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Wells Fargo: The Risks of Cross-Selling for Commercial Banking

After all the public recrimination, commercial banking executives need to understand what the Wells Fargo affair means for their cross-selling strategy; there are four places they should start

In banking, change is often incremental. And then sometimes it is not. Since the Consumer Financial Protection Bureau (CFPB) levied a record fine against Wells Fargo and the subsequent Congressional hearings, more than one banking executive has said that sales strategy as the industry knew it, is dead.

Even though cross-selling will always exist as a natural outcome of helping customers, the reverberations from recent weeks have made many commercial banking executives scrutinize the sales process in their own banks. “The cornerstone of our business is the relationship between the RM [relationship manager] and customer,” says one executive in CEB’s member networks of financial services firms. “And we have a culture that puts customers and their business first. But I worry that there may be one-off instances where this just doesn’t happen.”

While instances of fraud or blatant mis-selling are clearly unacceptable, there are other, more subtle indicators of sales risk, as well. Analysis of CEB data from a 2016 survey of small businesses (revenues up to $20 million) and business-banking owners marks out four areas where scrutiny of sales culture, process, talent, and compensation practices may be warranted.

The Report Card: Four Areas Where Subtle Risk May Lurk

CEB analysis estimates that approximately 15% of sales interactions in the United States deliver only fair to low-value advice to customers. This failure opens the bank to risk, and could damage existing customer relationships. Some clients will still buy after a bad interaction, but some close the account, or leave.

  1. Customer need identification processes: Most frequently, customers identify a need by learning something new about their business that they did not know previously. Service interactions with the provider are a frequent forum for uncovering these needs, but the format lends itself to high degrees of variability. Some feedback from business owners to keep in mind:

    • 60% of small business owners say that the primary trigger for a recent product purchase came from outside the business, such as from the provider.

    • 59% of business owners learned about an attractive product offering from their RM/point of contact in a guidance session, or during a service interaction.

    • 54% of business owners making a financial purchase work with a human, at some point, and do so by talking, rather than, say, email or online chat.

  2. Product to need matching: Either in the short or long term, some business owners lack confidence that what they purchase will actually help their business. In fact, more business owners are neutral to negative on this sentiment than they are completely positive.

    Moreover, in a global CEB survey of RM performance, business banking RMs score below 50 (46) on an index that spans from 0-100 measuring customer needs acumen (where 100 is superior). Some RMs in some circumstances don’t understand the customer’s business, or miss key changes about the environment.  This shows up in buying sentiment:

    • 16% of business owners are neutral or negative on the product purchase having fulfilled a business need.

    • 14% say that they have good or complete confidence that the product will help the business in the next 12 months.

    • 52% of those who recently stopped the purchase process did so for a negative reason (e.g. the process or the product).

  3. Advice quality: Given that some RMs do not understand the customer’s business, it follows that their ability to provide quality advice can be compromised.  While customers often act on the advice of sales reps, the quality of advice can be measured in part by when it is not acted upon. Here’s what that looks like, from the customer perspective:

    • 23% of all advice provided by a sales rep or RM was never acted on, and 22% of all advice was acted on only once by a business.

    • 27% of business owners were neutral to negative about the ability of the point of contact to understand their business outcomes.

    • 34% of clients are neutral or negative that the point of contact teaches them valuable things about the business.

  4. Account or relationship closing: When the bank-customer relationship is not working and the client wants a new start, it’s hard for them to get away. Customers say that they can’t easily disentangle the bank-customer relationship when they have decided that they want to go:

    • 37% of business owners closed an account in the past two years due to the failure of guidance or inability of the bank to help them meet a goal;

    • 19% say it was difficult to close an account, and 52% say that it was difficult to end the relationship.

    • 62% say that they have a lot or complete confidence that they did the right thing in closing the account, however.

Questions for the Leadership Team

Those in senior management roles at commercial banks should use three questions to help frame internal, leadership team discussions about customer and compliance risks.

  • Question 1: How can we confirm that our teams are (and have been) acting ethically, and how can leaders at our institution reinforce a culture of acting in the right way?

  • Question 2: How can we keep both our commitment to customers to know them and serve all of their needs, and our commitment to shareholders to seek reasonable growth, without putting the kind of pressure on employees that contribute to inappropriate actions?

  • Question 3: If regulators begin to discourage product-sales incentives, what can we learn from the experiences of providers that have already changed their approach to incentive compensation?

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