Where do banks go after enveloping every likely appendage and shrinking expenditures and overhead to the max? After concentrating inward on mergers, investing in data warehouses, and suffering significant credit losses, banks are circling back to the perennial essential: revenue. In the end, as one prominent industry observer, points out, if banks have no revenue, they have no business.

Where will the revenue come from? Clues abound from Wall Street. Analyst-gurus proclaim that the future of banking is marketing. Just look at how Wall Street runs its own business. The message behind the proposed merger of Dean Witter, Discover and Morgan Stanley is clear: the individual consumer is king.

In any case, everyone knows the emerging retail banking drill. Selling is cross-selling, which means that banks must create cultures conducive to retailing. Some 60-70 percent of cross-selling is not profitable, which is not surprising since some 20 percent of the customers account for 80 percent of the profits. Success relies on what you know about whom and how to use it. Just separate clients by profitability levels, figure out what each needs/wants, and let an omniscient, omnipotent, and irresistible customer service force do the rest. Did someone say customer service, beyond today's norm of smile, make eye contact, and see, hear, and speak no evil? If it sounds tricky, it is.

But as banks feel increasingly threatened by nonbank rivals out- marketing and out-selling them, finding one's cross-sell stride is imperative to survival. Summit Bancorp (NYSE: SUB) of Princeton, NJ ($23 billion in assets with the approved acquisition of B.M.J. Financial (NASDAQ:BMJF) in the first quarter), is one of a small band taking the mantra of relationship-based selling to heart, and the streets, step by step. "Our mission is to provide service that makes customers satisfied and keeps them coming back to buy more," says president Robert G. Cox. "We have the financial strength and marketing power of a large organization with the soul of a small company. Though we are growing, we still want to act as a small entity. People like the personal touch; we deliver service customer by customer."

Summit is indeed growing, with five acquisitions in less than two years. Therefore, it's hard to know how much of the increase in performance is merger-related and what part is a result of the new sales culture, according to Cox. Its share of the regional consumer lending market increased from 10.2 percent to 10.8 percent over the last year. Deposit market share has risen from 12.4 percent in 1995 to 13.4 percent in 1996. Residential mortgage loans were up 15.1 percent in 1996 over the previous year; consumer loans were up 11 percent; and trust income rose 10.4 percent. Similarly, earnings per share (EPS) for 1996 was $.88, up from $.73 for 1995. "We're seeing successes as a result of the new culture (which went into effect full force the third quarter of 1996), but we can't translate these into EPS at this stage," says Cox.

The first stage of successful cross-selling is finding out what makes customers tick. As Christopher M. Formant, partner and chairman of the national banking industry group of Coopers & Lybrand LLP, says, "Most banks do not take the time to develop a predictive model of buying tendencies. It's easy to buy systems and load data, but hard to translate into something meaningful."

The lack of precision is expensive. "Banks waste money selling the wrong product to the wrong people, and make poor relationships even poorer. Customer profitability reflects banking behavior (amount outstanding, use of branches, etc.), which tends to extend from one product to another," he adds.

Besides, bank organization precludes easy access of information that is available. As banks get larger they tend to exacerbate the traditional tendency to build silos, product lines and departments which don't interact with each other, while they need an environment where people continuously learn and communicate. "The most important element in profitable cross- selling is the learning loop that occurs," says Robert E. Hall, CEO of Dallas-based ActionSystems, a market management consultant and author who promotes "managing local markets" (MLM) with "simultaneous, interactive learning." MLM concentrates on developing market potential, as opposed to relying on the historic performance of markets.

Summit officials spend a lot of time encouraging staff to work together and learn about customers through MLM classes, employee newsletters, and making sure that managers at the branch or store level know all about the clients in their territory. Cox calls the undertaking a revelation to all. "The culture starts changing because people say things like, 'My goodness, I never knew this person had this kind of money,' and 'we lose money from this person all the time, and he/she comes into the office all the time to get information or help balancing a checkbook,' " he says.

On-the-spot research, unusual for the retail side of a bank, also fosters camaraderie. Everyone in a branch office drives or walks around and explores the market together. The group develops information by taking pictures, gathering data, and running it against the existing database. Consequently, tellers, platform officers who normally do not make outside calls, and employees who live in different towns sell more effectively by developing a rapport with the people they serve.

Each of Summit's 93 local markets creates a strategy and categorizes retail (and small business) customers as gold, silver, or bronze, depending on how much income they produce for the bank. Then each branch develops up- selling tactics. "The branch is where the rubber meets the road," says Cox.

