Like many others I uncomfortably watched the senate hearings where John Stumpf of Wells Fargo was attacked by legislatures. Their focus was misled, the act of cross selling is not the issue, but more the fraud committed to gain incentive compensation. Cross selling is not unique to banking, we are engaged by companies every day in this practice. Our cable company wants us to bundle phone, TV and internet. Fast food restaurants cross sell products through value meals. Travel companies cross sell air, hotel and car rental through vacation packages. The practice generates economies of scale and enables companies to offer cost effective services, conveniences, and discounts that would otherwise not be possible or affordable.
In fact, cross selling accounts to bank customers is of great value and benefit to the consumer and the market as a whole. As a consultant to the banking industry and a consumer of Wells Fargo services I appreciate the practice for a number of reasons.
- Personal Convenience – I have several accounts with Wells Fargo, checking account, bill pay, credit card, mortgage, home equity loan, auto loan, and savings account. I have online and mobile portals I can see my entire personal financial profile on. I can transfer between accounts, instantly make my payments, track my expenses, generate financial statements, etc. Wells Fargo’s investment in these capabilities would not be possible or warranted if I was a single product customer.
- Cost Efficiency – Banks offer these services and conveniences to customers to reduce their overall cost to serve. They don’t have to mail multiple statements; they don’t have to collect paper payments; they can more effectively manage their credit risk by having a full picture of my financial position. All of this translates into discounts or lower rates to consumers in a very tough and competitive market.
- Product Innovations – The purpose of all corporations is to generate profits. Cross selling drives more profits, from both increased revenue and decreased cost to serve a customer. Without profits a bank cannot continue to innovate the product and service offerings we have all come to expect from our financial service providers. I appreciate the online access, mobile banking, the fact that I rarely write checks. All of these conveniences and services are possible through the investments in infrastructure that banks have made over the years.
In the current rate and regulatory environment, it is becoming more difficult for banks to generate returns. Increased government interference through artificially low rates and increased regulatory restrictions are not the answer. The problem at hand is fraud, not committed by a corporation as a whole, but from individuals bending the system out of greed. The solution is not increased government oversight, but more personal accountability for the choices a consumer makes. Be educated, be aware, be cautious as a consumer. Don’t take the fries with the value meal if you don’t need them. Don’t take the cable TV with the internet service if you don’t watch it. Keep an eye on your credit report and don’t get banking products that you don’t need. But don’t lean on government officials to preach but not practice responsibility and accountability.