How bank brands must adapt to a new and evolving playing field

As we delve into the sprawling banking sector, we assess how the leading banking brands have performed over the last year and identify major trends affecting the market – from disruptive new technologies and regulatory changes to shifting demographics and markets.

Sluggish growth and stagnant filing rates in the West

Figure 1: Revenues of the top 200 global banks ($ billions)

Source: SNL Financial, EY analysis

A decade on from the global financial crisis of 2008 and the banking sector continues to feel the shockwaves. While a plethora of regulatory policies targeting the finance industry have helped to reduce volatility in the market’s long-term outlook, they have also eliminated some potential avenues of growth and have had a significant impact on profitability levels across the board. Today, many banks are still finding it difficult to achieve and maintain organic growth in this new environment. As Figure 1 illustrates, even among the leading 200 global banks, revenue growth has been sluggish, having increased barely 4% between financial years 2011 and 2015.

Figure 2: Total brand value by country – 2007

Source: Brand Finance

Having been hit harder by the crisis – and thus subsequent regulations – than their counterparts in emerging and developing markets, many Western banks have found it difficult to keep pace. In addition, US and EU banks have been plagued by a number of scandals in recent years, such as the discovery of 3.5 million fraudulent accounts at Wells Fargo and Deutsche Bank’s $7.2 billion penalty payment to US authorities over an investigation into mortgage-backed securities. That these factors have had an effect on their perceived brand values can be seen when looking at the aggregate brand value of the top US and EU banking brands; in Figures 2 and 3 the United States, the United Kingdom and France have all seen their share of the total brand value by country drop by a considerable margin between 2007 and 2018. The leading banking brands from the United Kingdom, France, Germany and Italy – HSBC, BNP Paribas, Deutsche Bank and Intesa Sanpaolo respectively – all declined in brand value in 2017. However, there has been some bounceback: Deutsche Bank and Intesa Sanpaolo have shown moderate increases in brand value this year, while BNP Paribas has managed to prevent a further drop. As noted by Brand Finance, the decline of HSBC’s brand to $22.9 billion in the 2016 to 2017 period was in actuality a reasonable performance for a UK-domiciled bank considering the devaluation of the pound following the result of the EU membership referendum.

Figure 3: Total brand value by country – 2018

Source: Brand Finance

Of course, the other standout story here is the rise of Chinese banks. In 2007 the combined brand value of the top Chinese banks made up only 0.26% of the total brand value of the world’s 500 most valuable banking brands. Fast-forward to 2018 and this proportion has rocketed to 27%, meaning that Chinese brands now collectively wear the crown in the banking sector.

Figure 4: Number of filings globally in Class 36 with the terms ‘banking’, ‘bancarios’, ‘bancaires’ or ‘geldgeschäfte’

Source: Compumark

*2017 data has been extrapolated

According to data from trademark searching and watching platform CompuMark, overall banking-related filings in Class 36 (insurance and financial services) have been relatively static in recent years (see Figure 4), which should not be too surprising given the slow growth of the banking sector as a whole. However, this data does not include certain growth markets, including China. As we will later see, filings from Chinese applicants in this sector will likely continue to be firmly on the ascendant and account for a sizeable portion of the total global filings for banking-related trademark applications.

Adapting to a new wave of challenges

The financial services industry as a whole was permanently altered by the financial crisis, but the banking industry continues to undergo a dramatic transformation. Digital Banking Report’s 2018 Retail Banking Trends and Predictions surveyed a panel of over 100 global financial services leaders for their thoughts on key trends in the banking sector for the seventh year in a row. As seen in Figure 5, a focus on a customer-centric approach, the use of advanced analytics and enhancing multichannel delivery are predicted to be the main drivers of change.

It is worth highlighting the fact that this list has remained fairly static. Compared to research from 2017, the predictions and order of trends have remained the same with the exception of only one (the testing and use of blockchain technology). Jim Marous, owner and publisher of the Digital Banking Report, states: “The fact that the list of trends identified by the financial services industry has remained relatively consistent could be a symptom of a greater problem. The banking industry is moving much too slow, and legacy firms are failing to differentiate themselves.” Indeed, Deloitte’s Banking Outlook for 2018 notes that most banking organisations are yet to experience the customer-centric transformation that other industries have gone through, meaning that they risk losing control of the customer experience. The issue can be tackled in a variety of ways, including collaboration with financial technology firms, greater organisational agility and the exploitation of advanced data analytics and new technologies.

Figure 5: Key trends in the retail banking industry for 2018

Source: Compumark

*2017 data has been extrapolated

For example, artificial intelligence (AI) is predicted to have a significant impact on the banking industry, with the use of chatbots emerging as an inexpensive way for banks to introduce AI into their services. Yet, while new digitally savvy companies have successfully drawn in new customers with such user-friendly services, traditional banks have not been as quick on the uptake. Data from CompuMark reveals that trademark filings related to chatbots in the financial sector remain extremely small.

In the wake of the financial crisis and a number of subsequent scandals, customer trust is at an all-time low. This can also be attributed to growing concerns over privacy and security, especially as consumers move more of their personal and financial information online. In PwC’s 17th Annual Global CEO Survey, 71% of banking and capital markets CEOs considered cyber insecurity a threat to their business prospects – more than any other sector. One of the biggest stories in 2017, the massive data breach of Equifax, in which over 694,000 UK customers and 143 million US customers may have had their personal data compromised, emphasises the utmost importance of cybersecurity for banking institutions moving forward in an increasingly digital world.

There are myriad other developments that banks will have to consider too, from unprecedented geopolitical changes such as Brexit – which has required banking institutions to set up new operational entities in Europe and deal with a new set of legal and financial hurdles – to the volatility and uncertainty of cryptocurrencies. Regardless, what will be key for all banking organisations is that they carefully consider their current customer bases and the markets in which they operate, so that they can simplify, innovate and restructure their services and develop a strategy that can adapt to all the possibilities in an industry with a highly uncertain future.