There is no quick fix for this whole re-education process. No wonder top managers want to skip it. "If you could give them a pill to skip learning, they'd take it," says Hall.

Yet the old model sifts information from the top to middle management and then the front line in five to 10 years. "When they throw information over the wall to the front line, the learning, insight, and commitment don't make it over. Sales people just carry out orders," Hall adds. Insight makes the learning stick and keeps the front line connected and committed.

Banking's front line counts more than ever. Banks must figure out how the customer contact can recognize a customer by segment, determine what he/she needs, and match that with what the bank has or can be tailored through technology, according to Randye Farmer, head of Price Waterhouse's Financial Services Change Integration Practice.

As a guideline of the balance between people and technology resources, Eugene O'Kelly, national industry director of banking at KPMG Peat Marwick suggests that in private banking for individuals with net worths of $250,000 or more, individual expertise comes first. A teller, on the other hand, would rely heavily on technology.

Sometimes the database is golden, after a bit of thoughtful mining. Summit officials find home equity loan prospects in customers with deposits but no loans, for example. Instead of sending 100,000 letters from a mailing list or advertising to the mass market, a branch will target 100- 250 likely borrowers who fit the demographics and have the propensity to use the product.

Summit identified certain businesses in which it wanted to increase revenues. In addition to home equity loans in consumer lending, another example is investment services, specifically assets under management, both in the proprietary Pillar mutual funds and in the trust area. Cox says the bank has seen a nice flow of new business here, but declined to reveal specific numbers. Since the new sales culture was fully implemented just a few months ago, deciding which areas had met the greatest success would be premature at this point.

Besides, simply targeting product lines is not the idea, he adds. MLM is a market model, not a product model, so product profitability changes with the market. "It's about selling the right product to the right customer through the right delivery channel," says Cox.

Whatever the distribution channel, timing counts. "Think about shopping for clothes when children go back to school," says Formant of Coopers & Lybrand. "A sales clerk sugggests a knapsack, too. Though you had not thought of it, it's compatible (with your needs), and this is the right time to buy."

Besides, you can't buy or use what you don't know about. Banks have simplified transactions, but customers still need help navigating through the possibilities.

Along those lines, Summit tellers are encouraging the use of the bank's widely used Global Access check card for deposits. In front of each teller's station is a swipe card reader. When a customer brings a deposit slip, the teller asks if the customer has a Global Access card. When the answer is affirmative, the teller instructs the customer to swipe the card. After the customer does so, the teller takes the deposit slip, tears it up, and says the card makes the slip unnecessary. The bank eliminates paperwork, makes deposits easier for the customer, and encourages the use of the card in an ATM or store.

Summit tellers also have recently taken a simple approach in promoting another service. The federal government will require direct deposit for Social Security checks next year, and senior citizens are resisting this. Tellers just explain the benefits of direct deposit to these customers when they deposit checks, and a lot sign up early.

Meanwhile, teamwork is paying off. The bank's aggressive program of cross-selling incentives between the private banking group and investment management division has been working well for the last several months, Cox reports. A private banking specialist meets with a counterpart from investments, and selects five to 10 individual prospective clients. The full range of investment products includes proprietary Pillar mutual funds, third-party funds, and asset management capabilities. Working across product lines, both divisions develop a business plan for the selected clients, as well as cross-selling tactics and incentives.

Summit targets a private banking client with $500,000 or more in liquid assets as a candidate for an individually managed investment account. A client with lower liquidity might be a candidate for the Pillar funds, where a smaller investment can still meet specific objectives through asset allocation.

The bank might also select prospects for products or services based on their stage in life: younger customers for insurance or loans; baby boomers for retirement plans; mature individuals for long-term care insurance or charitable gifting. Similarly, to identify investment clients for private banking services besides using net worth as the criterion, the bank might focus on its specialized services, such as products tailored for professionals-doctors, lawyers, and accountants, both as individuals and for their firms.

When it comes to incentives, Cox says that both individual and team efforts are important, but the bank wants employees to think of themselves primarily as part of a team, and the organization as a whole. Summit offers financial and psychological incentives, through recognition and awards. The human resources newsletter publishes success stories, for instance, or a senior-level executive, perhaps Cox himself, might call, visit, or take the recognized employee to lunch. Cox says peer recognition is often a strong motivator-and that couldn't be more rewarding.

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.