Marketing Helps PenFed Rack Up Major Growth Under Open Charter

Nation's #2 credit union strives to build share among non-military prospects while maintaining strong connections to military and first responders. To get momentum going PenFed hiked its COVID-era marketing budget and expects to outdo even that spending. But higher outlays are balanced with keen attention to data to avoid channels like Tik Tok that won't pay off.

When Gaurav Bhatia came aboard PenFed Credit Union in mid-2019, the biggest item on his plate was going to be helping the nation’s second-largest credit union keep growing through the use of a rare open national charter. It had picked that up in an emergency merger with a taxi medallion credit union. PenFed, which began as the War Department’s credit union in 1935, had expanded far beyond that beginning through multiple mergers, but continued to be dominated by military and other first responder membership.

“Our DNA is essentially serving the military and the Defense Department,” Bhatia explains, “but the open charter means that anybody can join our credit union and take advantage of the rates we offer the military community.” While PenFed serves members in all 50 states and beyond, it is particularly strong in the Washington, D.C.-Maryland-Virginia market.

The credit union’s President and CEO, James Schenck, is noted as growth-oriented leader, and Bhatia says he was attracted by the challenge of expanding under the open charter while maintaining the credit union’s strong connection with military members.

A Contrarian’s Strategy:

Less than a year after Bhatia came aboard and began implementing efforts to expand came COVID-19, which slammed the brakes on many bank and credit union marketing efforts. They zigged. Bhatia zagged.

Early on in the health crisis, many financial institutions shifted their messages to ones of overall concern, advice on how to bank during quarantines and on how to take advantage of voluntary and government-sanctioned credit relief programs. Many institutions otherwise slashed marketing budgets, anticipating the worst.

PenFed took the other tack, taking advantage of a partial vacuum in the market.

“We actually increased our marketing spending during COVID, when other brands pulled back,” says Bhatia. “It was an opportunity because media was cheap, nobody else was buying.”

That bold move came with a price tag. Comparing the “educational and promotional” lines in the credit union’s yearend 2019 and 2020 call reports indicates that PenFed increased marketing spending by over 40% year to year. The $26.7 billion in assets institution spent over $39 million on marketing for 2020.

Gaurav Bhatia increased marketing spending during COVID quote

This spending fueled growth both in the Washington, D.C., area as well as nationwide. In 2020 PenFed posted impressive results:

  • Membership rose over 16%, coming in around 2.1 million people.
  • Records were set for mortgage and consumer lending.
  • Annual earnings, adjusted for one-time COVID reserves, increased by 40% over 2019.
  • Total assets rose over 7% year to year.

“We are being bold and we are being ambitious,” says Bhatia, who has held marketing and digital positions at companies in financial services, health care and technology. He puts a premium on differentiation as a marketing strategy. Being out in front of people’s faces when others had pulled their dollars was one way to do it.

Making The Most Of Credit Union Advantages

Predating Bhatia’s time but continuing since has been PenFed’s ongoing slogan, “Great rates for everyone.” This is used in all media that the credit union taps and refers to lower rates for credit and higher rates for deposits.

“Our rates are very good so people would naturally gravitate towards us,” says Bhatia. “So our mantra has been differentiating ourselves” — light humor has been key to this — “a good brand, and a good customer experience, which we are working on.” Bhatia runs not only Marketing but also the credit union’s digital experience. He considers digital oversight critical for his job given that 95% of members transact remotely with PenFed at least part of the time.

Naturally, the banking side of the financial services business has not been keen on PenFed’s growth over the years, citing credit unions’ tax advantages and PenFed’s broad departure from the industry’s common-bond roots. PenFed’s thirst for growth has also earned a raised eyebrow from the Wall Street Journal in a profile of the credit union in 2018 that cited its rapid pace of mergers.

That’s for the lobbyists to fight over. In an interview, The Financial Brand focused on marketing issues with Bhatia, starting off with branding.

Branding Is Central to PenFed’s Image and Mission

Bhatia becomes frustrated by talk about financial institution branding being hollow, with no value.

“I consider it the Holy Grail, for us,” says Bhatia. “We spend a lot of time developing an understanding of what our brand stands for.”

Bhatia uses Google paid search results as an illustration of branding’s monetization. Take auto loans, a major concentration for PenFed.

An institution could attempt to buy traffic on the term “auto lending,” for which there would be a great deal of competition and hence a high price tag per click. Bhatia believes that if an institution has developed its brand over time, consumers will make its name part of their search strategy.

“They will Google ‘PenFed auto loans’,” he says, “and if you look at the matter on the basis of the cost and business value, you’ll see that you will pay ten times more for buying the keywords ‘auto loans’ compared to ‘PenFed auto loans’.”

“That’s what I call the power of branding,” Bhatia continues. “In the old days branding used to be all about creating an ad campaign and putting up billboards and running TV commercials. Now branding is associated with establishing trust with your members. Do they want to engage with you? What kind of customer experience do you offer them?”

