The revelation that Wells Fargo employees allegedly opened millions of accounts to meet lofty sales targets illustrates one way banking has changed: The retail banks where many Americans deposit their checks and pay their mortgages have overwhelmingly become high-pressure sales centers.
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At Wells Fargo, workers created 2 million bank and credit card accounts, transferred customers' money without telling them and even created fake email addresses to sign people up for online banking. Regulators slapped the bank with $185 million in fines, and the chief executive has been summoned to answer questions from a Senate committee on Tuesday about its sales practices.
But cross-selling, as it is called, is the lifeblood of the modern retail banking industry. Once someone opens a basic savings or checking account, the goal for banks is to get that customer to sign up for even more, whether that's a credit card or a mortgage or a retirement account.
Wells Fargo, which marketed itself as the nation's community bank, was the industry's king of cross-selling. It prefers to call its locations "stores" instead of "branches." But other big retail banks like JPMorgan Chase & Co., Citigroup and Bank of America engage in high-pressure sales tactics as well, banking experts say — Wells Fargo was just the biggest offender. The other banks haven't faced allegations of fraud.
"Bank of America, Citi, Chase were all envious of Wells' ability to cross-sell as well as they did," said Steve Beck, an analyst with the consulting firm cg42.
Surveys done by cg42 last year showed that roughly 40 percent of Wells Fargo customers asked said their No. 1 complaint was employees' constant pushing of products the customers did not need or want. Of Bank of America customers, 31 percent said they felt overly pressured for products they didn't want or need. At both Chase and Citigroup, that figure was 27 percent.
The change in focus for retail banks had been taking place slowly for years, but the financial crisis that began in 2007 and the impact on banks fueled faster change. The Federal Reserve cut interest rates to nearly zero, part of an effort to give the economy a boost during the Great Recession. But the move also eviscerated the banks' ability to earn interest income and spurred them to seek out new forms of revenue — often in the form of fees.
And the more products a customer has, the more potential there is for a bank to earn fees. Those could be overdraft fees at a checking account, or management fees of a retiree's nest egg.
To adapt to their new business model, banks have been physically transforming their branches. Chase, Citi, BofA and Wells have all opened smaller branches with few, if any, teller windows for routine transactions like depositing checks or account inquiries that are more often handled at ATMs or on the Internet. Instead, there's more square footage for personal bankers to assist customers with their needs — or possibly sell them additional products.
Wells Fargo, familiar to customers for its stagecoach logo, had also long been known in the banking industry for its aggressive sales goals.
The average Wells Fargo household had on average more than six products with the bank, a metric Wells top executives would highlight every quarter with investors. The bank even had a "Gr-Eight" program aiming to raise that number to eight. Wells never reached that level.
Chief Executive John Stumpf has said the bad behavior was isolated to only a handful of employees and managers, even though Wells acknowledged that it had fired more than 5,000 employees for misconduct. After being fined last week, Wells pledged to end the sales goals program by the end of the year.
Ken Sweet covers banks and consumer financial issues for The Associated Press. Follow him on Twitter at @kensweet.