There are only three ways a bank or credit union can grow. They can expand customers’ and members’ use of products and services, attract new consumers from competitors, or buy another institution. “If you can’t do the first,” as a past CEO of a large-nationwide bank famously said, “what makes you think you can earn more business from your competitors’ customers or from customers you buy through acquisition?”
Ironically for its importance, “cross-selling” has a checkered past in banking. When pursued by institutions in the wrong way, it has often done more damage than good. So, what’s new today due to advances in technology?
Here are six examples of new answers to old banking and cross-sell questions:
What is cross-selling in banking?
Cross-selling in banking focuses on serving the unmet needs of consumers who already have an established relationship with a financial institution, such as holders of checking accounts or share accounts, mortgage borrowers, as well as auto, consumer, and credit card borrowers.
Culturally, bank and credit union leaders avoid “selling” to these consumers because they want to enrich the relationship by providing value, rather than just pushing additional products on them. They prefer to find ways to provide value and “deepen relationships” or expand “wallet share” by listening for consumers’ needs and responding with well-matched products and services.
Historically, listening has been a passive activity. The most proactive scenarios for identifying consumer needs has been branch staff – or loan officers who get involved in the community – getting to know customers or members over time.
Today, through technology, cross-sell has become entirely proactive because institutions no longer need to wait for consumers to tell them what they need. Financial data now shows banks and credit unions those who need financial services, and how to approach them about their needs. Technology now handles the actual engagement work, thus creating cross-sell success without depending on manual steps for sales staff.
What is an example of banking cross-sell?
Financial institutions that excel at cross-selling look at each product from the consumers’ perspective; successful cross-selling is not a generic strategy. Tactics are therefore unique to each product and consumer segment. Each consumer segment needs a personalized approach. Personalization means the message received by the consumer is coherently aligned with their financial situation – which institutions know through proper customer intelligence.
Here are some examples of cross-sell in banking, and ways to personalize it:
- Home equity lines of credit (HELOC) are a fitting example of cross-selling opportunities available to institutions and consumers right now. They are also an opportunity for personalization. For example, a depositor who obtained a mortgage from a bank or credit union last year, but who wants to upgrade their home now, is in a unique financial situation – one identifiable through their data.
Homeowners who just closed a mortgage, at a near-historic low rate, often do not want to exit that mortgage for a cash-out refinance. Fees also are a demotivator; they don’t want to pay a new mortgage origination fee. Institutions that build robust onboarding processes to gather intent data can also know which consumers are likely to make large purchases – such as cars, appliances, or furniture – renovate their home, or buy a second property. Home equity data then completes the picture by showing those who have enough equity for a HELOC this year. Consumers in this situation are a perfect fit for a HELOC.
- Home purchases are another example. Data shows a clear candidate group from those borrowers or depositors who bought a home more than three or four years ago. Depending on consumers’ geographic location, lenders can build segments defined by regions’ average time to a second purchase. Just mortgage close date and location provide the framework for finding, creating, and engaging basic purchase mortgage candidates.
- With more data to define segments and opportunities, institutions also can engage those who closed a mortgage more than two years ago, but who now may want to use home equity for a cash-out refinance for large purchases like home renovations. These borrowers are more apt to use a new mortgage because they may have a higher mortgage rate and have not paid an origination fee recently. If they act now, they can fund their project and lock-in at a low rate.
In each of these examples, segments defined by the most pertinent data to a mortgage or HELOC decision – what we call “customer intelligence” at Total Expert – identify matches between consumer needs and financial services. It also shows how – as in the literal words to include in an email – an institution should approach the consumers to serve their needs.
Why is cross-sell important for mortgage or banking growth?
There are only three ways banks or credit unions can grow mortgage originations or sell additional products and services. They can expand usage of their products, attract new consumers from competitors, or they can acquire a mortgage originator or financial institution.
If banking institutions cannot do the first, as a past CEO of a large-nationwide bank famously said, “then what makes you think you can get new ones?”
Finding more ways to serve financial needs is the foundation for every other type of growth in banking. Additionally, statistics on serving current customers and members paint a compelling picture: a mere 2% increase in customer retention delivers the same financial benefit as a 10% cost reduction, customer-centric companies are 60% more profitable, and acquiring new customers can cost five times more than retaining existing ones.