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The Challenge Of Maintaining Military Connections While Serving More Civilians

Some of the nation’s largest credit unions and other providers have strong military heritage. The largest credit union is Navy Federal, and one of the most-coveted brand images among banks is that of USAA. All face a balancing act of maintaining the military family feel that made them what they are while accounting for the role played by members and customers who bank with them not through their own service but through that of family members.

Key Fact:

For PenFed, the open charter means they can go after anyone — no family or other connection necessary.

Bhatia explains that the credit union accomplishes this through two factors.

First is the universal appeal of saving money and making more on deposits. “We want to give other people the same benefits that our military members have been getting,” Bhatia explains. “We have got to deliver on that value, taking that message to the nonmilitary community while continuing to serve the military community. It’s definitely not going to happen overnight, but that’s the direction we’re heading in.”

The second element for this, under Bhatia’s direction, has been low-key humor that brings together the original member base with the desired new member component.

In the spot below, two soldiers are crawling through unspeakable muck as part of a military obstacle course. One tells the other than he joined up in order to obtain great auto loan rates from PenFed. His fellow soldier tells him that you don’t have to enlist to get PenFed benefits.

In another spot, two airborne soldiers wearing camo hurl themselves off the tail ramp of a transport and skydive while discussing PenFed advantages. They are joined in mid-air by a civilian skydiver in an outlandishly red jumpsuit, complete with a head-mounted camera, who says he’s a member too.

Other humorous spots are included in the campaign. For example, in one an Air Force colonel is waiting at a food truck when a young woman with long hair uses a PenFed gold card to pay for her meal. He exclaims that he has one too, and she replies, “Twinzies!”

As she describes all the benefits of the card, her hair begins blowing in the breeze of an oscillating fan on the food truck. The colonel, perplexed, removes his “garrison cap” to reveal his nearly bald head.

In another spot, a motorist allows a military transport to pull ahead of him for a drive-up ATM. It turns out the whole truck is full of soldiers who need to withdraw cash. And then they are joined by more troops, rappelling out of an unseen chopper.

An officer gives the civilian driver a crisp thumbs up. The driver returns it, in the spirit of cooperation.

PenFed great rates bus ads

“So we want to extend beyond our core military group, but it continues to be our price focus even as we expand,” says Bhatia. “There’s no way we want to alienate them given how long they’ve been invested with us and we continue to serve them as our primary audience.”

Building Card Accounts Means Drafting An E-Sports Army

Part of Bhatia’s drive to build on the first stages of growth under the open charter is to find ways to reach out to where they are. Sometimes this brings PenFed to unusual places.

How to Set Yourself Apart:

A key differentiation is PenFed’s sponsorship of esports. This began in 2020 with its support for The Washington (D.C.) Justice team in the Overwatch League. Overwatch is a first-person shooter computer game played by teams.

In early 2021 PenFed announced that it would expand its support to become a jersey patch partner for the young team, founded in 2018, and to begin offering a team-branded credit card. The D.C.-Maryland-Virginia market is PenFed’s prime market for its three cards.

While it might seem that the target market is Gen Z, Bhatia says the specific target is Millennials, with the opportunity to reach other generations as well.

“When we first looked at esports we thought it would be 18-year-olds playing them, but the market is more geared towards Millennials,” says Bhatia. “We did two live events with Washington Justice before COVID hit D.C. I attended both and I was surprised that people there were everywhere from 18-50.” Bhatia says he found that more people attended in family groups than by themselves.

“That was eye opening and we started sponsoring to reach Millennials,” says Bhatia. He adds says that games are typically presented both live and on Twitch, an online network for computer gaming run by Amazon, with exposure for PenFed in both venues.

Bhatia says another area he is looking at is podcasts would sponsor and produce. He sees the need for a three-part approach — be entertaining, but ultimate educate, and through the education help consumers make better financial decisions.

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Bhatia brings an unusual perspective to financial institution marketing. By education, he’s a mechanical engineer. With business degrees as well, he worked in digital jobs initially but found himself increasingly becoming part of companies’ marketing efforts. He says he’s learned to be creative along the way and the engineering side of his mind already understood the importance of data, which is becoming more integral to bank marketing.

Bhatia feels today’s financial marketer must master both sides. Communication remains critical, but sending the right message to the right person in the right way has grown even more important. In time, Bhatia thinks, “we want to get to the stage of marketing being a conversation with each end consumer.”

This underscores the importance of data, in Bhatia’s mind. Currently, a key use of data is guiding spending decisions. He says 2021 marketing spending will likely outstrip 2020 levels, but within that will be a strong focus on ROI.

So what PenFed skips will be as important a decision as what it spends on. Tik Tok is a good example. Though it’s been a hot channel for some companies, Bhatia says that when his team looked at the platform, it wasn’t the place to reach the demographic groups PenFed needs to connect with.

“Our plans are aggressive in terms of growth,” says Bhatia. “But we have to focus the money on where it matters. You can’t take advantage of every trend.”

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