The verdict is in: the current culture of cross-selling products at retail banks just isn’t working. Besides encouraging behavior that places their institutions in the sights of regulators, politicians, and media outlets, financial institutions are cementing the idea in consumers’ minds that they place a greater emphasis on short-term gains at the expense of consumer’s best interests.
The banking industry has dug themselves quite a hole. The good news is that making reasonable changes will allow these organizations to increase customer satisfaction and put themselves back on a path towards greater profitability.
The root of the problem is the sales-driven incentive structures. When deployed in a retail bank, these programs turn branch employees, who should be assets in furthering loyalty, into quota-driven pitchmen. This problem has been exacerbated by the rise of mobile banking, which allows for greater customer convenience and improved margins … but also reduces foot traffic and sales opportunities at the branch level.
Although branch employees are seeing fewer customers overall, their arbitrarily defined sales goals are not necessarily aligned with increases in digital banking activity. When I managed the incentive plan for one of the 10 largest U.S. retail banks, my team set sales goals for 1,700 branches. While we applied reasonable assumption – such as historical sales and market growth – to those goals, it was not possible to set custom objectives across all of the branches is a period of significant channel shift.
In the end, many employees who are beholden to this type of culture will either do whatever it takes to hit their targets without regard for the customer, or, more likely, quit. This causes the bank to lose valuable institutional knowledge in the process, while having to pay for training for a new employee.
The Correlation of Good Advice and Satisfaction
This is not a plan for success, yet the data consistently shows that it is occurring on a massive scale. According to a recent study from J.D. Power, only 40% of customers say they “completely agree” that their bank works with customers to help them find the product that best suits their needs.
The same data also indicates that customers who believe the bank is on their side demonstrate greater loyalty. Among that 40% of customers who “completely agree” that their bank works with them to find the right products, 56% say they “definitely will not” switch banks and 61% say they “definitely will” return to their bank the next time they need a financial product. Among all other customers, only 25% say they “definitely will not” switch and only 20% “definitely will” reuse their bank.
There is a similar trend in overall satisfaction. Among customers who are highly satisfied (overall satisfaction scores of 800 and above on a 1,000-point scale), 52% say they “definitely will not” switch banks and 56% “definitely will” reuse their bank for future products. Among customers less satisfied (600 and below), only 4% say they “definitely will” reuse and only 10% “definitely will not” switch.
Banking industry skeptics will likely respond to these stats by saying that high levels of customer satisfaction alone are not enough to drive bottom-line growth. But they’re only half right. Satisfaction alone does not generate the sales, but it gives bankers the license to deepen their relationships with their customers, opening the door to offer tailored financial advice, which does move the needle on bottom-line bank growth.
For example, J.D. Power has found that among retail bank customers who received financial advice from their banker, an amazing 60% of them acted on that advice and 62% opened an additional product with the bank. But among customers who did not receive financial advice, just 34% of them opened new products.
Offering advice nearly doubles the likelihood that a customer will open a new account. Unfortunately, just 26% of customers indicate they have received financial advice from their bank in the last year.
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A Better Plan for Success
Indeed, banks have considerable untapped potential in this regard. What they need is a playbook on how to implement a new model incentive plan based not on sales targets, but on equally quantitative measures of satisfaction and engagement.
The way forward for banks is twofold. First, they need to ensure customer satisfaction is high. Obtaining deeper, direct feedback from a customer once a new account is opened, rather than mere superficial responses after a basic interaction with a teller, is key.
Second, banks must allow for a more bottom-up approach to collecting and responding to customer feedback. While corporate-driven sales goals are arbitrary, branch employees operating in a customer satisfaction-focused culture can control how they treat each individual customer, and overall feedback can be used to measure the success of the branch as a team. Sales pressures can lead to undesirable activities, but pressure from your team to provide a superior customer experience is a good thing that leads to positive outcomes.
Moving from a sales-based incentive plan to one based on customer feedback makes sense for banks, their employees, their customers, and, ultimately, their shareholders. It will also turn down the intensity level when it comes to scrutiny from regulators. That’s a value proposition that’s becoming harder to ignore.