SPONSORED CONTENT FROM ABRIGO
By Mary Ellen Biery, Abrigo and Kylee Wooten, Abrigo
Cross-selling is by no means a new sales strategy. However, financial institutions have evolved in their approaches to get customers or members to purchase additional products or services. Aggressive, high-pressure sales tactics have subsided, as have in-person interactions in bank branches. With fewer in-person opportunities to identify and offer additional products and services, savvy community financial institutions are finding ways to bring together tried-and-true cross-selling strategies with new technologies and tactics.
Why Cross-selling Makes Sense
In today’s competitive banking environment, your financial institution is likely targeting new banking customers. While acquiring new members and customers is important to growing your institution, the most efficient investment your institution can make may be to market to your current base of customers and members. It can be tempting to direct your marketing dollars to capture new customers or members, but the cost of acquiring these customers can be more expensive and less effective than marketing toward current customers or members.
Targeting a current customer has a 60-70% chance of converting, whereas the likelihood of converting a new customer is just 5-20%. According to another study, 80% of future profits will come from 20% of existing customers. The growth your institution has been seeking out in new customers or members could actually be right under your nose.
Cross-selling isn’t just about growth; it’s about retention. When your customers or members are looking to open a new account or purchase a new product, will your institution be top of mind, or will they go elsewhere? There’s a good chance they’ll be shopping for a new institution. In fact, half of Americans use more than one financial institution, and nearly one in four (21%) use more than three financial institutions, according to a survey by GOBankingRates. The top reason cited for having multiple accounts is flexibility and convenience (at 31%), followed by different products and services offered (at 24%). Younger customers are even more prone to shopping around, especially if your financial institution doesn’t have the right technology. The BAI Banking Outlook: Trends in 2020 survey found that roughly half of Millennial, Gen X and Gen Z consumers expressed a willingness to switch financial services providers for better banking apps and digital platform capabilities.
According to research by Bain & Company, the developer of the Net Promoter Score, a 5% increase in customer retention produces more than a 25% increase in profit. The study notes that return customers tend to buy more from a company over time, resulting in lower operating costs. It is important to ensure that your financial institution is informing and educating its customers and members of the products and services that it offers to stay top-of-mind when they begin their search.
One group of customers or members that tend to stay loyal is small business owners. Most small business owners have only one financial relationship, according to Javelin Research. But nearly 1 in 3 business owners will spread accounts and financial services across multiple institutions. Javelin says small business owners and the self-employed, in particular, are especially good candidates for cross-selling if a bank has the digital options that can simplify their daily challenges. After all, these customers must balance the marketing and selling of their own goods and services while making and accepting payments, obtaining financing, tracking and managing both their personal and business activities, and juggling unpredictable business income streams.
Refresh Old Cross-sell Practices
Think of cross-selling as cultivating a relationship – Cross-selling is so important to growing financial institutions; however, it must be handled thoughtfully in order to maintain the integrity of your institution’s culture and to cultivate genuine relationships with customers. In 2013, the Wells Fargo scandal highlighted just how critical this aspect of cross-selling is. Observers have alleged that quotas and daily targets linked to compensation tied to meeting those goals contributed to employees engaging in aggressive tactics to meet the goals. While having goals and bonuses tied to these efforts is not always damaging, it shouldn’t blind employees to the overall goal: help customers and members succeed financially. The interactions your financial institution has with its customers should focus on their needs—not your bank’s bottom line. By doing so, both the institution and the customer will reap the benefits. Cultivating a deeper relationship with your financial institution’s customers or members can help your institution become a trusted advisor. To become a trusted advisor, the first step is to pay close attention to your customers’ needs. Whether it’s using technology to “listen” to customer needs online or via mobile devices, or listening to them in person, a financial institution that can suggest a different product or service based on direct feedback from the customer is more likely to win the sale. Throwing the kitchen sink at customers, so to speak, can diminish credibility and trust.
Bolster face-to-face interactions – The majority of Baby Boomers and nearly half of younger generation groups (Gen X, Millennials, Gen Z) still prefer to bank with access to branches, even if they don’t use them very often, according to the BAI Banking Outlook study. However, the same study found that traditional banks are losing relevance with each generation at a more rapid pace than a year ago, and with fewer customers visiting physical bank branches, capitalizing on personal interactions is more important than ever. Regular training can help staff to better engage with customers and members and feel confident in these interactions.
One way to do so is by practicing conversations and role playing different scenarios. Your customers have a unique set of needs. Some may be planning for retirement, a few may be interested in purchasing a house, and others may be starting a new business. Employees should practice interactions with a full spectrum of scenarios that a customer might come in with. This regular practice can help employees gain confidence in communicating the financial institution’s products and prepare them for a wide variety of conversations they may need to have with customers.
Perhaps the most critical piece of training employees to cross-sell the institution’s products or services is to ensure that front line employees are well-educated on those products and services. Financial institutions should regularly train and provide education for employees to help them understand the scope of the products the institution sells. By properly training employees, they’ll have a better understanding of the questions to ask customers to navigate them to the product or service that they need and uncover new opportunities.
