Debunking Conventional Wisdoms on Wallet Share

Debunking Conventional Wisdoms on Wallet Share

Wallet share is an old topic that seems to be getting a lot of new buzz. The problem is that there isn’t really anything new – or quite frankly – insightful about what is being reported. Wallet share is the measurement of your bank’s share of a customer’s banking products. The conventional wisdom is that without a baseline measurement of wallet share, it’s impossible for retail banks and credit unions to develop effective cross-selling strategies. As a wallet share baseline is established, cross-selling ratio goals and strategies can be established. This all sounds great, until you look at the challenge banks face with calculating wallet share.

Calculating a meaningful wallet share.

If wallet share is vital to successful cross-selling, then the first step is to calculate a meaningful number. Since it is impossible for financial institutions to know what products their customers have with other institutions or financial firms, most banks will use industry averages to calculate wallet share. Advisory firms, such as the RFi Group, conduct periodic retail banking studies that are a frequent source for this information. Based on the RFi’s recent research findings, U.S. consumers have an average of 8.5 products across their various banking relationships. Using this generic average, a bank may calculate its wallet share using a simple formula:

8.5 - The average number of banking products U.S. consumers hold across various banking relationships (excluding investments).
A bank may calculate its wallet share using this simple formula.

A more sophisticated approach to wallet share may be to consider how you rank against your competitors by conducting a survey. However, surveys are very time consuming, often produce poor response rates and, in the end, are probably not any more accurate than using assumptions.

Should wallet share be in the spotlight at all?

At this point you might be asking why we have a problem with all the attention placed on wallet share. First, when it comes to cross-selling we don’t understand what value it plays. Secondly, as we saw in the example above, most banks will calculate wallet share metrics based on broad industry assumptions. How do these assumptions hold up in the real world? For example, would a 17-year-old customer have the same number of banking products as a 50-year-old? For that matter, do all 50-year-old individuals across the U.S. follow similar financial lifestyle patterns?

While these numbers may be useful in setting high-level business objectives, are they a meaningful measurement for cross-selling? How do they help drive successful strategies? Banks need to be using customer analytics that are actionable. Quite simply wallet share is NOT actionable.

4 actions to drive more wallet share.

Wallet share in and of itself is not actionable. It really doesn’t point you in any specific directions for improving cross-selling, getting competitor’s customers to make a switch or increasing customer retention. When it comes to building product penetration and growing deeper relationships, banks need to look at the situation completely differently. We’ve outlined four specific actions banks of any size can take that will, in the end, result in wallet share growth.

1. Get laser focused on single service households.

One of the most impactful strategies any bank can put to work, is to place single service households in the limelight. Single service households are the most at risk for attrition. Banks need to make building deeper relationships with these customers a priority to avoid erosion of current wallet share.

In addition, reducing the percentage of single service households can be a very effective metric for driving cross-selling strategies. One benefit is that this metric can be accurately measured and it is also possible to see a considerable rate of change – which is highly motivating.

2. Adopt a needs-based cross-selling approach.

Cross-selling is a basic requirement for driving growth in banking. It can also be a good way to irritate your customers and waste a lot of marketing dollars by constantly sending unwanted offers to every customer. Banks are notoriously known for marketing products and services they want customers to use and making the same offer to everyone (think statement stuffers and wide sweeping email campaigns). Often products are promoted to customers that don’t need them which results in customers becoming conditioned to ignore all promotions. Because of this, front-line bankers hate making sales calls because they feel it deteriorates the relationship.

Needs-based cross-selling is a completely different animal. It is based on the concept of “Intelligent Targeting” which means you only make offers for products your customers actually need. Needs-based cross-selling is driven from advanced customer analytics that utilize artificial intelligence and machine learning techniques to identify customers that have a high propensity to need a specific banking product. This is a smart sales and marketing approach, which can produce huge lifts in sales conversions. It is also highly effective in building long-term relationships that will establish your bank as their primary financial institution (PFI).

3. Implement 1st year onboarding programs that include needs-based cross-selling.

The first year of a brand-new banking relationship is critical. During this time period, customers are most open to adding new products and services as well as the most vulnerable to making a switch to another institution. Banks must develop methodical onboarding programs to serve different new customer scenarios. Your onboarding programs should include cross-selling and should be tailored based on information such as type of account opened combined with customer demographic segmentation. This is also a window of opportunity when needs-based cross-selling will pay off big. If you do this right, both retention and multi-service household growth metrics will showcase the payback for your efforts.

4. Target new customers with high wallet share potential.

We discussed the importance of using innovative sales and marketing to cross-sell your own customers. It’s just as important to be smart about how you target new customers. Using “Intelligent Targeting” techniques, you’ll be able to identify consumers you should go after because they have a high probability for greater wallet share down the line. How do you do this? Leveraging advanced customer analytics, you can identify trends that will tell you how to identify consumers with high wallet share potential. Another benefit of using these insights to drive new customer acquisition efforts is that you can execute much smaller (less costly) campaigns while increasing your new account growth metrics.

Learn how a community bank generated $50 million in new deposit acquisitions in just six weeks using "look alike" targeting. Download case study.

“Improving wallet share is a good objective for banks to set, but it’s not an actionable measurement and doesn’t really provide any insights for cross-selling success. Banks need to quit focusing on wallet share and flip their thinking around if they want to see any real growth.”

Keith Henkel, CEO & Founder, FI Works

Put the community bank advantage to work.

Banks of any size can put the four actions outlined above into practice and see measurable results. However, we think they can be particularly beneficial for community banks. While on one hand, bigger banks do have more resources ($$) to spend, they typically err on the side of using digital marketing channels to cross-sell their customers. An email or online ad will never replace the value of a personal call from a community banker that knows about their customer.

Community bankers are relationship bankers by nature. The “personal touch” community bankers are known for will make each of these initiatives even more effective. From calling on single service households and discussing products the customers really need, to reaching out to new customers with valuable offers and services they will use, you have the opportunity to approach the execution differently.

Keep all eyes on moving the needle in.

We believe the most important metrics for banking success are those that drive real action. While growing your bank’s piece of the pie is an important business objective, wallet share is not going to give you any insights for how to make it happen. We’ve seen that focusing on single service households provides actionable measures that will make your cross-selling efforts pay off. The actionable goal of reducing single service households will keep your sales and marketing teams focused and motivated. The end result will be wallet share growth – isn’t that what you wanted in the first place?

Learn more about how needs-based selling works.

FI Works can help your bank make the transition from blind sales and marketing to needs-based selling. It’s not as complicated as it may sound, but the outcomes are impressive. Click here to schedule a call today.