Why Japanese regional banks must enter the advertising business

Four reasons banks should enter advertising business

Japanese banks were granted regulatory permission to enter the advertising business by a 2021 amendment to the Banking Act. The advertising business’s main players are media providers and agencies. The former provide advertising media to advertisers, utilizing their own internal resources. The latter earn commissions by acting as intermediaries between advertisers and advertising media. While advertising may seem to have little if any connection to banking, entering the advertising business, particularly as media providers, actually makes a lot of sense for banks for the following reasons.

1. Banks’ appeal as advertising media: One key attribute of advertising media is reach (size of the audience reached by a medium). The absolute number of people a bank can reach may be small, but percentage reach within a given geographic area is more important than absolute reach. Many Japanese regional banks command dominant market shares in the regions they respectively serve. Another respect in which regional banks stand out from other sectors is reliability, a crucial quality for advertising media. From advertisers’ perspective, banks offer enormously attractive ad placement opportunities. Advertisers are also enthused about banks’ unrivaled ability to micro-target advertisements at consumers by virtue of their accurate data on customers’ demographics and banking transactions.

2. Exogenous changes: In the wake of cookieless digital advertising’s advent, mediafication of resources of companies with customer profile databases (e.g., mobile telecom carriers, airlines) has become a hot topic in the advertising world. Advertisers are bullish on banks in particular, given banks’ overwhelming advantage over other sectors in terms of audience coverage and neutrality. Another advantage of banks is that they have few rivals in the space they would occupy in the media ecosystem. There are currently hardly any other low-cost, locally focused advertising media. Additionally, banks’ reach extends to young consumers also. Such advantages are extremely valuable.

3. Utilization of internal resources: Banks already have relationships with many companies, enabling them to utilize their existing corporate channels for selling advertising. Their ability to access advertisers without going through advertising agencies is a major profitability advantage. Moreover, banks have the potential to not only sell advertising but also expand into consulting services by increasing their points of contact with customers. Such services might include assisting customers with data-driven marketing and development of new products/services.

4. Negligible downside risk: In the financial services sector, launching a new business usually entails a large investment. To become an advertising media provider, however, banks would not need to develop any new IT systems. They could set up the business independent of their existing systems. They consequently can minimize their initial investment by utilizing external resources such as BPO. The same applies to human resources also. Banks can launch an advertising business with minimal staffing. In sum, they can get a digital advertising business up and running swiftly. Once they do, they can expand the business as needed in accord with their strategic plan and individual circumstances.

In addition to the benefits to banks mentioned above, banks’ entry into the advertising media business will likely be more beneficial to advertisers than generally anticipated. Banks should become established media players within the next decade or less.

Banks’ public-service mission

The paramount reason why banks should enter the advertising business is regional revitalization. Banking is all about supporting local companies. By appropriately delivering information about local businesses to local residents through advertising, banks can not only spread awareness of many under-publicized products and services but also help businesses recruit workers by increasing their name recognition.

Advertising via banks can assist not only local businesses but also municipalities. Many municipalities have to disseminate a variety of information to specific local residents who need it, including information about public subsidies, emergency preparedness and healthcare. Incumbent advertising media, however, are expensive and lack the granular reach required to do the job.

What if banks fulfilled this role as highly reliable media backed by accurate demographic information? They could provide information of great value to both municipalities and their account holders. Such a service would transcend mere advertising and lead to banks helping to foster vibrant local communities by supporting companies, residents and municipalities as information hubs

The sole key to success

The advertising media business does not require much initial investment and has very low barriers to entry. If banks keep their advertising rates low and offer advertising options tailored to local companies’ needs, they should be able to attract many advertisers. Given the large number of potential advertisers among SMEs, the advertising business would likely be amply profitable for banks. Such being the case, the sole key to success is banks’ willingness to embrace one new challenge.