In Asia to talk about new organic growth strategies for the region's banks, Accenture's global managing partner of the financial services practice, Piercarlo Gera says Wells Fargo is a good model for banks that aspire to cross-sell successfully.
Why is Accenture now talking about organic growth to Asian banks?
Piercarlo Gera: First of all, we decided to focus on the organic growth space for a number of reasons. The first reason is that the market has been growing and the area of organic growth has become very important for financial analysts. Any institution needs to manage its own cost reduction programme but this is obviously not a sustainable strategy. So we look at growth issues, how to achieve growth. Obviously, M&A is an issue but it always depends on which conditions are applicable. The consensus is that it is becoming less and less attractive, and there is increasing attention to organic growth: to cross selling, to customer retentions. For example, Wells Fargo has grown in excess of 10% for the last five years.
In our study we identified the best practices in the organic growth space. We looked at cross-selling ratios, and the number of products per customer. The fact that Wells Fargo has clocked up an average of 4.3 compared with the US average of about two, is another amazing story. There are a number of other indicators like wallet share, the various retention rates and so on. The evidence of our survey shows the importance of cross-selling strategies, acquisition strategies, customer retention and how they are important in the minds of global bank CEOs. In the survey of what is uppermost in their minds, M&A got only 7% of responses against 90% in the other three categories.
To use Wells Fargo as an example again, it is very much focused around cross-selling. In the annual report the first twenty pages feature pictures of customers with their cross selling ratio. Why do I mention this? It is a clear indicator of the culture of the company; it clearly communicates to the investor the key performance indicator in their case. In Wells Fargo's annual report it is clearly communicated that the intention is to sell eight products per customer. There is a clear commitment from the management to communicate their strategy. They went from 3 to 4 in four years and now they are at 4.3 and again they have a clear strategy in this direction.
In this space, we say the name of the game is how you operationalise the strategy. How do you clearly convey the message to a broad customer and staff population. We're talking about insider-driven marketing and sales, and anything that is about how you analyse and interpret data about the customer. Then there's sales force effectiveness, how you mobilise, transform and chart your sale force. Then the multi-channel interaction and what we all the next generation branch and the next generation contact centre.
You have thousands of salespeople and you need to make sure the data has an impact on the way your salespeople behave. I will come back to this, because this is the single issue that has created many problems in the past.
We see now the growing number of CEOs driving the programmes in the organisation. All these cases that I've been talking about are driven by the CEOs. I see many CEOs talking about a new way to do retail banking; they clearly send the message down the organization. There are some CEOs that are strong believers and are achieving success.
Why doesn't Wells Fargo spin off and form a business to teach others how do this? Surely if the bank is so good at this, it probably has in-house knowledge it could outsource to other banks in Korea or Malaysia?
It may be an option. It's a capability and in theory they could do this in other countries.
ING, for example, have an advisory unit that goes into emerging markets to teach banks how to run their credit properly. They've gone into Korea, Indonesia and they're building a bank in Mongolia and also in Afghanistan. Presumably what Wells Fargo does is the next stage?
It's an interesting concept. It may be an option for a bank like this to architect a whole programme.
If you look at metrics like cross-selling in the Asian markets, if the global leader is targeting 8, how would you assess markets such as Hong Kong, Singapore and Korea and their potential?
In practice, we talk about 4 or 5 being a very aggressive player ratio. For Europe, that would be a fairly aggressive target.
In Asia it depends on the sophistication of the market and the regulations. Hong Kong is a place where there is a lot of freedom, and less regulation in terms of tax and what banks can do, so they can sell insurance and be engaged in some way in securities broking. So I think the potential for having a high cross-selling ratio of up to 4 or 5 is something that is achievable in Asia. Right now it's around 2 or 3. But if you talk about a general deposit account, a credit card, a mortgage, it's already three. If you can sell insurance, investment or securities broking you can bring that up. Keep in mind not all the banks are good at everything and another thing is customer loyalty. Maybe they will go to different banks because they have different reputations and are good at doing different trends.
Has internet banking influenced cross-selling, and are customers now sucked into using one bank for convenience purposes?
In stressing the importance of the integration of different channels, the name of the game in retail banking is the number of contacts you have with the bank. From a banking perspective, you need to turn all these contacts into useful contacts so that you gain information and possibly so that you sell the highest value product. The internet is creating the opportunity to develop a larger number of contacts. It's interesting to observe the customers who use the branch, the call centre and the internet are much more profitable for the bank and much more loyal. The tellers have grown up as relatively autonomous units and do not share information. Now we've seen that those players who do have a multi-channel platform benefit from more profitable customers and more loyalty. That is the competitive advantage.
Do you think the Chinese banks are ready for this message, or do they need to develop a bit more first before this type of advice becomes relevant to them?
The basics of any retail business are very similar. Obviously, there are institutions that are more advanced and less advanced, but I don't see why any institution should not work with a clear target. In China, where you have a wider population you need stronger capabilities because you need to manage a large customer base. My view is there will be a clear trend in this direction because,by definition, it is a retail business.
