Bank of America's (NYSE: BAC) efforts to simplify and focus on its core businesses like online and mobile banking and credit cards have definitely put the company on the right track, but more progress needs to be made before it comes anywhere close in profitability to the bread and butter banking strategy of Wells Fargo (NYSE: WFC): cross-selling.
The technique of getting each and every customer into more and more products offered by the bank may be the next big revenue pop for some of the big banks who are finally moving on from the financial crisis.
With the average customer having about six products with the bank, Wells Fargo is the best in class of the big banks. So what's Wells Fargo doing right -- and what does Bank of America still need to do?
Why is it so important?
According to a recent report by Fiserv, it is eight to ten times more cost effective for a bank to sell a different product to an existing customer than it is to pursue new customers.
Additionally, some of the big banks are running out of new customers to go after. Bank of America has a geographical presence covering more than 80% of the American population with 57 million customers already. In such a big company, there are lots of opportunities to profit by selling more products to those customers.
The keys to effective cross-selling
So, what do banks need to do in order to effectively cross-sell their products? For one thing, they need to know their customers and what they need. It's a waste of valuable resources to try and sell products to people who are very unlikely to want or need them.
For example, most retirees have no interest in mobile banking services, nor would trying to sell them college checking accounts be very effective. Trying to sell mortgage products to 18 year old college students would be just as ineffective. In short, banks must target their marketing efforts effectively.
Wells Fargo sells their "Way 2 Save" account to almost every college student who comes in to open a checking account, because the idea of automatic savings appeals to younger people just getting started in their financial lives.
Also, they must determine their products with the most room for growth. For instance, if 80% of a bank's customers already have a checking account, it would be a bad strategy to focus marketing efforts on that. On the other hand, if only 5% of a bank's customers have a brokerage account or a credit card with the company, there's a prime opportunity. Wells Fargo does this very effectively, identifying products with a low penetration rate like brokerage accounts and insurance.
So far so good for Bank of America
Bank of America has done an excellent job of cross-selling its credit cards to its existing customer base. In fact, over one million new credit cards were issued by the bank during the first quarter alone.
CEO Brian Moynihan has been aggressively pushing cross-selling through pay incentives and better targeting of customers, and the bank has seen success in several areas. In 2013, the company sold almost three times more 401(k) plans to its existing business customers than it did in 2012.
Bank of America has come a long way since the financial crisis under Moynihan's leadership, both in terms of renewed focus on its core business segments, and increased product development and marketing efforts. If the company masters the art of the cross-sale to the extent Wells Fargo has, the future for the bank and its shareholders could be very bright indeed.
