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Oct 03, 2016

Question of the Day: What Is Cross-Selling?

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Answer: It’s a tactic used by banks to encourage their customers to purchase additional financial products from them (oh, and it’s been in the news lately!).

Why does this matter?

A large national bank, Wells Fargo, has captured headlines recently because their cross-selling efforts may have gone a little too far. How good has Wells been at cross-selling? Here are some numbers (from FT):

The bank’s lauded cross-selling ratio has fallen from an average 6.36 products per household in December 2013 to 6.29 products at the end of last year, suggesting that “market saturation might have begun to catch up” with the bank, says Marty Mosby, an analyst at Vining Sparks in Memphis.

For those scratching their heads wondering what six products retail banking customers might be purchasing, I went to the Wells Fargo website to list all of their products that I could find:

  • Banking: Checking accounts, savings accounts and CDs, debit and prepaid cards, credit cards, foreign exchange and global remittance services
  • Loans and credit: Mortgages, home equity lines, personal lines and loans, student loans, auto loans and credit cards (again)
  • Insurance: Auto insurance, specialty vehicle insurance, life insurance, homeowners insurance, renters insurance, umbrella liability insurance
  • Investing: IRAs, investment services, rollovers (401k and IRA)
  • Wealth services and solutions: Private Bank, Wells Fargo Advisors, Abbot Downing, wealth planning, private banking, investment management, specialized wealth services, trust services
Clearly, this is not my father’s banking industry (he retired in 1992 after 40+ years at Barclays Bank). By my quick count, there are more than 25 products offered by Wells to capture as great a share of customers’ wallets as they can.
So, what’s wrong with that? Doesn’t this provide convenience to customers in enabling them to get all of their financial needs met in one place? Yes, but…aside from the boiler room tactics and compensation schemes that apparently led WF tellers to create millions of sham accounts, a few fundamental questions consumers should ask:
  • Can one company truly offer the best products in each of these categories? Or
  • By not comparison shopping, can customers really be getting the best deal for themselves in each of these categories?
At the same time that banks are cross-selling their products (this is standard industry practice), billions of dollars are flowing into fintech (financial technology) to disrupt this “supermarket” approach to banking. Each piece of the banking profit pie is under assault from these new start-ups who will be emboldened by this hit that the traditional banking model has taken in the past few weeks. Stay tuned..
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Check out this NGPF Role Play on Opening A Savings Account , in which students prep prior to visiting a bank branch to open an account. I have used this in class several times; one of the best lessons from this activity came from a student saying “I need some more time to review the paperwork,” when they felt uncomfortable or pressured to sign up for something. These few words empower young people to walk away in situations like this.
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About the Author

Tim Ranzetta

Tim's saving habits started at seven when a neighbor with a broken hip gave him a dog walking job. Her recovery, which took almost a year, resulted in Tim getting to know the bank tellers quite well (and accumulating a savings account balance of over $300!). His recent entrepreneurial adventures have included driving a shredding truck, analyzing executive compensation packages for Fortune 500 companies and helping families make better college financing decisions. After volunteering in 2010 to create and teach a personal finance program at Eastside College Prep in East Palo Alto, Tim saw firsthand the impact of an engaging and activity-based curriculum, which inspired him to start a new non-profit, Next Gen Personal Finance.

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