For example, when a customer or member enters a branch to deposit money in his or her savings account, the teller could mention that depositing the money in a CD account might be a better investment for the customer’s savings goals. Perhaps another customer is in the branch because he over-drafted his account. The teller might suggest the bank’s new overdraft protection service. The key is for tellers and other front-line staff to make relevant suggestions based on the customer or member’s current situation.
Leverage New Technologies
Technology facilitates cross-selling that promotes customer retention and financial institution growth in two critical ways. First, technology automates some of the routine tasks, allowing those either to be eliminated or handed off to administrative staff. This frees up time for more senior lending, credit and management staff to focus additional time and effort on developing deeper relationships with customers and members.
Second, some technology solutions can generate insight or specific knowledge that helps community financial institutions identify which customers should be targeted for cross-sales, as well as which products or services to offer them. Technology can also identify at what price products and services should be offered in order to ensure growth and risk management for the bank or credit union.
In other words, technology provides both the time and the knowledge for bank and credit union staff to address customer needs through cross-selling.
Technology provides time – Here’s a simple example of how technology provides time for cross-selling. A loan origination solution can eliminate the need for loan officers to spend hours or days emailing, calling, or even traveling in person to pick up tax returns or other supporting documents before a loan application can move forward. When the loan origination solution requires the borrower to upload specific documents before advancing the application, it eliminates the inefficient document-gathering task for the banker, providing newfound time to meet with business owner depositors to explore their potential borrowing needs.
Another example is a customer relationship manager solution built specifically for financial institutions. A CRM solution that automates lending pipeline reporting means a manager spends less time running reports and can move on to planning cross-sales activities with business development staff and lenders.
Technology provides actionable insight – In addition to generating time that can be spent on cross-selling, today’s technology can identify which customers or members to target and at what price products and services should be offered. Numerous technology solutions provide insight that banks and credit unions can put to use in generating cross-sales.
On their own, community financial institutions already have tons of data about their customers or members that could be useful in determining which products and services could meet their needs. “A typical loan has at least 60 data points on a core system, meaning an institution with 7,000 loans can have 420,000 data points each month and more than 5 million annually, assuming no loan growth,” according to Rob Ashbaugh, Abrigo’s executive risk management consultant.
However, many banks cannot access the data easily to analyze it or use it for strategic decision-making, such as determining which additional products or services to offer existing customers or members. Data is siloed in different systems—those for processing commercial loans or opening checking accounts, for example.
Technology, however, is available to integrate core customer data with data from lending, credit analysis and other systems, and the resulting database and analysis can be used for cross-selling opportunities.
The CRM solution mentioned earlier, for example, provides a 360-degree view of a customer or member’s ongoing activities, financial history, profitability to the bank and relationships to other parties. This information allows bank staff to reach out with marketing efforts or to lean more heavily into relationship pricing when it makes sense to do so. In addition, when an account-holder comes into a branch and asks for information about a mortgage or business loan, staff are able to log and track the cross-sale opportunity in the CRM immediately, avoiding the risk of a potential sale “falling through the cracks” when a sticky note with the customer or member’s name and inquiry doesn’t get passed along.
A loan pricing solution can help the bank or credit union design a business loan offer that has value—for both the institution and the customer. “Consumers are really smart, and they’re going to expect something from the financial institution that benefits them. If we don’t design these offerings to show we understand where the value for the customer comes in, they don’t work,” Abrigo Senior Advisor Darryl Mataya said.
Financial institutions working to win the primary banking relationship from clients by securing three or more active products want to be able to consider the trade-off: Is it worth winning a commercial real estate loan, for example, at a discounted interest rate or lower fees if it means gaining a line of credit and a deposit relationship, too? “That’s what you’re trying to design with your pricing strategy, and you need tools to help you with that,” Mataya said.
“The value of this loan pricing technology is that it allows the institution to go in, for example, and answer, ‘How much are we willing to promote through price or discount on a rate to call this relationship successful for us and for them?’” Mataya said.
On the deposit side of the community financial institution, a good core deposit analysis can create access to insight into the typical depositor relationship, said Dave Koch, managing director of Abrigo Advisory Services. “From a cross-sell perspective, understanding what borrowers have in typical deposit accounts and how those account balances and activity trends compare to other users of the service can identify ‘active’ accounts from ‘inactive’,” he said.
Insight into which deposit accounts are less price-sensitive and which are more relationship-sensitive can also be helpful in designing cross-selling efforts. For example, business deposit accounts tend to be less price-sensitive and more relationship-sensitive, and they generally generate a better net interest margin than retail deposit accounts.
Knowing whether your financial institution’s business deposit accounts match those trends could influence efforts to pursue small business lending, even if small-dollar business loans have previously been viewed less favorably than higher-dollar commercial loans. Couple automation technology that makes small-business lending efficient with insight into business depositor behavior, and the financial institution could suddenly have a new growth avenue by offering small business loans to those business deposit accounts indicating a need for capital.
While the concept of cross-selling has remained relatively unchanged, the practice has evolved in recent years. There are many options available today for customers seeking banking products and services, and it is up to your financial institution to ensure that your current customers and members know what your institution offers before they shop elsewhere. Financial institutions can enhance their banking relationships by providing genuine and thoughtful face-to-face interactions with customers, as well as leveraging technologies to enable employees to have more time for those interactions and gain deeper insights into those banking relationships.