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.
As we enter 2022, it is worthwhile to look back on the key trends in the U.S. payments space during the past quarter, as many of these trends should continue this year.
Key credit card metrics continued to improve.
According to the FDIC, credit card outstandings rose 1.2% y/y (to $806 billion) in 3Q21, the first y/y growth rate since the first quarter of 2020.
The Federal Reserve Bank of New York reported that the credit card application rate rose throughout 2021, reaching 26.5% in October 2021 (a significant change when compared to the series low of 15.7% in October 2020)
Purchase volume rose at a 20%+ rate for most leading issuers in 3Q21
Charge-off rates remained at or near at historic lows.
Leading issuers launched new credit cards to fill gaps in their product portfolios and upgraded existing cards in key categories.
Wells Fargo launched a low-rate card called Reflect, featuring an 18-month 0% introductory rate that will rise to 21 months for cardholders who make payments on time.
U.S. Bank launched secured card versions of two existing unsecured credit cards; Altitude Go and Cash+.
Climate change-focused challenger bank Aspiration introduced the Aspiration Zero Card.
The Buy Now/Pay Later (BNPL) market continued to grow and evolve, with traditional payments players (e.g., Capital One, Mastercard) announcing plans to introduce BNPL options. Existing BNPL players reciprocated by launching card and pay-in-full options (e.g., Klarna announced plans to introduce a debit card and Affirm announced a pay-in-full option).
Gen Z and Millennials have emerged as key targets for both established and emerging payments firms.
American Express reported that spending by Gen Z and Millennials rose 38% between 2Q19 and 2Q21, while Baby Boomer spending declined over the same period. And perhaps more significantly, Gen Z and Millennials accounted for 75% of new Platinum cardmembers.
TransUnion reported Gen Z and Millennials accounted for 47% of total credit card originations in 2Q21, up from 39% in 2Q19.
However, it appears that traditional banks have not yet adapted their underwriting processes to capture this segment. A survey by Alliance Data found that 27% of Gen Zers claim to have been turned down when applying for their first credit card, a rate two times the level of any other generation.
The strong growth in digital payments (which accelerated during the pandemic) continued in 4Q21:
eMarketer predicts that U.S. e-commerce sales will pass $1 trillion in 2022.
Leading person-to-person payments provider Zelle processed $127 billion of payments in 3Q21, up 53% y/y.
We expect that most of these payments trends will continue in 2022 as consumer behaviors and preferences continue to be reshaped by the COVID-19 pandemic, and established and emerging payments providers adapt their solutions, offers and messaging to these market dynamics.
EMI’s annual analysis of marketing expenditure for 25 leading U.S. banks reveals that they grew marketing spending by 7% in 2019 to $15.4 billion. This rate was down from the 13% growth between 2017 and 2018.
The banks’ marketing ratio (defined as advertising and marketing spend as a percentage of net revenue) has risen steadily in recent years, growing 18 basis points (bps) to 2.92% in 2018, and by an additional 21 bps to 3.13% in 2019.
The chart below summarizes marketing ratios, marketing budgets and y/y change in marketing spending for these 25 banks.
The following are some additional takeaways from our bank marketing spend analysis:
16 of the 25 banks increased their marketing spending in 2019, with 5 increasing their budgets by more than 10%.
6 banks invested more than $1 billion in advertising and marketing. Wells Fargo joined this group for the first time in 2019, with marketing spending rising by 26%, driven in large part by the launch of the ‘This is Wells Fargo’ integrated marketing campaign in January 2019 . It has invested strongly in advertising in recent years as it seeks to rebuild its reputation following the fallout from fake account and mortgage mishandling scandals.
11 banks increased their marketing ratios in 2019, with 6 of these growing the ratios by more than 10 basis points. The largest rise was reported by Bank of America, whose 15% increase in its marketing spend led to a 38 bps rise in its marketing ratio (to 2.3%).
Banks that do not have branch networks and have national credit card franchises (American Express and Discover) had the highest marketing ratios. Capital One’s credit card bank charter – Capital One Bank (USA), National Association – had a marketing ratio of 10.3% in 2019, while its retail banking charter – Capital One, National Association – had a ratio (3.2%) more in line with peer regional banks.
It is almost impossible to project bank marketing spending for 2020, given the impact of the coronavirus pandemic on the U.S. economy in general, and the banking sector in particular. In the short term, marketing budgets will trend downwards as bank revenues are impacted by decreased economic activity. However, unlike the 2018-09 Financial Crisis, the country’s fundamentals were strong heading into this disruption, which increases optimism that the economy can recover quickly once the pandemic abates. This may lead to a robust bank marketing spending in the second half of 2020. What is more clear is banks will continue to shift their marketing budgets from traditional media (e.g., TV and print) to digital and other nontraditional media.