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In Search Of Wallet Share

A few weeks before he retired as Wells Fargo's chairman in December, Richard Kovacevich boasted that the company has never been in better position to sell more products and services to existing customers.

That's partly because Wells Fargo picked up millions of new customers when it bought Wachovia last year, presenting branch managers and other frontline employees with unprecedented cross-selling opportunities.

But the financial crisis is a factor, too. Consumers are thinking differently about how they shop for financial services; rather than look for the best rates, many just want to park their money at a bank they can trust.

"I have never seen a better opportunity for Wells Fargo for market-share growth and wallet-share growth in my over 30 years in this industry," Kovacevich told investors. "The competitive environment has changed dramatically."

Wells Fargo - already an industry leader in the number-of-products-per-household category - is not the only company putting a greater emphasis on wallet share. With interest income shrinking due to weak loan demand and fee income expected to decline as new credit card and overdraft laws take effect, bankers are rethinking how they interact with customers and focusing on deepening relationships.

"Relationship banking has never been more important than now for the proper economics of the business," says Rick Spitler, a managing director at Novantas, a consulting firm in New York. "Cross-selling and relationship banking have to be a huge priority going forward," especially since new regulations will drive up the costs of checking accounts.

According to Bancography, a consulting firm in Birmingham, Ala., a customer who has just one product with a bank will stick with that bank for about 18 months, but add even one product - a savings account, perhaps - and the average jumps to four years. Customers with three products will stay with the bank for about 6.8 years.

"The broader the relationship, the longer the customer stays," says Steve Reider, Bancography's president.

To a degree, bankers have always been interested in deepening relationships. It's why many, in the last decade or so, have put incentive programs in place to encourage employees to cross-sell. But, all too often, consultants say, banks have undermined their goals by charging excessive fees for overdrafts or failing to train staff adequately on providing proper customer service. Many have also failed to take advantage of technology that helps them seize the moment when a customer is in the market for a new product.

Wallet share can be defined in many ways, but, most simply, it represents how much of a client's investable assets rest at the financial institution, according to Bancography. This can include checking, savings and money-markets accounts, as well as insurance and wealth-management products, such as mutual funds. Some banks will also count debit cards and online bill pay as products, too, since they encourage transactions, and they might include credit products, such as mortgages, credit cards, equity lines of credit and personal loans.

Most everyone agrees that building wallet share starts with the checking account, since customers use it as a hub for paying bills and managing money. Most also agree that there's no shortage of opportunity to deepen relationships. Americans have about $20 trillion in investable assets, 30 percent of which are held in deposits, according to IXI, a unit of Equifax Inc. in Atlanta. More than half of these assets are held by households with $1 million or more to invest.

Yet, most banks have just a fraction of the average consumer's wallet. According to a September 2009 report from Forrester Research, adults own an average of 8.2 financial products, but generally have no more than two or three products at any one financial institution.

It sounds almost trite, but bankers and consultants say that winning a larger share of customers' business takes hard work and commitment. That means taking the time to educate and train employees, investing in marketing and technology and, particularly these days, fostering a sense of trustworthiness. Here, according to industry experts, are eight keys to capturing more wallet share and deepening relationships.

With margins so thin, banks need to use technology "to squeeze out the efficiencies and reduce costs," says Dinesh Sheth, the CEO at uMonitor-Parsum Technologies, a financial-services vendor in Memphis. At a minimum, banks that want to increase wallet share must offer online banking with bill pay and transfer capability, and Sheth says banks would be able to sell even more loan and deposit products to customers if they could open and fund new accounts online. "The basic expectation of the user base has grown," he says.

If more banks had the capability to let consumers open accounts online, they might be as successful at cross-selling as USAA. According to Forrester, USAA is "the undisputed cross-sell leader" in the financial services industry, with an average of 3.9 products per customer. (Among brick-and-mortar banks, BB&T leads the pack with 3.4 products per customer, followed by PNC, with 3.3, and Wells Fargo, with 3.2).