The Digital Marketing Wave Hits Banking, and Valuations are Skyrocketing

The traditional marketing method for banks was the simplest: literally, the branch on the corner.  It’s how most customers chose their primary bank.  Of course, within any given town or driveable area, there may have been multiple primary banking options, and from that selected set of competitors, consumers would choose their primary bank based on more traditional factors: quality of service, price (meaning APY for savings accounts, APR for credit products, fee structures, etc.) and availability of add-on services like safety deposit boxes, notaries, and free dog treats (really - branches that stopped offering dog treats often see customer attrition).  But the primary means of “discovery” was word of mouth, or driving around town to see what banks were in the area, or using what customers have always used, simply because the location was convenient.  This plays out in terms of switching behavior: it is very unlikely for customers to switch banks unless geographic necessity requires it.  If I move to a new town, and I can’t access free ATMs or get a cashiers check at a moment’s notice, I’ll likely shop around for a new bank.  Otherwise, it’s a fairly sticky product.

However, the digital (and really, the mobile) age has shifted the game.  In a more cashless society, ATMs and physical banking presence are less critical pieces of the banking offering.  The universe of possible options is no longer bounded to what is physically present in my town - I can consider any bank with a digital offering (and often some partnership to allow local cash access).  Plus, the traditional argument against digital banking has always been, “internet-only companies are less secure than a traditional bank;” but with major breaches hitting major players like Capital One and Equifax (thus exposing many consumers’ banking information), some modern challenger companies are built on more secure tech stacks.

For the cohort of companies leading the digital banking wave, they rely primarily on digital marketing to fuel their growth.  Chime, which this week achieved a new post-money valuation of $14.5B, has grown through best-in-class SEO.  Smaller players like Current, N26 and Monzo also don’t have any branches to spread the local word - indeed, their strategy of low fixed cost software-like delivery is predicated upon using fixed-cost savings to deliver better prices to customers.  This raises the importance put on digital marketing to open the upper funnel and draw in customers.  Current has explored an influencer marketing strategy, which has shown some success in attracting younger Gen-Z customers.  N26 has launched a refer-a-friend program, leaning into existing customers’ social networks to juice demand (though they also purchase more tradition OOH placements to complement their digital strategy).  In order to stay relevant, traditional banks will not only need to address their fixed-cost weight on branches, and the quality of their digital offerings - they will need to learn to match new entrants’ digital marketing creativity as well, if they want to stay relevant in the mobile banking era.