In Search Of Wallet Share

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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).

The Forrester study found nearly half of consumers who have accounts with an online bank like ING Direct, E-Trade or USAA would consider using it as their one-stop shop, and that consumers who regularly bank online own an average of 10.3 financial services products, compared with 8.2 products among adults that aren't active online users.

"As adults start using the Web and more involved services like online banking, they show a greater affinity to own more financial products," the Forrester report says.

Bob Powers, a first vice president at the $838 million-asset Byron Bank in Byron Center, Mich., can attest to the role the Web plays in deepening relationships. At Byron, cross-sell ratios are 75 percent higher among households that actively bank online, compared with those that do not. And customers who use its online personal financial management program, FinanceWorks, buy 75 percent more products than other online users.

PFM, which aggregates a consumer's financial information in one place, is widely perceived to be among the "stickiest" services a bank can offer. According to research from Digital Insight of Calabasas, Calif., an Intuit division that sells FinanceWorks to banks, households that use FinanceWorks tend to have higher average account balances and average one more product with their banks than other households.

It seems obvious, but it's getting harder to do these days as more banks cuts costs to offset shrinking profits. Paul Olivier, an executive vice president at the $16 billion-asset Frost National Bank in San Antonio, says shaving a few percentage points off the efficiency ratio won't mean much if it's at the expense of providing good service.

When customers call Frost, for example, they reach an agent, rather than a voice-prompt system. That means higher expenses for the bank, but better satisfaction among accountholders.

Bankers call customers regularly, especially those with higher-balance accounts. The conversations focus on their needs, rather than a product of the month. "What you really want is for them to understand the value proposition of the bank, so when they do have a need, they think about you," Olivier says.

Its approach appears to be working. Among private-banking customers, Frost's retention rate is 97 percent.

When customers walk into a branch of North Jersey Community Bank, they are greeted, offered a cup of coffee and asked if they want their coat hung. "When people experience that in the first 30 seconds, they want to come back and visit us," says Frank Sorrentino, the chairman and chief executive at the $515 million-asset bank in Englewood Cliffs, N.J. The service is not just cosmetic. If the teller lines are getting long, bank representatives will collect deposits from customers standing in the queue, and if clients applying for a loan can't break away from home or work, North Jersey employees will drive over to pick up or deliver necessary documents.

North Jersey's commitment to service paid off in its acquisition of the failed Citizens Community Bank in Ridgewood, N.J. - though not at first. Citizens had $41 million of deposits when North Jersey took it over in May, but most were in high-cost certificates of deposit that North Jersey let run off, leaving just $9 million. Then it heavily courted the customers that remained by stationing a seasoned banker at the branch whose goal was to cross-sell them more credit cards, home-equity lines of credit and deposit accounts. By the end of 2009, the former Ridgewood office had $28 million of deposits.

"We want a solid bond with our clients," Sorrentino says. "They will be less likely to leave us, and they are not going to leave for a quarter-percentage point."

That's not to say rates don't matter. "Throw in all the tchotchkes you want to encourage cross-sell, but at the end of the day, consumers want to be economically rewarded for having a deeper financial relationship," Forrester's Brad Strothkamp wrote in the September report. Forrester surveyed more than 4,600 adults, and 60 percent of them said they'd be enticed to move more of their accounts if their primary bank offered better interest rates and reduced fees. Just 21 percent said that services like free money orders or personal checks would encourage them to open additional accounts with an institution.

U.S. Bancorp started using tiered pricing in 2008 and hasn't looked back. Customers get better rates and increased rewards depending on how much business they do with the company, which offers them a choice of silver, gold and platinum levels. A silver package includes checking and either a savings account or a credit card. Maintenance fees are waived, and participants get reduced rates on new loans and equity lines of credit. On the higher end, platinum users must maintain $25,000 in deposit and loan balances and, in return, they receive cash back from Visa debit-card purchases, discounts on mortgage originations and waivers on stopped payments and other fees.

While U.S. Bancorp declined to give specific numbers, Rick Hartnack, a vice chairman, says the tiered packages helped fuel a 15 percent increase in deposits in 2009, excluding acquisitions. "The packages have exceeded our expectations at every level," Hartnack says. "Clearly we are getting retention and raising balances per household."

Jay Brew, the chief strategist for m.rae resources, a consulting firm in Bethlehem, Pa., says that he's seen management and boards develop strategies for generating more business from existing customers yet fail to communicate its goals to front-line employees.

One sure way to get employees to pay attention is to offer incentives, though Brew advises banks reward them based on market-share goals, rather than for products sold. Otherwise, he says, employees might end up pushing products that customers don't necessarily want or need.

At the $4.4 billion-asset Beneficial Mutual Corp. in Philadelphia, employees share cash payouts based on deposit growth per branch. Its incentive programs helped the thrift add $540 million of deposits in the first three quarters of 2009, according to Denise Kassekert, Beneficial's executive vice president of relationship banking.

Experts say most banks don't spend enough time or money training workers. Frost's Olivier says banks looking to deepen relationships need to free up managers to coach staff on how to engage customers and make sure employees understand the reasons for pursuing the strategy.

At Frost, "the issue is to connect the training to why it is important," Olivier says. "You really can't get their commitment of the head and heart without understanding the 'why.'"

This might mean showing how basic things like greeting customers with a smile and thanking them for their business can lead to greater retention, and how retention translates to greater profits, says Dave Martin, an executive vice president at NCBS, a retail banking consulting firm in Memphis. The point to make, he says, is that it costs banks more to get a new customer than to retain an existing one.