What are the disadvantages of cross-selling?
Banks and credit unions face three primary risks from cross-selling. There are reputational and relationship risks – these relate to alienating customers or members by pushing irrelevant products at them – which were covered above. Then, there is business risk. Institutions need to ensure they don’t just widen the relationship; they need to do so profitably.
Aside from cross-selling deposit accounts – which add liabilities to institutions’ balance sheets when sold alone – HELOCs are an example of a product that offers cross-sell opportunity and business risk. They are appealing because serving consumers who have home equity with floating-rate lines of credit sounds like a grand slam for 2022, a year when rates are expected to rise. There is just one catch that creates business risk: What if a bank spends marketing and operational dollars to originate a bunch of HELOCs that never get used? The institution could then lose money, even though it had correctly identified both the consumer and the banking opportunity.
HELOCs are susceptible to that origination-without-profit risk. “No fee” HELOCs – such as Bank of America which offers lines with no application fees, no annual fees, and no closing costs on lines of up to $1 million – are a common offering. They also don’t offer guaranteed interest, because the consumer chooses when – and if – they use HELOC funds. If institutions want to solve these disadvantages of cross-selling, they need HELOC borrowers, not just new HELOCs.
A match then needs to be made. Banking organizations and the right consumer segments need each other. Making that match removes business risk, and it is only possible with an engagement platform, one tied to sources of industry data, that will activate marketing messaging tailored to a HELOC consumers’ exact financial situation and needs.
How has cross sell changed for banks and credit unions with advances in technology?
Just like advances in computer-chip technology enabled the handheld smartphones that have become ubiquitous today, advances in CRM-marketing technology are cracking the code on cross-sell. Tech available today is so customized to what financial institutions need that time-old challenges for cross-selling are falling away.
To make cross-sell successful, institutions need to know what consumers need, to engage them about their needs, and to activate key staff when the time is right. These are common uses for generic CRM-engagement platforms like Salesforce or HubSpot. So, what is new? Out-of-the-box, generic platforms don’t know what it means to serve borrowers and depositors, much less the unique ways to personalize interactions for a wide array of banking products. Similar to hiring an employee to engage consumers about their needs, someone who knows banking will perform better than someone who is new to the industry. Tech is no different; most platforms don’t have the matches made between data, audience, need and opportunity, business strategy, message, channel, and timing that are required to serve consumers well while creating a timely return on investment. Most platforms are newbies; they are not made for banking.
How can banking organizations find the best CRM or engagement platform for them? First, look for tech that is purpose-built for banking. Second, only consider platforms that are willing to prove it before they lock an institution into a multi-year contract.
What commonly derails cross-sell at banks and credit unions?
The most important piece in successful banking initiatives to expand product usage is people, such as loan originators or branch staff. Winning their buy-in and engagement is essential. Unfortunately, people are the most common breaking point.
Mortgage loan officers, and retail banking staff, have enough quotas – or whatever name they are given by the institution’s culture committee – without also being saddled with another department’s origination goals. Add separate tech stacks on top of that and it is easy to see how cross-sell initiatives have struggled.
Results, without pulling staff away from their primary job, is the missing grease from banking’s cross-sell engines. A mortgage loan officer is not going to propose a checking account, or a HELOC, to a customer if she has a low likelihood of success, it’s not a relevant need, and it takes valuable time away from originating mortgages. If you wanted her to make that pitch, she needs to see the results without doing more work. Her clients need to be showing they appreciate automated engagement by opening new checking accounts, opening a HELOC, and returning to her again for their next mortgage. That only happens when consumers appreciate the personalized engagement sent by a CRM-engagement platform.
Show staff that cross-selling is not pie-in-sky expectations that add actions to their plate and banking institutions will begin to see what we call “loan officer adoption” or “universal banker adoption” or “personal banker adoption.” Staff reaches a state of buy-in where they know their contacts are being well-served; it is paying off through expanded relationships with consumers for the organization, and that it is all happening automatically. They then place their trust in the technology to do the work and subscribe their contacts to the engagement journeys.