How top brands performed

The total value of the world’s 500 biggest bank brands has increased by 10.2% in the last year. However, this belies the falling importance of bank brands in comparison to other sectors: while three banking brands were listed among Brand Finance’s top 10 global brands back in 2007, today only one (ICBC) does. Instead, tech firms have shot up to dominate this list – the likes of Apple, Amazon, Facebook and Google are another growing and serious threat for banks as the consolidation between digital services firms and financial institutions continues to gather steam. These all-encompassing tech brands can adapt more quickly to modern consumer expectations via multi-platform services and many have already begun to offer their own financial services.

Nonetheless, while there has been a significant amount of fluctuation in bank brand values generally, the top 10 brands have mostly demonstrated strong growth over the last year.

Figure 6: Top 10 banking brands by brand value

Source: Brand Finance Banking 500 2018

From this, the growing influence of Chinese bank brands is apparent: all of those featured in the top 10 have performed better than their Western competitors. The main story last year was ICBC’s meteoric rise as it ousted Wells Fargo from the top spot. This year the gap has widened still further. Before 2017, the US banking giant had held the title of the world’s most valuable banking brand for four consecutive years. Its reputation took a hard hit from the aforementioned accounts scandal, which led to a criminal investigation of its employees and the resignation of its CEO. Although its brand has shown signs of recovery in 2018, its growth pales in comparison to even the second most valuable Chinese bank brand – China Construction Bank – and Wells Fargo has consequently been pushed lower down the rankings into third place.

The other notable change is Santander’s drop off the top 10 (despite a slight growth of 2% in brand value). Its place is taken by JPMorgan, a significant move given that Chase Bank – its retail and commercial banking arm – is already the fifth most valuable banking brand in the world (although it will undoubtedly remain under pressure from Agricultural Bank of China’s fast-improving brand).

The race continues to be dominated by US and Chinese brands; while UK-based HSBC is the exception on the list, it is also the only one to have declined in brand value over the last year. The effect of Brexit still hangs heavy over the United Kingdom and the country’s banking brands have experienced much slower growth compared to their European neighbours in France and Spain.

In terms of the number of active trademark applications among the leading 10 banking brands from 2017, Citi has by far the largest trademark portfolio, according to data from intelligent trademark management platform TrademarkNow (see Figure 7). In recent years, it has made a concerted effort to expand its trademark portfolio, with 277 new filings and the creation of 110 new brands in 2017 – figures that vastly exceed those of the other nine banking brands.

Figure 7: Top 10 2017 banking brands by trademark portfolio size

Source: TrademarkNow

On the other hand, the number of new trademark applications and brands for ICBC has decreased year on year since 2014. That it nevertheless managed to secure the top spot in this brand valuation table is testament to the robustness of its overall brand image among its consumer base and the strength of its smaller portfolio.

China enjoys success but difficulties lie ahead

Chinese banking brands have, for the most part, consistently outperformed their Western counterparts. As seen in Figure 8, the top five Chinese banks have steadily climbed in brand value since 2011 – the only exception being Agricultural Bank of China’s decline in 2017, which was precipitated in large part by a high-profile sexual harassment claim, followed by a $215 million penalty over money laundering violations, although it has since bounced back. In 2017 the fastest-growing brand was also Chinese: Harbin Bank’s brand value rose by a staggering 199%.

Figure 8: Top five Chinese banking brands by brand value ($ millions)

Source: Brand Finance

The improvements and growing influence of Chinese brands in this space can principally be attributed to the country’s immense population, particular features of which include a rapidly growing middle class, as well as sturdy organic growth that has led to strong demand for foreign acquisitions. These factors have created an abundance of opportunities for local financial services providers. Moreover, Chinese banks have established customer relationships that differ drastically from those of Western institutions. With far fewer scandals and a marked preference among consumers for domestic brands, the Chinese banking sector has fostered much greater levels of loyalty among the Chinese population.

Additionally, Chinese applicants are prolific filers in the financial services space. Although language barriers make it difficult to hone in on the number of filings related to banking terms, the steep rise in Class 36 filings overall plainly demonstrates the impact that China has on the financial market as a whole.

Figure 9: Number of Chinese filings in Class 36

Source: Compumark

*2017 data has been extrapolated

As noted by PwC in its Retail Banking 2020 report, local markets will likely remain closed to outsiders as nations seek to get a better handle on their financial systems within their own borders. This will also apply to China, which is already a traditionally restricted market. Thus, the growth of the local banking scene in China will not be one from which foreign financial institutions can easily benefit, with the exception of specific regional and bilateral trade pacts over the next few years.

Although China’s growth outlook remains solid, it is not all smooth sailing. Profit growth has been increasingly tightened in recent years and a greater volume of risky debt has been accumulated in order to counteract this. Some commentators have voiced concerns that the country is encouraging growth by convincing lenders to support weaker firms, which in a worst-case scenario could lead to the beginning of an economic downturn; although, the likelihood of such a situation is debatable. In addition to lower profitability, liquidity will be an issue of paramount importance in the near future. The fall in Agricultural Bank of China’s brand value is proof of the fact that continued success in China is no guarantee.

There is no doubt the banking industry is in the process of undergoing a historic transformation – even if its leading players have been slow to respond and reluctant to adapt. Although there is seemingly an endless list of risks and factors for proactive banking institutions to consider, equally there is a wealth of opportunities to be capitalised on. With a customer-centric approach consistently being identified as the number-one trend for the future of banking, developing and focusing on a strong brand image is more important now than ever before.