The banking industry has had a crazy ride over the last decade. Between the financial crisis, a regulatory overhaul, record low interest rates, and now technology disruptions coming from all directions, bankers feel they’ve been playing a game of whack-a-mole. Every time they survive one calamity, another industry-altering force pops up. With the focus so often about overcoming the next obstacles, the basics have gotten lost in the shuffle.
Among those basics is a concept as old as the banking business itself: cross-selling.
Bankers know cross selling is important. Building deeper relationships with deposits and fee-based business not only reduces customer attrition, but also mitigates risk by reducing the dependence on wholesale funding and margins. However, very few banks have dedicated the necessary resources to systematically and effectively cross-sell to their customers. They like the sound of being a “relationship bank,” but can it really be called that if little to no action follows the words?
Cross-selling is more than just tracking referrals between departments. To actually change behaviors and transform your lenders into true relationship bankers, you’ll need to rethink your sales process. In this post we’ll give you four keys to building deeper, more profitable relationships with your customers at scale.
Keys to Better Cross-Selling
Cross-Selling Key No. 1: Visibility
Few bankers would dispute that cross-selling is a good thing. It’s not that high performing banks are not necessarily more fervent believers in the value of cross-selling; rather, they are simply more effective at the execution of cross-selling. What are these banks doing differently?
For starters, we have learned that cross-selling is not something that can be oversimplified. The Wells Fargo cross-selling scandal should serve as a reminder. Even before the fraud issues surfaced, the bank’s “8 is great” motto was fundamentally flawed. Incentivizing staff in a giant organization to open as many accounts as possible without regard to need or profitability does not create value. As catchy as the “8 is great” phrase might have been, the outcome was not a surprise. Instead, effective cross-selling needs to be mindful of both customer needs and bank profitability. And that means your bankers need visibility into both.
When structuring and pricing deals, most banks still negotiate in a vacuum. Their systems are not integrated with a CRM, which would allow them a holistic view of their customer relationship. This view would include prior sales activity, and analytics around likely product fits. Without this context, bankers are left to blindly plug additional business into a disconnected model to see if it clears hurdle rates. These tools can’t be used to meet customer needs; instead they are trial-and-error plugs in a spreadsheet to hit an internal bank requirement.
These structure decisions are also generally made without clear visibility into bank needs. How important is that deposit account? Does the bank need the liquidity, or is it trying to mitigate a growing interest rate risk position? If so, that changes the appetite, and should change the pricing. It sounds like basic common sense, and yet very few banks offer this insight to their bankers who are actually dealing with customers.
Cross-Selling Keys No. 2 & 3: Clear Targets & Combined Targets
To solve this problem, each account type should have a clear target level of profitability. Bankers can then have something tangible to aim for when negotiating, and can be incented to add the right kind of accounts instead of simply any account they can convince the customer to open. The key to making this work, though, is that you also need a separate opportunity target. This is the combined targets of all the accounts being discussed.
For example, if you are discussing a term real estate loan, an operating line of credit, and a deposit account with treasury management services with a customer, each account should have an individual profitability target. But the entire bundle should get a target, as well. That way “excess” profitability on some portions of the bundle can be used to win other, more competitive pieces.
The usual scenario is that convincing a customer to bring new deposits will allow you to price their loan with a lower rate. However, it should be noted that this usual circumstance is changing for many banks. At one large regional bank on the east coast, certain markets are almost entirely driven by deposit and fee income. In one large metro market, the market president told us that 70% of their income came from these sources. In many cases, they view the loan as a “foot in the door.” It serves as their version of the milk in a grocery store; offer it cheaper than the competition, and then put it in the back of the store so you make up the margins on everything else you sell.
That is the opposite approach of most banks, and has allowed them to grow quickly and profitability in a brutally competitive market.
Cross-Selling Key No. 4: Accountability
The final ingredient to effective cross-selling is the one that tends to be the most difficult: accountability. Management teams often tell us they have big fears around offering discounts based on cross-selling. How can they be sure those accounts will ever show up? And, how can they keep their bankers from “re-using” existing deposits over and over to justify below-target pricing?
We’ve spent a lot of time thinking about how to solve this problem, and we believe we have finally cracked it in our pricing platform. There are two essential elements.
First, we track and maintain opportunities that are priced separately from the existing accounts at the bank. In other words, first you price an opportunity, and then we later see that same account show up in the data feeds once you book it. Keeping two records allows us to do a comparison. Was the loan priced with the assumption that new deposit balances were coming? And, did they actually show up? You must have a way of matching these two versions (“as priced” and “as booked”) to find discrepancies.
Second is the accountability. You must have a way of notifying bankers (and eventually customers) to remind them of these promised new accounts. It can’t simply sit in a giant report that no one reads. It has to be presented in an actionable way.
In PrecisionLender, we have built this functionality into Andi®, our virtual insights analyst. Andi can monitor your portfolio, and let you know when you are still owed products that were a part of the original negotiation. Even if you don’t have our Andi, you should have some sort of mechanism for triggering follow-through.
Cross-selling isn’t easy. We work with enough banks to know that everyone struggles with executing it in a way that is beneficial to the customer and the bank. But it is also vital to your success, and it’s getting more important every day. For those who want to get better, we have some suggested homework.
- Find simple ways to provide your bankers with more visibility into the strategy and profitability of your types of accounts.
- Give your bankers more autonomy to be flexible, as long as they are still meeting the overall opportunity target.
- Hold your bankers and your customers accountable for these promises and trade-offs.
You don’t have to be perfect. If you can simply get better at all three, you will see immediate and tangible results. Your customers will be happier, they will be more profitable, and they will stick around longer. With those three trends as a wind at your back, you can withstand whatever pops up next in this ongoing game of whack-a-mole.
The right tools can also help. Read this guide to learn how PrecisionLender’s sales and negotiation solution can help your bank tap into its cross-sell potential.
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