The grim irony of the Wells Fargo case is not only that it blasts big banks in ways every American can understand (see our report), but also that it comes in concert with the sorry fact that bank cross-selling is actually astonishingly ineffective.  The last time I recall any banker trying to cross-sell me was years ago when a teller looked at my guide dog and tried to sell a HELOC because I got a free dog bed with it.  Even when I seek out additional services, I’ve faced a bewildering combination of incoherent websites, clueless customer-contact personnel, and “press-700” call-center dead zones (see a prior memo on how I tried to get an HSA from a bank and couldn’t).  The reason why big banks generally can’t cross-sell to save their lives isn’t that they need inappropriate incentive compensation to do it – rather, it’s that superimposing a sales culture on businesses that for decades have had no competition creates companies with a sales-focused head bolted Frankenstein-style to a body that doesn’t much want to get out of bed.  If retail banks can’t cross-sell, then they cannot leverage their regulatory and infrastructure cost competitively with all sorts of nimble, unregulated upstarts.  In the wake of Wells Fargo, the industry’s most pressing problem is to preserve its freedom to cross-sell.  In fact, the solution to both the political and business problem is the same: understand the consumer value-add and then demonstrate it first to skeptical lawmakers and then to wary customers.

Value-add is of course not exactly a revolutionary business proposition, but my dog-bed story shows how little bank cross-sellers have grasped it.  I cannot for the life of me figure out how anyone could haul a dog bed out of a bank branch upon signing up to over-leverage one’s house.  But, even if I could have strapped it to the back of my puppy, what’s in it for me?  Most dog owners already have a dog bed (all too often the one they are forced to share with the four-footed companion) and are thus likely to see little added value in a dog bed.  A HELOC’s benefit – all too dangerous sometimes to be sure – is in added financial flexibility, empowered home renovations, or other benefits.  Bearing RESPA in mind, there are still ways for banks to facilitate a customer goal – e.g., a new bathroom – and sell a financial product. 

PNC in fact tries to do this and thus is among the more successful big-bank cross-sellers.  As quoted in today’s Wall Street Journal, it says that it uses data to identify customers looking for cars and then reaches out to them for loans.  Even more importantly and usefully, it invites customers in to talk finance and then cross-sells products to achieve self-identified goals such as retirement savings.  Given all the talk of financial literacy and scant retirement savings, surely a program such as this not only accelerates cross-selling, but also provides a public good.

But, back to next week, when Wells Fargo and the rest of the large retail-banking community will get a full-on spanking likely followed by regulatory actions to ground cross-sellers.  How to demonstrate the fundamental proposition vital to preserving franchise value – i.e., that cross-selling is good for consumers? 

I would emphasize that better service to vulnerable customers by regulated retail banks large and small meets a critical public need, a need accentuated now by ultra-low rates and the income-inequality problems this creates (see a forthcoming FedFin paper).  Banks that responsibly and effectively explain their product suite to customers with little time and less knowledge will increase savings, reduce transaction risk, and advance customer life goals. 

And, as for business – these life goals will remain even if banks can’t meet them.  Thus, competitors will take the lead they already have over banks and redesign U.S. consumer finance.  If banks want to stay in that market as profitable competitors, they must quickly validate their value-add to Congress, preserving it then to demonstrate to consumers that adding a bank-offered product achieves a consumer-sought goal at a fair price without hidden risks.