Banks and credit unions have three options for growth: acquire another institution, attract competitors’ customers, or increase current customers’ engagement.
Ironically, given its importance, cross-selling has a checkered past in banking. When pursued the wrong way, it has often done more damage than good. For many consumers, it elicits memories of retail banking staff — compelled by quotas —pushing people to open another savings account or apply for a personal loan. Not too long ago, the term was even tied to one of banking’s biggest account-opening scandals.
Yet expanding current customers’ and members’ use of products and services is fundamental for growth. To overcome the barriers that have plagued cross-sell and to serve timely consumer needs, banks and credit unions are turning to technological solutions.
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Finding Timely Opportunities (Without Hard Sells)
The banking industry traditionally relies on relationships and personal connections to understand customers. “Selling” still isn’t in the vocabulary of typical bank and credit union leaders. They would much rather that staff listen to customers’ needs. The challenge is that listening isn’t always practical or unique. If every bank relies on listening to customers’ needs, how can institutions ensure that the conversations they are having with their customers don’t mirror every other poor experience that individual has already had with another institution?
The secret to cross-selling is knowing what the customer wants before they know themselves. How? By using their financial data.
Home equity lines of credit (HELOCs) are a good product to illustrate this approach.
Over the last two years, U.S. homeowners spent more time in their homes. With so many Americans working, exercising and going to school from home, homeowners are looking to upgrade their spaces and invest in where they spend the most time.
For many that have recently purchased their new house, they are looking to invest in things to make it feel even more like a home— like buying a couch to fit the new living room. With home equity hitting record levels in 2022, homeowners have access to an average of $207,000 in tappable equity as of then end of April 2022.
Acting on this knowledge represents a perfect example of proactively understanding a customer’s needs. Customers in these situations are likely candidates for a home equity line of credit (HELOC).
All homeowners with equity might use it for renovations or purchases, but how can a bank or credit union find those homeowners who definitely will use their equity? Fortunately, recent homebuyers are the most likely group to make larger investments in their home; they outspend other homeowners by more than 2.5 times, according to the National Association of Home Builders (NAHM).
In combination with equity, banking institutions can use four data points to narrow down consumers who both can and want to use a HELOC:
- Mortgage Type: About 9.6 million consumers purchased a new home in 2020 and 2021, according to NAHM. These borrowers are the most likely segment to use credit for large purchases.
- Mortgage Close Date: 24.6 million borrowers refinanced their mortgage or purchased a home in 2020 and 2021, according to the Mortgage Bankers Association. These consumers are purchasers in their first year in their home — the heaviest purchasing period. Or they are borrowers who just obtained a mortgage for the purpose of a lower rate and payment; they are unlikely to seek another mortgage refinance to access equity.
- Credit Score: The average credit score for U.S. consumers has climbed to 695, a 13-year high, according to Experian. This data point is used to vet consumers for credit strength and can help institutions refine marketing segments. Credit scores also consistently change. Institutions that can identify consumers who’ve recently improved their score can engage them before other lenders — or before the consumer approaches another lender for a HELOC.
- Savings: More than half of Americans lack the savings to cover a surprise $1,000 expense. These consumers have equity, but lack cash, to make home upgrades.
Credit Need Isn't Far Away:
About 35% of consumers polled said they would borrow $1,000 for a surprise expense, according to Bankrate.com.
Taken together, these data points reveal customers and members in the exact scenarios to desire a HELOC. Each financial product — mortgages, auto loans, consumer loans, credit and debit cards, account onboarding, mobile and online banking apps, and business loans — offers banks and credit unions this kind of timely opportunity if they dig.
A Tailored Fit Should Be a Key Part of Cross-Selling
If price weren’t a factor, would you want off-the-rack clothing or a custom-fit wardrobe?
To continue with the example of HELOCs, pricing is very competitive for lines of credit — it’s not a big distinguishing factor. The consumer is more likely to choose a tailored product over a generic one.
So, how do you tailor a HELOC?
Banking organizations often start in the right place when creating their business strategy for the year, but they don’t always follow through on the plan. They know how they want to make money but they don’t always determine why a consumer would give them their business.
HELOCs, for example, are an appealing asset to put on the books in 2022. Rates will rise and homeowners have equity, an earning asset that reprices as the Federal Reserve increases rates. That can be a great part of the year’s strategy. (Where home prices fall, and when, will have impact, of course.)
HELOCs as an asset are not always a plus. Many competitor institutions offer HELOCs without a fee. For example, Bank of America offers HELOCs up to $1 million with no fees or closing costs.
Understand What You're Selling:
HELOCs usually don't offer revenue upfront, unlike their cousin, the cash-out refinance mortgage. Due to the customer's ability to choose when and if to tap their HELOC, they also don't guarantee interest income.
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Urgency is a Powerful Motivator to Sign Up
The key implication: Banks and credit unions need to find consumers fitting three parameters to originate the most profitable HELOCs. They want those people who can — and are likely to want — to use a HELOC. But they also need those who have an urgency to use the credit line.
What about a consumer’s current financial situation could create urgency?
Many consumers are scrambling to navigate a choice about how to finance their kitchen renovation or a new car. As rates have shown no sign of slowing down, conventional cheap financing is trending toward becoming a thing of the past. If homeowners plan to go through with their purchases, they need to act quickly.
Amid that urgency, many consumers have a choice to make. For those who originated their mortgage during 2020-2022, a cash-out refinance is an option, but no longer a very palatable one. Usually, refinancers want to keep a mortgage they have obtained for a lower rate; and many purchasers of 2020 and 2021 are likely happy with their current 30-year mortgage. Refinancing would require paying another origination fee, and risks losing a historically low rate. These groups urgently need equity financing, and they likely do not want a new mortgage.
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Converting Leads into Lending
A match now needs to be made by the financial institutions. They want to originate profitable HELOCs, and a healthy contingent of recent mortgage borrowers want a HELOC to fund a purchase or a project before it’s too late. To help make that match, banks and credit unions need a data-driven approach that will allow them to generate marketing messaging tailored to consumers’ exact financial needs.
As modern lenders have learned, advances in marketing technology have helped to unlock cross-selling potential.
Without people, banking initiatives cannot expand product usage. Buy-in and engagement from loan originators and branch staff is essential. Unfortunately for cross-sell, people can hinder progress. If mortgage loan officers and banking staff are held to another department’s origination goals on top of their own quotas, that can become too much. And with interdepartmental politics on top of that — along with separate tech stacks — it becomes obvious why cross-sell initiatives struggle universally.
As described above, an industry-tailored customer engagement and CRM platform can solve two of the three most common “people” problems.
• It can “listen” through customer data without requiring a mortgage loan officer to ask a borrower about other financing needs or about moving their primary bank account.
• It can propose the next best product to the consumer, rather than trying to require retail banking staff to propose a mortgage.
• The third and final problem is the challenge of convincing loan originators, or the branch staff, to act when the technology platform produces a lead. We call this “loan officer adoption.” It only happens when the results of using the CRM are real for originators.