In addition to extending health insurance coverage to the previously uninsured, the Affordable Care Act emphasizes the importance of individual accountability and understanding one's health care needs. One way consumers have responded to the change in the health care environment is through increased use of health savings accounts (HSA). These accounts allow participants to allocate pre-tax dollars to use on future medical expenses.
Just like debit cards and checking accounts, big banks provide these comprehensive HSA programs to their business clients. Wells Fargo (NYSE:WFC) recently announced its HSA program assets grew by a whopping 31% and surpassed $800 million by the end of 2012. While these accounts are only a fraction of the bank's balance sheet, the product offering highlights the bank's effort to deepen the relationships it has with its retail consumers and business clients.
Before the financial crisis nearly five years ago, and subsequently the new banking regulations, big banks were flooded with revenue from securitization fees and a credit environment hungry for loans. Today, the narrative has changed. Banks like Wells Fargo and Bank of America (NYSE:BAC) can no longer rely on past revenue channels and have been forced to look for new ways to bolster the top line.
One path to increased profitability at these banking behemoths is to sell more services to existing customers and entrench clients in the bank's ecosystem. Both Wells Fargo and B of A are aiming to "cross-sell" to retail consumers and business clients in an effort to increase the "stickiness" of those relationships. In the banking world, mid-sized business clients are often seen as the crown jewel in terms of profit margin. Unlike large corporate banking clients, among which the competition for the relationship is fierce, banks enjoy favorable pricing power with mid-sized businesses, and clients are not as likely to change financial institutions once the relationship is established.
Returning to HSA accounts, as health care costs continue to rise year after year, business clients will continually try to find new ways to combat the pressure on their own costs and the costs on their employees. Even if it's just a small sliver of Wells Fargo's business, it may increase the likelihood of that business client using the bank's treasury management services or credit facilities. Ultimately, regarding core customer and business banking, the bank that can effectively execute its strategy to deepen relationships and sell more products to existing customers will see gradually lower costs and attrition, but also increased revenue.