Traditional Banks Prepare for the New Digital Reality by Expanding Digital Functionality

Banking customers’ growing preference for digital (online and mobile) channels – as well as the huge number of digital challengers looking to gain a share of the market (read our December 2020 blog on segmentation among new entrants) – has led established retail banks to ramp up their investment in digital channels.

Growing digital banking users continues to be a prerequisite in establishing strong customer engagement. The onset of the COVID-19 pandemic in early 2020 was the catalyst for many reluctant consumers to use digital (online and mobile) banking channels for the first time. Many of these have continued to use digital channels even through branch banking has returned.

The top three retail banks – Chase, Bank of America and Wells Fargo – all report steady growth in active digital users. Bank of America claimed that 70% of its Consumer Banking households now use its digital channels.

Many U.S. banks also publish metrics illustrating that customers are using digital channels to carry out an range of banking activities, such as:

  • Conducting banking transactions:
    • The digital channel accounted for 68% of Region Bank’s total customer transactions
    • Interactions using Bank of America’s Erica virtual financial assistant rose 153% y/y to 94.2 million
    • 18% of UMB Bank’s consumer deposits were made using its mobile app
  • Making person-to-person (P2P) transfers:
    • Regions reported a 75% y/y rise in Zelle transactions
  • Acquiring new products and services:
    • Truist reported that 44% of new checking accounts were opened digitally
    • The digital channel accounted for 65% of U.S. Bank’s total loan sales
    • Citizens Bank’s digital sales volume rose 61% y/y
    • Huntington Bank reported that the digital channel accounted for 12% of new business deposit account production (a significant change from 0% in 3Q20)
  • Scheduling appointments:
    • Bank of America booked 871,000 digital appointments, up 31% y/y, and reported that these appointments accounted for 31% of its total financial center traffic

Obviously, banks will want to continue to enhance their digital functionality to meet consumer needs and differentiate themselves from competitors. Here are a few tips for doing so effectively:

  • Identify the bank departments, product lines or customer segments where digital channels have significant scope for growth
  • Carry out regular assessments of customer behaviors, needs and perceptions to inform digital investments
  • Conduct ongoing competitive intelligence to understand what digital functionality is now common among many banks, distill best practices, and identify competitive gaps
  • Prepare ways to counter internal barriers (e.g., organizational inertia, legacy processes) to speedy development and rollout of new digital solutions
  • Ensure that new functionality enhances the customers’ digital experience
  • Develop closer integration between digital and human service and sales channels
  • Develop plans to leverage marketing and customer communications channels to promote new digital functionality

Bank M&A Activity Increasing in 2021: Marketing’s Key Role in Merger Success

(The blog was originally posted in April 2021, and updated in July 2021.)

In recent months, there has been a series of significant U.S. bank M&A deals:

There has also been a regular stream of smaller bank acquisitions. Deals announced in recent weeks include:

  • Valley National Bancorp ($41.2 billion in assets) and Westchester Bank Holding Corp. ($1.3 billion)
  • SouthState Corp. ($40.4 billion) and Atlantic Capital Bancshares ($3.8 billion)
  • FNB Corp ($38.4 billion) and Howard Bancorp ($2.6 billion)
  • United Community Banks ($18.6 billion) and Aquesta Financial Holdings ($752 million)
  • Columbia Banking System ($17.3 billion) and Bank of Commerce ($1.8 billion)

In addition, banks are not just acquiring other banks in their entirety, but are also acquiring financial assets to plug gaps in their geographic reach or product portfolios. Recent examples:

  • In May 2021, Citizens Financial announced the acquisition of HSBC’s East Coast branch network as well as its national online deposit business.
  • In June, Regions Bank announced the acquisition of EnerBank USA, a home improvement lender.

We expect M&A activity to remain elevated throughout 2021, driven by the following factors:

  • The disruption in normal M&A activity in 2020 due to the COVID-19 pandemic likely means that potential deals put on ice over the past 12 months may come back to the fore.
  • Multiple industry surveys show a strong appetite for bank deals.
  • The current very-low interest rates will hinder organic growth opportunities.
  • Regional banks want to build scale to compete with the super-regional and national banks.
  • Acquisitions can help banks fill gaps in their product portfolio.
  • Banks are also interested in divesting units that they do not consider to be part of their core operations, and these units may be attractive to other banks looking to expand in these areas.
  • The potential for more deals between banks and fintechs is great, as banks look to build their digital capabilities, and fintechs look to grow their banking operations.
  • There has been a long-term trend of bank consolidation. Although the number of U.S. banks has declined by 35% over the past decade, there is a broad consensus that there are still too many banks in the U.S.

In announcing their deals, bank have been highlighting a number of potential benefits and opportunities. The following are some key areas where marketing departments will play a crucial role to turn this potential into reality:

  • Auditing of Marketing Assets…Including Personnel. Banks should conduct detailed audits to identify each bank’s relative strengths in various marketing categories (e.g., a legacy bank might be strong in content generation and social media, but weak in advertising campaigns and branch merchandise). It is also important to assess each marketing department’s levels of expertise and experience.
  • Brand and Logo. The first question for marketing to address: what is the brand post-merger? Most mergers simply use the acquiring bank’s brand, but there are situations where the acquired bank has stronger brand equity. And there also also examples of merging banks creating a new brand (e.g., BB&T and SunTrust merging to form Truist).
  • Positioning and Value Proposition. The merged bank’s marketing team will need to develop new positioning, value proposition and messaging that not only encapsulate the combined bank’s new identity and priorities, but that also aim to recognize the heritage of each bank.
  • Customer Migration. One of greatest threats to a successful bank merger is the disruption and potential attrition in migrating clients to the new bank (with clients dealing with potential unfamiliar platforms, processes and personnel). To optimize retention, marketing needs to conduct a comprehensive audit of all customer touchpoints and develop a detailed plan to update all customer-facing systems, processes and correspondence.
  • Branch Rationalization (and Investment). Bank mergers typically have specific cost-cutting objectives, and branch closures are one way to help achieve this objective, by eliminating overlapping branches and reducing branch density. However, the branch network will continues to perform key roles for bank in service, sales and marketing. The merger provides a perfect opportunity for banks to reposition, redesign and re-equip branches to perform these roles into the future.

In summary, marketing plays a critical role in ensuring the ultimate success of any bank merger. Furthermore, the head of marketing/CMO should have significant input into the merger process, both pre- and post-merger.