At Dedham Institution for Savings in Massachusetts, educating employees is a key part of the cross-sell strategy. Gerard Lavoie, the chief operating officer at the $1 billion-asset thrift, says it has a "Financial Answers Center" on its Web site featuring quick guides on topics like college education and retirement planning.

The bank uses the guides in monthly training sessions for branch employees, to improve their product knowledge. (Truebridge Financial Marketing supplies the online product guides, and the merchandising to accompany the program. About 25 banks and credit unions use its service for a monthly fee that is based roughly on the number of branches.)

Lavoie says it is important to continuously offer employees fresh ideas on how to introduce topics like 529 plans while handling a routine transaction.

"When you go to McDonald's, you always expect the cashier to say, 'Do you want fries with that?' But at a bank, it can't always be the same line," Lavoie says. "Because they'll say, 'you just asked me that yesterday.'"

The thrift doesn't measure wallet share, because that would require gathering information on all of the investments a customer might have. Rather it tracks cross-sell ratios, counting the number of products and services from Dedham that a customers uses.

The ratio has increased marginally every year, with an overall jump of about 30 percent in the past five years, says Lavoie, who declined to disclose specifics.

"You never get to the point where you say, 'We've got it.' There's always something more to do," he says.

When it comes to small-business clients in particular, banks often miss the mineshaft when looking for gold. A typical bank branch will have between 200 and 500 small-business accounts, yet as many as 70 percent of the owners and their families have their personal accounts somewhere else, according to Nick Miller, president of Clarity Advantage, a consulting firm in Concord, Mass. And 20 percent to 30 percent of retail customers are also small-business owners that do their business banking elsewhere. "You have to talk to your customer and ask, 'Do you own a small business?'" Miller says. "Or if they have a small business, ask, 'Where do you do your personal banking?'"

Miller says entrepreneurs tend to be busy, so it's up to the bankers to identify them and call them once or twice a year.

Three years ago, U.S. Bancorp started staffing some branches with small business specialists whose sole job is to get to know existing business clients. At some of its smaller branches, it's up to the branch managers to call on accounts, offering everything from business credit cards and merchant services to prepaid cards and loans. "We have so much we can sell them," Hartnack says. "Small business has just been a natural turf for banks, since they don't have commercial paper and can't go to Wall Street."

"One of my mantras to banks is 'market hard and sell soft,'" Martin says. "A lot of banks get that wrong."

For instance, a bank could prominently promote a new mobile banking platform, or competitive CD rate, with multiple signs in the branch. The ubiquity of the promotion will often prompt customers to ask more about it. "It's another way to start the conversation without the employees feeling like they always have to pitch something," Martin says.

Bruce Purple, senior strategist at Acxiom, a consulting firm based in Little Rock, Ark., also advises banks to do more target marketing through direct mail "because you never know when your best customers are in the market for exactly which products."

One Acxiom client, a large bank Purple wouldn't name, sent 13 direct-mail pieces over the course of a year to 800,000 high-deposit households, generating a return on investment of nearly 400 percent. "It's blocking and tackling," Purple says. "Just because we tried to sell you something six months ago and you didn't buy it - it just means you were not in the market at that time."

Still, most sales are made face-to-face, and Martin says that the most successful salespeople are those that best understand the products they are selling. Martin is a big fan of video-game retailer GameStop because its employees know their products thoroughly. "The fact that they are so helpful, they basically earn the right to ask you to consider something else," Martin says.

The words "customer service relationship" make some bankers cringe after CRM software they purchased in the 1990s to help them cross-sell didn't work as advertised. But now there are cheaper and better programs out there that can be integrated with core processing systems and give bankers a complete view of customers right at their desktops. Beneficial recently started using ResourceOne, a browser-based software application made by CoreTrac of Austin, Tex. The software provides customer-profitability data so that bank representatives can focus their attention on those who have a greater likelihood of buying another product. "Key for us is the software's ability to tie into the core system," says Kassekert. "It will work on certain triggers so we stay relevant with our customers."

Product-per-customer ratios are no longer good enough for MidSouth Bank in Lafayette La. "We're moving away from them," says Alex Calicchia, the bank's chief marketing officer. "You can sell them the wrong five products and never make a dime off of them."

MidSouth last year converted to a new CRM system from Oracle that gathers all the customer interactions with the bank - online, in branch or call center - into a central database. Within this framework, the bank can amass customer feedback to propel product innovation and improvements that align with customer needs.

"It's the 360-degree view of the customer you hear about," says Calicchia. "It's about giving the frontline, in particular, the ability to look at a given moment, what's in the customer's wallet today and what's missing from that wallet."

"Are you perceived as being worthy of the consumer's dollar?"

That's the question all banks must ask themselves before they develop a wallet-share strategy, says Robert Hedges, a managing partner of the Boston consulting firm Mercatus. Simply put, customers won't move their money to banks they believe bury disclosures in fine print and nickel-and-dime them with hidden fees.

Hedges says disclosures about how products work should be clear and readable. For that reason, he advises that executives review them, not teams of lawyers. Statements should be consistent, easy to understand, and free of errors.

"Share of wallet is as much about how the company is experienced on a day-to-day operating perspective as opposed to it always being about sales campaigns," he says.

Bankers who already focus on wallet share agree with this assessment. To Beneficial, the Philadelphia thrift, doing right by customers is the first rule for winning more of their business. "The general population has lost some confidence in their bank," says Kassekert. "Banks are perceived as sometimes taking advantage of consumers. Now more than ever, having the customer's best interests in mind will - hands down - win additional wallet share."

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