Banks and Credit Unions Must Improve Cross-Selling Efforts

Despite the fact that banks and credit unions have talked about the importance of cross-selling for decades, few institutions have a disciplined process to take advantage of cross-selling opportunities that can grow operating revenue from existing customers. 

For those organizations that do have a process in place, studies show that many are not targeting the offers to reflect insights readily available, thereby annoying some of the best customers.

Outside of an improved interest rate spread (which is unlikely in the foreseeable future), banks can only create revenue by adding new customers or by deepening existing relationships. At a time when competition for new customers has never been greater from both traditional and non-traditional players, the only sustainable opportunity is to sell more to the customers a bank or credit union already has.

While the findings differ a bit by study, research shows that U.S. adults own between 8-12 financial products each, with ownership of services increasing with age (until age 54), by channel (online users have more products) and by type or institution (credit unions and smaller banks do better cross-selling).

Forrester: North American Technographics Benchmark Survey, 2009

Forrester: North American Technographics Benchmark Survey, 2009

While the number of products held by a typical household hovers around 10, most customers only hold 2-3 services at any one institution. Only the very best organizations sell more than four services to any one customer (not including 'go with' services such as debit cards). How can banks improve their penetration within their current customer base?

Sources of Sales

According to the most recent Gallup U.S. Retail Banking Survey, which asked 9,000 financial service customers how they engage with their bank when they purchase a product or service, one in every five customers opened a new account or signed up for a new service from their bank in the last six months. The vast majority of these sales (59%) came from customer already planning to open an account or buy a new service (the bank did not need to do any marketing to these customers since they were going to take this action without any selling).

The rest of the potential customers include 1) those who were considering opening an account but needed additional prompting (33%), and 2) those who were not considering opening an account, but did so with some prompting (8%).

Source: 2013 Gallup U.S. Retail Banking Survey 

What is important about the 33% of customers who are considering buying a product, but hesitate until they receive something from the bank or are talked to, is that the bank that 'wins' is usually the bank that understands the timing of the decision, has the best relationship and knows the offer that will best resonate with the potential buyer.

Not to be ignored are the 13% of the customers who Gallup found at one time considered buying an additional product or service at the bank, but opted not to do so. These are lost opportunities as well.

Gallup also found that customers who are 'fully engaged' with a financial institution are much more likely to buy an additional product from the bank or credit union than those who are just 'satisfied'. This makes sense when you consider that a customer could be very satisfied with a financial institution that they have an account with but don't do much with the account (mortgage only customers, CD customers without checking accounts, etc.).

For example, while less than 45% of 'satisfied' households surveyed by Gallup said they would consider their bank or credit union the next time they needed a product or service, that consideration increased to 83% among customers who were both satisfied and 'engaged'. In fact, customers who are engaged said they were more likely to open a new account, add ancillary products and services and/or obtain planning advice than those customers who are just satisfied.

Source: 2013 Gallup U.S. Retail Banking Survey

The Buying Process

As has been discussed in several other research studies in the past couple years, banking and credit union customers do a significant amount of research before purchasing a product or service. In the Gallup research, it was found that more than half of the customers considering buying a new product seek out information prior to the time of purchase. In fact, the research found that customers who looked for information had a 17% lift in eventual sales conversion rates.

The key for financial institutions is to identify the most influential information sources for converting the 'pondering' customer to being a 'sold' customer. Not surprisingly, the Gallup research found that social media was the most effective channel used by customers that lead to a sales conversion. What may be a surprise to many is that written material (direct mail and email) was the second most effective selling tool for banks and credit unions.

Source: 2013 Gallup U.S. Retail Banking Survey

Interestingly, the channels with the highest cost to the bank (speaking to someone in the branch or a customer service representative over the phone) provided a relatively smaller lift in sales conversion even though they are primary sources of information for potential customers.

The requirement for banks and credit unions to manage multiple communication channels to effectively and efficiently move potential customers through the sales funnel is a difficult challenge. Gallup believes financial marketers should ask themselves the following questions as they allocate resources.

• Do we know where our customers, specifically, are looking for information prior to purchasing?
• Are we delivering a consistent message across sales information channels?
• How do we balance our resources between those channels that are high impact in conversion but low in usage (i.e. social media) vs. those that are high in usage but have lower impact in conversation (i.e. spoke to someone in a branch)?
• Do we know what our customers value in a bank and are we delivering on the message at every touch point?
• Do we know what actions we need to take to increase conversion rates in each channel?

Improving The Cross-Sell Process

While what qualifies as a 'cross-sell' may differ between financial organizations, the cross-sell ratio is still the number of products and services sold divided by the number of customers (or households). The key to boosting the ratio is to accelerate the rate and effectiveness of sales conversations. While I have covered some ideas around cross-selling in previous Bank Marketing Strategy posts (here, here, here and here), Gallup provided some great insights into how to improve cross-selling effectiveness.

