The Wells Fargo cross-selling scandal will affect more than just it and its customers. The scandal will affect the entire banking industry, which means banking leaders must be beware of simmering anger with banks and know what to do going forward.
There are already reports that other banks are being investigated by regulators. Stories have also emerged of employees at those banks saying the sales culture is just as intense there. That is, a culture that could produce the same over-reaching employees that worked at Wells Fargo.
Consumers have always had love-hate relationships with banks. To them, a bank is both important and irrelevant. Few enjoy going into a branch anymore, making branches into very expensive billboards. In fact, most people don’t even want to hear from their bank because any notice just means bad news. That’s what makes banking both low intensive and low involvement – except at that point of failure.
We’ve conducted proprietary research for banking clients and there is one constant throughout: At any given time, a customer has considered leaving that bank. It doesn’t matter the demographic involved. In fact, about 7% of the market is seriously thinking about changing their primary financial institution at any given time.
Therefore, will that percentage increase for Wells Fargo and will more people leave?
Probably not. The thought of switching feels too complex for many bank customers and, with the lack of differentiation among all banks, there is very little reason to switch.
How Wells Fargo affects all banks.
But here’s the thing. Rising distrust of the banking industry will rise and cross selling will be less accepted. This is akin to the financial crisis in 2008 because the general public blamed banks for that – and this can feel more personal.
If you think it’s difficult to reach those goals now, just hold tight through the rest of the year (and beyond).
So what are bank presidents to do? How do they keep high margins when faced with higher regulatory costs and low interest rates?
Consider this. Most customers do not switch because they don’t see any other bank as being much different. They see the banking industry as a whole, not a collection of its parts. It’s one big glob to them without any differentiating brands. The question asked is, “Will it be any different over there?”
During the recession, credit unions blew a perfect opportunity to steal market share from banks because anger was so high. Credit unions had the high ground but it only exploited it by using the same messaging about how they are not beholden to stakeholders.
That is not an emotional thought, just a logical one. It is hard for potential customers to see how no stockholders give them a personal advantage. Humans, by our very nature, generally only act when events directly affect us. The ones most likely to leave Wells Fargo, for instance, are the ones who were financially hurt by the scandal. Credit unions were just lumped into the banking industry as its little sibling. In the end, customers believed credit unions were also banks but with sign-up restrictions. So few of them joined up.
A similar situation is threatening to brew here, although not as severe but more pointed. The anger will result in weariness of banks doing any cross selling or accepting any new offer from a bank. (“They’re just going to screw me over!”) Want more customers to sign up for a credit card? Good luck.
Where the opportunity lies
But there is opportunity for the right bank (or credit union) to take advantage. Like in 2008, customers will see all banks in the Wells Fargo glow and will only prefer a new one that’s truly different and better.
The knee jerk reaction by most banks is to reassure customers (and, hopefully, new ones) that they have integrity and would never do that. Banks will say that there are safeguards in place to prevent any wrongdoing and that, we the banks, are always focused on you, the customer.
It won’t be believed or move the needle. No, instead a bank that takes ahold of the current opportunity must drop all the trite messaging that exists in the banking industry.
In fact, tone can prompt the switch because the right one would align with the attitudes of the target audience. Telling them to switch because it’s time to take action would be a stronger message than what banks are promoting now.
To convince audiences to switch their primary financial institution is extremely hard. To get people to switch doing what they are doing now in any thing is nearly impossible.
But the door is ajar for the moment. The bank that steps in will become the leader.