Any good executive knows the value of a successful cross-sell program. Cross-selling is the practice of selling an additional product or service to an existing customer, and it’s one of the simplest strategies an organization can undertake to substantially increase revenue. Not only does cross-selling allow an organization to take advantage of the known risk associated with a current customer (versus taking on the unknown risk of a new customer), it allows the organization to gain valuable customer information such as buying patterns, preferences and willingness to try suggested products and services. Some organizations report as high as 35% of their revenue comes from cross-selling activities.
However, cross-selling in the Financial Services industry today is not as simple as identifying the right population of customers or developing relationships to increase revenue and profitability. With an increasingly regulated environment, the question of whether or not to use cross-selling has changed from “How do we leverage our existing customers to develop new revenue streams?” to “How do we take advantage of these potential revenue streams and still remain compliant and profitable?”
In the past 18 months, the Office of the Comptroller of the Currency (OCC) and Consumer Federal Protection Bureau (CFPB) have leveled painful penalties, required millions of dollars in customer refunds and temporarily halted cross-sell marketing at some of the largest financial institutions in the US. The OCC and CFPB requirements have set the consumer protection bar very high. When organizations are in violation of regulations, these entities have hit back, and hard.
In the CFPB’s first enforcement action, Capital One was hit with $210 million in penalties for engaging in deceptive marketing practices. These included the promotion and selling of so-called “add-on products” like payment protection and credit monitoring.
Another enforcement action by the CFPB, this time against American Express for $112.5 million, was not for a particular marketing or sales practice. The credit card company was instead dinged for violating consumer protection laws “at every stage of the consumer experience, from marketing to enrollment to payment to debt collection.”
These examples are just a small sampling of the myriad of actions the OCC and CFPB have taken; resulting in billions in lost revenue, hundreds of millions in additional fines and penalties, and negative impacts to reputations.
How Did We Get Here?
So, how did it get this bad? Let’s take a look at a few of the pitfalls these and other organizations have fallen into.
- Ineffective Operational Governance: The ineffective control and monitoring of cross-sell activities affects every stage of the value stream: enrollment, benefit fulfillment, servicing, and billing. Lack of robust process controls will at best lead to inadvertent, but nonetheless deceptive, marketing practices—and at worst, to a miserable customer experience. Often, organizations lack the appropriate organizational structure, business process rigor, and risk management expertise needed to run an operational risk management program capable of protecting their operations and customers. With ever-changing regulations controlling cross-selling activities, operational governance is a critical ingredient for success.
- Lack of internal communication & product/service knowledge: As unfortunate and avoidable as it is, creating silos between business groups is all too common and can seriously damage effective cross-selling efforts. If organizations fail to be vigilant about cross-training, setting up regular interaction with impacted business units, and developing integrated product/service strategies, there’s a higher likelihood that sales teams will lack knowledge of available products/services and that products will be misrepresented.
- Customer awareness: Many customers admit to being unaware of an add-on product/service that they have purchased by default. In these cases, clear and effective communication to customers has been lacking, in addition to an inadequate recording of customer decisions. When customers realize they have something they did not want or understand they were purchasing, an organization is in legal hot water.
The Crossroads of Cross-Selling
Financial institutions can regroup and improve operations to meet these new expectations. But the organizational change required is comprehensive, and requires enterprise-wide buy-in. So, how do you get your cross-sell organization back under control and profitable? Here are the top three things Celerity has found to be fundamental to cross-selling success:
- Cross-sell organizations must undergo a culture change; emerging as revived organizations – focused not just on sales, but on monitoring and managing consumer risk through the effective implementation of business process management. Ensure an operational risk management framework is in place to proactively identify and mitigate future risk events, remediate past events, and provide upstream control of identified risks. Additionally, internal audit programs must be improved and have redundant controls.
- An organization must institute an exhaustive control and monitoring program to govern consumer risk. The program must include the entire product lifecycle from enrollment/cancellation, to benefit fulfillment, to servicing and billing. Control and monitoring must extend to improving governance of third-party vendors associated with the consumer products.
- Ensure consistent and comprehensive process documentation. Business process management must be accepted as a means to an end, providing evidence of process understanding to auditors, and ensuring consistent understanding of the process within the organization.
It’s a tall order. But then, and only then, can an organization deliver a quality product to the customer and simultaneously remain profitable while meeting the new federal expectations. Successful and profitable cross-selling is still possible!
How has your cross-sell organization responded to the increased expectations of the federal agencies?
See how Celerity can help your financial institution or organization to improve operations and meet these new expectations.