1. Define and measure cross-selling: As I mentioned above, there are many ways to define products or customers as it relates to cross-selling. Since there are no industry standards, it is difficult to compare different institutions. It is not difficult to set a definition for your bank, however. The primary decisions are whether to include 'go with' services within the product category (debit card, online banking, mobile banking, bill pay, direct deposit, etc) and whether a cross-sell ratio includes only retail banking products and customers/households or small business, investment services and commercial customers/products as well. The key is to keep the measurement within your organization consistent and meaningful.

2. Analyze the drivers of cross-selling: How is your organization's cross-selling ratio trending over time? What is impacting your cross-selling trend? Your trend is most likely impacted by the following:

• New customer acquisition: As new customers are acquired, the cross-sell ratio decreases if your team is not cross-selling new customers at or above the current cross-sell rate.
• New customer cross-selling: There is no more important time to cross-sell than during the onboarding process. If your institution does not have a multichannel, onboarding process with multiple 'touches', new customer acquisition is probably negatively impacting your cross-selling ratio.
• Existing customer attrition: Attrition of established relationships due to moves, etc. can negatively impact your cross-sell ratio if the relationship is not replaced with a similarly strong engagement. On the other hand, the culling of low engagement, single service relationships can dramatically improve your cross-sell ratio.
• Existing customer cross-selling: Building a proactive, targeted and consistent cross-selling strategy can improve your cross-sell ratio over time and set the stage for improved revenues and lower attrition (customers with more services are less likely to attrite).

3. Build the cross-sell message into your vision and values: Cross-selling requires more than lip service. To be effective, senior management must embrace and continuously communicate to importance of cross-selling to both the bank and the customer. It should be published, posted, presented and reinforced continuously both within the bank and to the general public. Wells Fargo has made cross-selling part of their internal mission statement and vision for more than a decade. It is posted for their employees and is made public on their web site and presented as part of every investor meeting (see Wells Fargo case study below).

4. Provide metrics for employees to measure performance: Building an employee measurement and performance component to your cross-sell process is imperative to success since employee engagement is required for cross-selling to be effective. Setting standards for employees on a customer level will improve cross-selling and ultimately increase revenues.  

5. Identify and share branch level best practices: When measurement is done on a branch and regional level, causes of variations begin to become clear. While some of the variations are out of a branch's control (market differences, branch location, etc.), other variations are caused by controllable factors such as leadership, employee engagement, training, etc. It is important to find 'success stories' and share them across the organization to improve results across the board.

6. Improve the cross-sell communication process: As can be expected, the effectiveness of any cross-sell process depends on the quality of customer communication through every channel. This obviously includes improving the employee-customer engagement but also includes every marketing engagement with the customer through all channels.

Unfortunately, according to the Gallup study, financial marketers could definitely improve cross-sell communications with current customers. Sixty-six percent of 'fully engaged' customers felt the offers they receive are 'general' in nature, 41% found the offer annoying, and stunningly, 53% of customers already had the product being promoted (Ouch!). Of significant concern is that the most engaged customers (the ones most likely to buy) felt they were targeted worse than those who were less engaged.

Source: 2013 Gallup U.S. Retail Banking Survey

Gallup suggested several keys to making your cross-sell marketing program more effective:

• Identify the most engaged customers (accounts held, transactions made, etc.) and review the products already held with your institution
• Model the best relationships as the foundation for building similar relationships with less engaged households
• Make product recommendations based on event-triggers, account ownership trends, market changes, etc. Increase insight gathering from customers to improve this process.
• Make sure marketing offers are customized based on the customer relationship regardless of channel being used for marketing (provide flexibility to employees and personalize all marketing communication).
• Leverage analytics on previous behaviors on the customer/household level to improve targeting, timing and offer selection.

7. Implement a short-cycle sales management process: Promote an environment that cultivates immediacy, focus and continuous improvement through daily huddles, short term result monitoring (weekly as opposed to quarterly). Breaking down major initiatives into 'bite sized' portions makes the accomplishment of major goals palatable on the individual level and promotes team engagement. Both actions and outcomes should be broken down in this manner. Commitments from individuals and teams are easier to measure as well.

8. Recognize and reward: Simplicity and frequency are the key. Most financial institutions over-complicate recognition and incentives, diluting the potential impact of the program. All activities and behaviors that drive cross-selling should be recognized and rewarded. Money may not be the only reward either. Sometimes recognition can be just as impactful, especially for shorter term accomplishments.

Improving cross-selling is difficult to do and even more difficult to maintain over time. Since returns on investment are sometimes slower and more incremental than major product promotions, financial institutions often place cross-sell initiatives further back on the burner or give these initiatives less attention. This has been seen with onboarding and event-trigger programs that represent 'easy money' once implemented.

