Wells Fargo's Cross-Selling Prowess May Be Backfiring

Wells Fargo has regularly touted its ability to sell oodles of products to each of its customers.

Indeed, many other banks have tried to emulate Wells' mastery of the cross-selling process in their pursuit of a larger share of each customer's wallet.

But in the past year Wells' much-lauded cross-sell ratio has stalled and even declined ever so slightly.

The drop in Wells' cross-selling ratio comes amid criticism and a handful of lawsuits that Wells engaged in aggressive sales tactics by opening customer accounts without authorization. The Los Angeles city attorney filed suit last year alleging Wells imposed unrealistic sales quotas that drove some employees to open fee-generating accounts without the permission of customers.

Wells still sells more than six products to each of its customers on average, and the drop in its cross-selling ratio is measured in basis points. But that decline may reflect the topping out of a sales strategy that has been the envy of the banking industry for more than three decades.

Last week, Wells reported that its cross-selling ratio dipped to 6.11 in the fourth quarter, down from a high of 6.17 in the fourth quarter of 2014; that was its lowest point since 2012, when the ratio hit 6.05.

"It's not terrible, it's just not what they've consistently been doing," said Marty Mosby, a director of bank and equity strategies at Vining Sparks IBG in Hernando, Miss. "This is their bread and butter — it's what they've built their whole franchise around."

Wells Chief Executive John Stumpf attributed the drop to a 5.6% increase last quarter in new checking account customers, who generally start off with fewer products compared with existing customers. (Wells' quarterly filings did not specify how many checking accountholders it has, but it says that it serves 22 million retail-bank households.)

When asked by Mosby on Wells' earnings call last week to explain the drop, Stumpf said the huge number of new checking account customers had lowered the cross-sell ratio.

"We're actually seeing the denominator grow faster now than we've seen it in some time, and first-year customers don't have an average of six products," Stumpf said. "They are more in the four-range, so that has a bit of a dilutive impact on that."

Wells' cross-sell ratio is calculated by dividing the total number of products by the bank's total customers, Stumpf said.

"This is actually a good problem, I think, in that when you're growing net new primary checking accounts by 5.6%, the goal is not necessarily a ratio," he said. "The goal is to have long-term mutually beneficial relationships with customers where we help them succeed financially. So I'm happy with where we are in that."

Mosby said that in the past Wells has had enough sales momentum to overcome incremental customer growth but that its fourth-quarter sign-ups were unusually successful.

"More than 5% growth in new checking accounts is a pretty phenomenal performance," Mosby said. "That's a big number."

Stephen Beck, a managing partner with the consultancy CG42, conducted a study last year of bank customers and found Wells clients were frustrated by the bank's excessive sales pressure.

Forty-three percent of Wells Fargo customers polled by his firm said they were frustrated with "trying to be sold on products I don't need or want," according to the 2015 Retail Banking Vulnerability Study by CG42. The average for nine other banks was 24%. As a result, as many as a quarter of Wells' customers were at risk of jumping to other banks, the survey said.

"A customer doesn't necessarily switch banks because they're being cross-sold," Beck said. "It's a recipe for not wanting to do more business with the bank."

It is impossible to know with certainty whether the drop in Wells' cross-sell ratio could be attributed, even partly, to its aggressive sales tactics.

Wells' chief financial officer, John Shrewsberry, said in an interview last year with Reuters that the bank takes seriously the allegations that bankers are trying to push more products on customers because of sales quotas.

"We have to be cautious and make sure we're not creating incentives for people to sell products and provide services that are not in the best interest of the customer," Shrewsberry told Reuters in April. "We take that deadly seriously, and we have for a long time."

Beck said aggressive sales tactics probably have something to do with the drop in Wells' cross-sell ratio.

"This issue is in the mix, and it's in the mix for their customers in a way that is dramatically more pronounced than other banks," Beck said. "The business practice of cross-sell first has an unfortunate downside when taken to an extreme. When the business practice is taken to the extreme it goes from being value-added to value-destroying."