2023 as it targets customer acquisition in the Southeast.
Axos Bank is maintaining higher spend levels as it seeks to grow deposits in an increasing competitive market.
Leading U.S. credit card issuers continued to roll out new credit cards, as they look to attract new clients, cross-sell and upsell existing clients, and win a greater share of clients’ spending.
The following are the common trends or standout elements that we identified among these new cards. (Note that the table at the end of this blog provides a comparison of features/benefits of 10 cards that were introduced over the past 12 months.)
Introductory offers are focused on generating balance transfer volume. 7 of the 10 cards have 0% introductory offers on either purchases and balance transfers or balance transfers only. 6 of these 7 introductory offers have a duration of at least 12 months.
Some cards offer a high earn rate on all purchases. One approach to using rewards to attract and retain cardholders as well as drive more spending is to have an earn rate of more than 1% on all purchases. The Citizens Bank Cash Back Plus® World Mastercard® stands out with an earn rate of 1.8% on all purchases with no limit and no annual fee. The Barclaycard Arrival® Plus World Elite Mastercard® offers 2 miles per dollar on all spending, but carries an $89 annual fee (waived first year).
Issuers continue to offer tiered earning structures. To drive card preference and grow spending in categories where cards have traditionally had a low share, many new cards continue to use tiered rewards structures, with higher earning on categories like travel, gas, dining and groceries. It is worth noting that these bonus earn rates do not come with monthly or annual spending caps.
Acquisition-and-activation bonus offers persist. Issuers continue to promote bonus points/miles/cash back for activating the card and meeting a minimum spend requirement within an initial period (typically three months). Higher-end cards that carry an annual fee also tend to have higher bonus levels. Wells Fargo Propel American Express Card is looking to differentiate itself from competitors with a dual bonus structure: acquisition-and-activation bonus of 30,000 points and an additional 20,000 points for reaching a spending threshold in the first 12 months.
Cards are offering redemption bonuses. Some issuers are looking at rewards redemption as an opportunity to engender loyalty and preference. Cards are offering bonuses:
Most cards apply a fee on balance transfers, usually a rate of 3% with a minimum of $5 or $10. Navy FCU’s Visa Signature Flagship Rewards has no BT fees. For its SavorOne℠ Rewards Card, Capital One imposes a fee of 3% during the card’s 15 month introductory period. After this introductory period, there is no fee on balance transfers.
Like BTs, most cash advances come with a fee (of 3% or 5%, with minimums of $5 or $10). Again, Navy FCU stands out with no fee on cash advances.
No foreign transactions fees are quickly becoming the norm, even on non-travel-based cards.
In recent years, leading U.S. credit card issuers have changed their focus from simply acquiring new customers to optimizing relationships with existing cardholders. A key element to the overall success of this strategy is the ability to motivate newly-acquired cardholders to start—and continue—to use the card. According to The Nilson Report, the average credit card activation rate (active accounts as a percentage of total accounts) for the top 50 Visa and Mastercard issuers was 57% in 2017. However, there is significant variation among issuers. For example, Citibank had a credit card activation rate of 68%, while Fifth Third’s was just 49%. Low activation rates represent a lost opportunity in optimizing customer lifetime value, as well as a waste of marketing resources expended in cardholder acquisition.
Here are 10 key considerations for boosting credit card activation rates.
Benchmark current credit card activation performance. The starting point involves gaining a strong understanding of your current activation rate, how this rate has changed over time, and how it compares to competitors’ rates. Also study previous and current activation rates to identify the primary factors contributing to the current rate.
Conduct customer research. Analyze customer data to size and profile the inactive cardholder base. Conduct additional primary research to identify key card activation triggers and barriers.
Develop a credit card activation plan. With input from all relevant stakeholders in the organization, develop an integrated credit card activation plan. Create a team dedicated to implementing the plan, and assign roles and responsibilities. Develop an integrated series of initiatives, and establish a timeline to roll out these initiatives and measure progress against plan objectives.
Create bonus offers. Most credit card bonus offers are based on acquisition and activation, with the cardholder receiving the bonus (points, miles, cashback) if they meet a certain spending threshold within a period following acquisition (typically 60-90 days). Higher-end cards (many of which carry annual fees) have larger bonus offers. Chase recently launched the Marriott Rewards Premier Plus Card, featuring 100,000 bonus points if the cardholder spends $5,000 within three months of account opening. A variation on the bonus offer is to have higher earn rates on specific spending categories for an initial period.
Develop pricing to drive activation. Set pricing levels (interest rates and fees) to encourage the cardholders to start using the card. One common approach is to have 0% introductory rates on balances transfers for transfers made within an initial period. For example, the new BBVA Compass Rewards Card has a 0% introductory rate for 13 months for balance transfers made with 60 days of account opening.
Focus on cardholder onboarding. Develop a communications plan to engage with new cardholders during the crucial initial 90-day period. These communications should welcome the cardholder, reinforce the card’s key strengths and differentiating features, highlight incentives, and encourage card usage.
Adjust sales incentives. Consider tweaking incentive plans to reward front-line sales people for their customer activation efforts.
Leverage cardholder usage of different service channels. Many cardholders use multiple channels (desktop, mobile, branch, call center, social media) to engage with their financial services provider. Develop messaging across these channels to promote card benefits and highlight the need for activation.
Create financial education tools. Many financial firms are investing in financial education tools using multiple media to boost overall financial literacy and to enable consumers made smart decisions in using a variety of financial products and services, including credit cards. Developing and sharing content around managing a credit card effectively can both build affinity with your company and encourage the cardholder to use the card responsibly.
Review performance. Following the launch of your credit card activation initiatives, identify and address any issues in implementation, track performance relative to objectives, and incorporate learnings into ongoing card activation efforts.