Unfortunately, given the current rate and revenue environment, banks and credit unions can no longer implement cross-sell programs as a short-term focus or miss opportunities that are there for the taking on a daily basis. All marketing channels need to focus on selling current customers the right product, at the right time, through the right channel leveraging the insight we have on each individual customer.

If we don't, our competitors will.

Case Study of Financial Cross-Sell Success: Wells Fargo

Wells Fargo's obsession with cross-selling is legendary and starts at the top of the organization. The vision of the bank is that service and salesmanship are at the core of how the bank can continue to be successful and that if silos within the bank are broken down, cross-selling will flourish.

As opposed to just saying cross-selling is important, however, senior management continues to make this effort a primary focus of the bank and goes out of its way to show the value of cross-selling for both the bank and the customer. 

In fact, within the published vision of the bank that is available on the Wells Fargo web site is the bank's published strategy around cross-selling which illustrates the connection of value to the customer:

"The core of our vision-based strategy is 'cross-selling'— the process of offering customers the products and services they need, when they need them, to help them succeed financially. The more we give our customers what they need, the more we know about them. The more we know about their financial needs, the easier it is for us to work together for them to bring us more of their business. The more business they do with us, the better value they receive and the more loyal they become. The longer they stay with us, the more opportunities we have to satisfy even more of their financial needs. That’s the mutual benefit of cross-sell."

In a presentation at the 2013 Citi Financial Services Conference, Senior EVP and CFO Tim Sloan reinforced this overarching strategy and showed that Wells Fargo continues to achieve industry leading cross-sell rates, with their average customer having 6 products at the bank and their top region approaching a cross-sell rate of 8 products per household.

Source: Wells Fargo Investor Presentation at Citi Financial Services Conference (March 2013)

According to Sloan, "We've remained focused and have continued to grow cross-sell across our business lines. We have successfully grown cross-sell in our retail bank overall, and as tenure with the bank increases, the customer has more products with us. But, we also have many opportunities to continue to grow cross-sell with our average customer as we look at the potential of the average household." (note: Wells Fargo includes 'go with' services in their cross-sell measurements)

Source: Wells Fargo Investor Presentation at Citi Financial Services Conference (March 2013)

Sloan continued in his Investor Day comments, "We believe we can continue to grow cross-selling because we have many opportunities to increase penetration across our product lines. For instance, we've continued to increase the penetration of certain consumer lending products in our retail household base since last year's Investor Day. In particular, we've had great success in our credit card area, with new credit card account penetration increasing to 33% of our retail household base. Despite this success, we believe the penetration is still too low."

Source: Wells Fargo Investor Presentation at Citi Financial Services Conference (March 2013)

Wells Fargo's commitment to cross-selling extends beyond the retail customer base and is measured in the Wholesale Banking, Investment Banking, and Wealth, Brokerage and Retirement (WBR) areas of the bank. The impact of this cross-sell focus is that fees at Wells Fargo continue to grow in all areas of the bank as new relationships are established and current relationships are expanded.

Source: Wells Fargo Investor Presentation at Citi Financial Services Conference (March 2013)

Wells continues to improve cross-selling without being the lowest cost option in the marketplace. According to Sloan, it is because the people on the front line are focused first on building the overall customer relationship.

Here is a direct quote from his Investor Day presentation:

"You don't build long-term sustainable value to shareholders by just being the lowest price option, you have to offer an entire relationship to a customer.

So when we go out, we want to win business. And sometimes to win the business in terms of providing credit for example, you have to be competitive on price. Sometimes that means you're lower, sometimes it means you're in the mix and sometimes you might be towards the higher end. But the reason that we've been able to demonstrate these returns, even if we are aren't very competitive on price is because we have a relationship focus and you've seen what we've been able to do in terms of broadening those relationships over time.

So when I was out on the line or when I think about pricing today, I don't think about it as, geez, this is the loan pricing. I think about what's the total relationship worth? And does it make sense to make some sort of investment to bring the business over so we can get the rest of the products and services over time without [tiring] obviously, but the rest of products and services over time and being able to grow that relationship. 

Because we have confidence in our team because they've been able to demonstrate to do that, that's an easy bet to make every day of the week."

Additional Resources

Banks: Stop Missing Sales Opportunities - Gallup Blogs (May, 2013)

The Secret Weapon Banks Aren't Using - Gallup Business Journal (May 2013)

2013 Citi U.S. Financial Services Conference Presentation (Tim Sloan Slides) - (March 2013)

Banks Can Do Better Than Modest Revenue - Gallup Business Journal (May 2013)

Banks: If You Want More From Your Customers, Rethink Your Marketing Efforts - Gallup Blogs (May 2013)

Banks That Only Measure Satisfaction Are Leaving Money On The Table - Gallup Blogs (May 2013)

The Bank That Works - Forbes (February 2012)

Solving The Cross-Sell Imperative In Financial Services - Forrester Research (September 2009)

Keys To Cross-Selling Success - BAI Banking Strategies (September 2011)