As the banking industry faces headwinds, marketing tends to change quickly from an investment to an expense. But it’s been a while since executives needed to look so closely at spending.
Before cutting the marketing budget, they should consider: How is marketing different today, even compared to five years ago?
Salespeople used to be the institution’s gladiators out on the battlefield, drumming up business, and marketing worked in a sales support capacity. Now, though, it’s been given a new function; not by management, but by consumers with changing shopping habits, by the tactics of competitors, and by the advance of marketing technology.
In the first half of 2023, for example, nearly half of the “checking accounts” opened in the United States were opened by digital banks and fintechs, according to Cornerstone Advisors.
Why didn’t those consumers go to a banking institution?
It’s true, as Cornerstone Chief Research Officer Ron Shevlin points out, that Square’s and PayPal’s products enable a range of activities not possible without multiple accounts at banks. But that’s not the only reason.
Consumers didn’t “go” anywhere. PayPal went to consumers.
Disruptors courted new customers while the traditional banking “sales” team at a bank sat in their branches, unaware that certain customers were in the market for a new checking account. In a world where retail banking sales are made by institutions that go out to the customer, marketing already serves those channels. It’s the department engaged through the same digital channels PayPal uses to reach people on their computers and mobile phones.
Marketing is engaged on the most active battlefield in banking today.
Efficient Engagement at Scale is a Marketing Muscle
Rising rates have had no small part to play in 2024’s cost-cutting measures, but they also have emphasized marketing in a new way. Institutions need to stabilize and grow their books of funding, but they have a scale problem: Many have considerably more account holders today.
One of Infusion Marketing Group’s clients, for example, has 90,000 single-service households as a result of mergers and acquisitions; these are households that represent the greatest flight risk, according to the Infusion Marketing Group’s data. They also have an average balance for their accounts of $15,000.
“Yet, most banks of this size have only 2,000 or so sales staff,” Tim Keith, Infusion Marketing Group’s chief executive, tells The Financial Brand. “They will never be able to engage all of them individually. And the bank can’t count on customers complaining at the branch or calling in before taking their funds elsewhere. They will just simply and silently move their money, and they’ll never talk to anyone.”
How does the institution prevent depositor flight when it must engage so many?
Given that 78% of adults in the U.S. prefer to bank via a mobile app or website, only 29% of Americans prefer to bank in person, according to Forbes, marketing is the only way. Institutions must initiate conversations via their websites, email, social media, IP-targeted display, and (yes, even) mail because otherwise, most will not occur.
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Tactical Marketing Drives Lower Cost of Funds
Simple “engagement,” as in sending people messages, is not a solution to the scale or disruption challenges in banking. That means expensive and ineffective spray-and-pray campaigns are not effective either.
Instead, modern marketing departments imitate the value of one-to-one conversations with frontline staff within its channels. They still speak one-to-many with larger audiences than a universal banker. They tactically engage segments based on who customers are and how they use the institution. The benefit can drive straight to the institution’s margin.
Where Are People Banking?
Well over three-fourths of Americans prefer to bank via a mobile app or website.
A good example from recent banking history is the “new-money-only” campaigns offered in 2023. Institutions felt they needed to run these campaigns to keep their funding book from repricing. It was a finance challenge, but needed a marketing solution.
“We had so many rate increases in such a short amount of time—they went from 0% to 5% in what felt like a day—it’s understandable for finance to be concerned about repricing risk,” Keith explains. “But if I’m going to require new money, I may pay 5.5% to get it.”
The institution paid that high 5.5% price tag because executives assumed it could not go to the current customer base. In a spray-and-pray marketing world, they would have been right. But that misses what marketing can do today with data and technology, and the institution ended up paying a lot more to attract people who had no propensity to bank with them.
“The cost of acquiring low-propensity depositors in 2023 with new money was 5.25%, or more,” Keith observes. “Whereas the institution could have offered existing customers—in a direct offering not seen by the wider market—a 4.25% rate for the same term. By engaging people with a high propensity to bank with you (current customers have the highest propensity), our customers obtained substantial funding at a 1% lower cost.”
Banking has always had centralized pricing. It may be the “only industry on the planet where pricing is done by the finance department, not the marketing department,” as Shevlin says in his 2024 “What’s Going on in Banking” report. Marketing, though, can get better prices without setting prices. It can simply engage people with both propensity and capacity to deposit at the lowest rate defined by finance. Precision communication then drives the lower pricing.
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Institutions Have Access to Propensity & Capacity Everywhere
The average consumer has at least five and up to seven financial accounts with different providers, according to a study by MX. “In 30 years of doing this, I can tell you, when it comes to deposits, the more they have with you, the more they have somewhere else,” Keith observes.
Data now provides marketers segments within the current deposit base with the capacity and propensity to utilize more deposit products. “A good example we like is the person who has $35,000 in their checking account but has only one service with the institution. These are people who have trusted you with their core transactional dollars,” Keith says. “You can leverage that to grow the rest of their relationship.”
“By engaging people with a high propensity to bank with you, such as current customers, institutions attracted substantial funding at a 1% lower cost than new-money-only campaigns.”
— Tim Keith, Infusion Marketing Group
This year, a credit union in Virginia, for example, had a cohort of 3,500 high-deposit checking households, but they had no other product, Keith says. Executives knew that when people had a high-deposit checking and a money market account, the average balance was $85,000. “If they moved the needle only a small amount, by adding money market accounts to those relationships, they could gain the funding they needed,” he said. “And marketing can do it without using these high promo rates.”
Another example is depositors who have a high average balance in a CD that’s correlated with a checking balance. Institutions can define a marketing segment of depositors with that checking balance and no CD. “You have the profiles and benchmarks; it’s as simple as asking them for the business at a modest price,” Keith says. “The results are significantly better than what the institution got from mass campaigns.”
Eliminating Waste In Your Institution
When assessing budget cuts, executives rightly consider: Does marketing make more than we spend on it?
Today, new partners have responded by taking on the marketing costs, allowing financial institutions to pay for marketing only when it produces asset or funding growth. Companies like Infusion Marketing Group have assembled the systems, data, and skills to bet on themselves. This has allowed marketers at banks and credit unions to tie what they’ve spent to outcomes and not just to email opens and form conversions. The marketing budget (at least in part) went to an exact amount of business development.
“It’s the discipline of using both capacity and propensity to construct relevant messages that reach audiences before they’re likely to have the need,” says Infusion Marketing Group President Dan Marks.
When it comes to beating PayPal and other digital disruptors to customer needs, the timing – engaging before account holders go online – is paramount. “Otherwise, they’ve already made the decision,” Marks observes. “If they’re triggering via online activity, it’s too late.”
With about 85% of engagement occurring through digital channels, supplemented by direct mail where data indicates its efficiency, managing the ratio of marketing expense to deposit growth is Infusion’s value proposition. “Marketing can now be a profit center,” Marks says.
It used to be that executives could joke that 50% of the marketing budget is a waste: “I just don’t know which 50%.” Today, though, marketing has the tools and partners available to become exceedingly good at getting in front of consumers, winning them over, and onboarding them quickly.
Marketing can now fund itself – at least in part – just as sales does: On commissions.