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%.
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%.
EMI analyzed bank marketing data of 25 leading U.S. banks and found a 4% y/y decline in marketing expenditure for the first nine months of 2013. During this period, marketing spending accounted for 2.6% of net revenues.
Our analysis finds that marketing expenditure levels and changes vary significantly by bank type .
Monolines: These banks are characterized as having a strong dependence on their credit card operations. The three banks in this segment—American Express, Discover Financial and Capital One—allocated 7.8% of their revenues to marketing in the first 9 months of 2013. Capital One’s spend levels are relatively lower, as it has transitioned over the past decade to be more like a full-service bank, with a network of 900+ branches. The ‘monoline’ segment is also bucking the overall trend, with a 4% y/y rise in marketing spend.
National banks: These megabanks invest about 2% of revenues in marketing to promote their brands, support their extensive physical and virtual channels, and advertise their wide array of financial products and services. As these banks (which include JPMorgan Chase, Wells Fargo, Citigroup and Bank of America) are under pressure to maintain profitability in a low/no growth environment, they reduced marketing spend 8% y/y. Wells Fargo stands out, insofar as its marketing spend as a percentage of revenues is much lower than its peers, as it has traditionally focused its revenue-generating activities on its branch network. However, Wells Fargo was the only one of these four national banks to report y/y marketing growth for the first three quarters of 2013.
Regional banks: The 18 regional banks analyzed by EMI allocated 1.6% of their revenues to marketing over the first 9 months of 2013. Under pressure to cut costs and maintain profitability in the absence of revenue growth, these regional banks cut marketing budgets by 13%, led by large regionals like KeyBank (-31%) and SunTrust (-29%).
The extent to which banks ramp their marketing spend will be based on whether they see significant revenue growth opportunities, which in turn is dependent on economic growth. And there are some positive signs in this regard, with the OECD projecting that U.S. GDP growth will rise from 1.7% in 2013 to 2.9% in 2014 and 3.4% in 2015.