Mak­ing the sale

Banks fo­cus more on new ac­counts — and the fees they bring

Daily Local News (West Chester, PA) - - BUSINESS - By Ken Sweet AP Busi­ness Writer

NEW YORK » When Wells Fargo CEO John Stumpf tes­ti­fies be­fore a Se­nate com­mit­tee hear­ing Tues­day, it won’t be just his bank un­der fire for turn­ing friendly branches into high-pres­sure sales cen­ters. It’ll be the en­tire in­dus­try.

Wells Fargo is in the spot­light now after its em­ploy­ees al­legedly opened up to 2 mil­lion bank and credit card ac­counts, trans­ferred cus­tomers’ money with­out telling them and even cre­ated fake email ad­dresses to sign peo­ple up for on­line bank­ing in an ef­fort to meet lofty sales goals.

But cross-sell­ing, as it is called, is the lifeblood of the en­tire re­tail bank­ing in­dus­try. Other banks don’t face al­le­ga­tions of fraud, like Wells Fargo is, but ex­perts say the in­dus­try as a whole en­gages in high­pres­sure sales tactics. Once cus­tomers open a ba­sic sav­ings or check­ing ac­count, banks give them the hard sell to sign up for even more, whether that’s a credit card or a mort­gage or a re­tire­ment ac­count.

Over­draft pro­tec­tion was one com­mon tac­tic, former Wells bankers said, telling cus­tomers to open an ad­di­tional sav­ings ac­count to put aside money to cover over­drafts even though the cus­tomer didn’t have the re­sources to fund the ac­count. Or get­ting the cus­tomer to open a new credit card just for over­draft pro­tec­tion.

Sur­veys done last year by con­sult­ing firm cg42 showed that roughly 40 per­cent of Wells Fargo cus­tomers asked said their No. 1 com­plaint was em-

ploy­ees’ con­stant push­ing of prod­ucts the cus­tomers did not need or want. But cus­tomers at other banks made sim­i­lar com­plaints. Of Bank of Amer­ica cus­tomers, 31 per­cent said they felt overly pres­sured for prod­ucts they didn’t want or need. At both Chase and Cit­i­group, that fig­ure was 27 per­cent.

“Bank of Amer­ica, Citi, Chase were all en­vi­ous of Wells’ abil­ity to cross-sell as well as they did,” said Steve Beck, a man­ag­ing part­ner with cg42.

While cus­tomers com­plained of overly ag­gres­sive sales tactics, none of the other banks have been ac­cused of wrong­do­ing ex­cept Wells.

The change in fo­cus for re­tail banks had been tak­ing place slowly for years, but the fi­nan­cial cri­sis that be­gan in 2007 and the im­pact on banks fu­eled faster change. The Fed­eral Re­serve’s cut­ting in­ter­est rates to nearly zero gave the econ­omy a boost dur­ing the Great Re­ces­sion, but it also evis­cer­ated the banks’ abil­ity to earn in­ter­est in­come, spurring them to seek out new forms of rev­enue — of­ten in the form of fees.

And the more prod­ucts a cus­tomer has, the more po­ten­tial there is for a bank to earn fees. Those could be the over­draft fees at a check­ing ac­count or man­age­ment fees of a re­tiree’s nest egg. An­other ben­e­fit for the in­dus­try is that hav­ing sev­eral prod­ucts with a bank makes it more dif­fi­cult for cus­tomers to leave and switch to a new one, said Bob Hedges, a bank­ing in­dus­try con­sul­tant with A.T. Kear­ney.

To adapt to their new busi­ness model, banks have been phys­i­cally trans­form­ing their branches. Chase, Citi, BofA and Wells have all opened smaller branches with few, if any, teller win­dows for rou­tine trans­ac­tions like de­posit­ing checks or ac­count in­quiries that are more of­ten han­dled at ATMs or on the In­ter­net. In­stead, there’s more square footage for per­sonal bankers to as­sist cus­tomers with their needs — or pos­si­bly sell them ad­di­tional prod­ucts. Wells makes a point of call­ing its lo­ca­tions “stores” in­stead of branches.

“Cross-sell­ing is hard, dif­fi­cult work, but ul­ti­mately it’s about keep­ing cus­tomers bank­ing with you,” Hedges said. “But you also risk alien­at­ing your cus­tomers when you cross-sell too hard.”

Wells Fargo, fa­mil­iar to cus­tomers for its stage­coach logo, had also long been known in the bank­ing in­dus­try for its ag­gres­sive sales goals. The av­er­age Wells Fargo house­hold had on av­er­age more than six prod­ucts with the bank, a met­ric Wells top ex­ec­u­tives would high­light every quar­ter with in­vestors. The bank even had a “Gr-Eight” pro­gram aim­ing to raise that num­ber to eight. Wells never reached that level.

Wells’ def­i­ni­tion of a “prod­uct” cov­ers many types of ser­vices, Hedges said. On­line bank­ing, a sav­ings ac­count and a check­ing ac­count could all be con­sid­ered sep­a­rate prod­ucts at Wells. Cus­tomers at other banks usu­ally have no more than three

“Bank of Amer­ica, Citi, Chase were all en­vi­ous of Wells’ abil­ity to cross­sell as well as they did.” — Steve Beck, a man­ag­ing part­ner with con­sult­ing firm cg42

prod­ucts, said Hedges.

Wells Fargo’s CEO has said the bad be­hav­ior was iso­lated to only a hand­ful of em­ploy­ees and man­agers, even though Wells ac­knowl­edged that it had fired more than 5,000 em­ploy­ees for mis­con­duct. After be­ing fined last week, Wells pledged to end the sales goals pro­gram by the end of the year.

Ruth Lan­dav­erde, a former worker at both Wells Fargo and Bank of Amer­ica, said the pres­sure was in­tense at Wells and at BofA.

She worked for Wells Fargo from 2009 to 2010 at a divi­sion that sold ad­di­tional prod­ucts like credit cards to al­ready ex­ist­ing cus­tomers. Stress got so high that Lan­dav­erde said she de­vel­oped a tic in her eye and sleep prob­lems.

Lan­dav­erde said she had to sell four credit cards and four auto loans each week, as well as three home mort­gages or re­fi­nance sub­mis­sions. She said the quo­tas were sim­ply to keep her job, not to earn any sub­stan­tial com­mis­sion or bonus.

“I wasn’t go­ing to do some­thing un­eth­i­cal, but the sales pres­sure was very real,” she said. “I can see why some em­ploy­ees did what they did.”

THE AS­SO­CI­ATED PRESS

Wells Fargo chair­man & CEO John Stumpf is in­ter­viewed by Maria Bar­tiromo Dec. 7, 2015, dur­ing her “Morn­ings with Maria Bar­tiromo” pro­gram on the Fox Busi­ness Net­work, in New York. When Stumpf tes­ti­fies be­fore a Se­nate com­mit­tee hear­ing to­day, it won’t be just his bank un­der fire for turn­ing friendly branches into high-pres­sure sales cen­ters. It’ll be the en­tire in­dus­try.

THE AS­SO­CI­ATED PRESS

A Wells Fargo sign is dis­played at a branch in New York. Wells Fargo is in the spot­light after its em­ploy­ees al­legedly cre­ated up to 2 mil­lion bank and credit card ac­counts, trans­ferred cus­tomers’ money with­out telling them and even cre­ated fake email ad­dresses to sign peo­ple up for on­line bank­ing in an ef­fort to meet lofty sales goals.

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