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Banks stay focused on cross-selling despite headline risk


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Banks stay focused on cross-selling despite headline risk

Cross-selling has become a taboo phrase after Wells Fargo & Co.'s fake-accounts scandal, but banks remain committed to the strategy — especially in a tough operating environment with elevated competitive pressure.

For years, Wells Fargo's management painted the bank as a cross-selling maestro that pressed its employees to meet a goal of eight financial products per customer. Tunnel-vision focus on the metric and intense pressure on retail employees led to widespread fraud and the opening of millions of accounts that customers had not requested. The scandal has plagued the bank since 2016.

On March 8, Chairman Elizabeth Duke and Director James Quigley resigned in the face of congressional pressure. The next day, the Consumer Financial Protection Bureau filed a lawsuit against Fifth Third Bancorp, alleging it also employed an aggressive cross-selling strategy that led employees to open accounts without customers' knowledge or consent.

On one hand, banks have largely scrubbed "cross-selling" from their vocabulary when pitching their strategic initiatives. In 2019, publicly traded banks mentioned "cross-selling" 86 times, according to a review of transcripts and investor presentations. In 2015, before the Wells Fargo scandal broke, banks mentioned "cross-selling" 302 times.

But at conferences and in investor presentations, bankers continue to talk about "winning wallet share" by putting attractive offers in front of their customers. Bankers and consultants will still say that lenders lose out on an opportunity to refinance their customers' mortgages or originate auto loans. Put another way: Banks remain committed to cross-selling.

"Cross-selling is at the core of what the industry has always done — and what they need to do," said Norm DeLuca, managing director of banking solutions for Bottomline Technologies, a company focused on payments solutions.

In fact, with a tough interest rate landscape and the emergence of financial technology startups, cross-selling can become more important. An inverted yield curve and rapidly falling long-term rates are pressuring spread income, the heart of bank profitability. Meanwhile, community and regional banks face what amount to existential threats from smaller fintech startups such as Chime and from mega-banks such as JPMorgan Chase & Co. and Goldman Sachs Group Inc. that are spending billions of dollars per year on tech.

To better compete with upstarts along with massive rivals, community banks are looking to generate more revenue from their existing customers. By combining transaction data from their core systems with third-party sources, banks hope to boost their cross-sell rates.

"I think it's top of mind to stay competitive," said Kim Snyder, CEO of KlariVis, a consulting company focused on helping banks leverage their data to improve sales and inform management. Snyder launched KlariVis in January, pulling together a team of former bankers and consultants who saw a widespread need for smarter use of data.

While cross-selling has been stigmatized, consultants say banks' use of "big data" to sell more products could very well preclude a repeat of the Wells Fargo scandal. By using data to tailor marketing pitches to individual customers, companies hope to provide solutions customers actually want.

"Community banks are focused on truly finding the right products for their customers," Snyder said. "It's not just check the box and try to cross-sell everything that walks."

A significant portion of banks' "big data" push is to better use their clients' transactional data — where and how customers spend money. That data is often housed in the systems operated by core providers, and some banks have had trouble accessing their own data, leading to an industry-wide push for better service. But simply extracting transactional data alone will not guarantee a successful cross-selling strategy, said BDEX CEO David Finkelstein, whose data-as-a-service company can provide anonymized transactional data and use third-party data to find additional information about banks' customers.

"With internal data, you're not going to see whether they're shopping for a new car or looking for a home," Finkelstein said.

Leveraging data to improve cross-selling can help banks fend off new competitors. Online lenders and mega-banks have made significant gains in deposit market share with slick products delivered seamlessly, a strategy that depends on data to pitch the right product at the right time.

The Wells Fargo fallout — which includes the bank paying more than $1 billion in fines and remaining in regulatory purgatory — serves as a stark warning to the industry. But a difficult operating environment makes some form of cross-selling a more necessary strategy.

"The financial industry as a whole is going to have to embrace this new operating model, or it will continue losing market share," said Robert Mancini, head of payments for Finastra, a core provider. "That's the reality. It's not an opportunity — it's the new normal."