The Next Generation of Cross-sell

by Alex Johnson 0

Cross-sell is, and always has been, a core component of financial institutions’ business strategies. However, in today’s market—with lenders looking to grow their credit portfolios and the competition for new customers remaining incredibly fierce—the idea of deepening wallet share with existing customers is even more attractive.

The challenge in cross-selling is that every financial institution (FI) is doing it. Every FI wants to deepen wallet share with their existing customers. Every FI wants to earn the coveted primary FI status with their customers—a status that results in accounts that are 2-6 times more profitable than the average according to Mercator Advisory Group’s own Ed O’Brien.

With every financial institution vying for a larger percentage of their customers’ business, it is critical for lenders to differentiate themselves. If you want to earn that primary FI status with your customers, you have to do things different (and better) than your competitors. In the case of cross-sell, this means moving beyond the tried and tested methods that every FI utilizes—the generic up-sell in the branch or prescreen offer in the mail—and start implementing next-generation cross-sell strategies.

Cross-Buying vs. Cross-Selling

There are a lot of new buzzwords bouncing around the industry right now; “customer interaction management”, “big data”, “360° customer view”. They are all based on a simple, but increasingly critical idea—FIs need to understand who their customers are and what they care about before they decide how to interact with them.

Mercator calls this concept “cross-buying” and defines it as a more consultative approach to selling products by focusing on the customer’s needs and wants. This approach is based on the obvious truth that consumers don’t like being presented with irrelevant, generic cross-sell offers that aren’t valuable to them. With plenty of other financial institutions interested in acquiring their accounts, why would any consumer stick with an institution that doesn’t even attempt to provide them with personalized service?

Focus on Profitability not Products

Too many financial institutions assume that cross-selling means offering products to every customer who walks through the door. However, if the goal of cross-sell is to maximize profitability, then FIs need to embrace the idea that not every customer should be presented with a product offer. For example, say you have a DDA customer who never overdraws his account, never uses his debit card, and frequently uses person-to-person channels like the branch to deposit checks and ask about his balance. This is a customer whose behavior is unprofitable. He doesn’t incur non-sufficient funds (NSF) fees or generate interchange revenue. He doesn’t even have the decency to use low cost self-service channels like mobile. Why on Earth would you cross-sell him a credit card? Deepening your relationship with this customer won’t drive greater profitability; it will just increase your costs.

Additionally, financial institutions need to remember that you can increase profitability through cross-sell without actually selling a new product. According to Russell Lester, Director of Analytics at Intuit Financial Services, getting consumers to adopt lower cost services or channels can be a very profitable form of cross-sell. Take remote deposit capture (RDC) as an example. The cost of depositing a check using RDC on a mobile device is 10% of what it costs a bank to deposit a check in the branch. Using the previous example of an unprofitable DDA customer, it is easy to see how “cross-selling” them on RDC could result in a lower cost (and thus more profitable) relationship.

If a Cross-Sell Offer is made in a Branch and No One is around to hear it…

Remote deposit capture is one of many new technologies that are changing the way consumers are interacting with financial institutions. Looking at these changes in the aggregate, the trend is very clear—digital channels are supplanting the branch as the face of retail banks. The estimates are startling. According to Brett King, founder of alternative bank Moven, by 2016 the average U.S. consumer will visit a bank branch once per year and 80% of Gen Y consumers won’t visit a branch at all.
This shift from physical to digital interactions in banking presents an interesting challenge for FIs—how can they successfully cross-sell when their customers aren’t walking into the branch anymore? Cross-sell strategies and processes based on face-to-face interactions will cease being effective, no matter how sophisticated they are, when consumers stop interacting with their banks in person.

Moving Forward

Competition for new accounts is continuing to intensify. Cross-sell represents a great way for financial institutions to acquire low risk accounts and strengthen their existing customer relationships. Every FI understands the value of cross-sell…and that’s the challenge; every FI cross-sells. In order to stand out from the crowd and provide a superior customer experience, FIs need to recognize the trends and customer preferences that are reshaping the financial industry and create next-generation cross-sell strategies that capitalize on them. This means figuring out how to make a compelling cross-sell offer on a mobile phone. It means embracing the idea that not every customer should get a product offer. And finally, it means focusing on cross-selling the products and services that will be valuable to the customer and profitable for the FI.

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Alex Johnson has worked at the intersection of marketing and technology in the financial industry for more than 5 years. In his role at Zoot Enterprises, Alex is responsible for understanding the needs of the market and translating Zoot’s industry-leading capabilities into market-ready messages. You can follow Alex on Twitter @ZootAlex.