Pavlov’s Bankers

An article in American Banker about the JP Morgan Chase/WaMu deal quoted one consultant as saying:

“JPMorgan must be salivating at the opportunity to cross-sell products to Wamu’s customers to really deepen the relationships.”

My take: The consultant may be right about his assessment of JPMC’s reaction to the deal — and if he is, then the firm is seriously deluding itself. On the other hand, my bet is that the folks at JPMC are hardly describing their reaction in term of salivating.

First of all, the reality is that JPMC has been selling to WaMu customers for years. Every large financial institution spends a good deal of money building and using prospect databases to drive their acquisition marketing activities.

How will JPMC’s offers change as a result of having access to WaMu’s customer databases? In the short-term, nothing. And in the medium term, maybe nothing. The scope, scale, and cost of integrating the firms’ customer databases is huge, and will take years to accomplish.

Second, the “cross-sell opportunity” is the Pavlovian reaction that every acquiring bank has given when describing its rationale for merging with another institution. But take a moment to think about the deals that have occurred and which ones have delivered on this cross-sell promise.

Done thinking? How many did you come up with? None? What a coincidence! That’s how many I came up with.

Third, the current situation will actually exacerbate JPMC’s — and other large banks’ — ability to consolidate accounts.

One of the most prevalent reasons why consumers don’t consolidate accounts, and do business with just one bank, is that they “don’t want all their eggs in one basket.” I’ve wondered whether this sentiment will be prevalent among Gen Yers, and if the feeling would change among older consumers. The current financial crisis convinces me that the “eggs in one basket” reason for not consolidating will become even more prevalent over the next few years.

Given the failures of some this country’s largest banks, few consumers can really feel comfortable that any one bank — regardless of whether or not it has “too big to fail” status — is a good place to have all of their accounts.

More importantly though, this is really the time for banks (and credit unions) to really evaluate what it means to have a “customer relationship” in the financial services world. Towards the bottom of the list of things that Citibank and JP Morgan Chase should be doing with Wachovia and WaMu customers is “cross-selling” them.

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4 thoughts on “Pavlov’s Bankers

  1. Ha ha ha ha ha! I came up with zero as well!

    And I agree, now more than ever, people will continue to keep their money in multiple financial institutions because they feel safer with the diversity.

  2. what about bank of america and their acquisition of mbna? while not a bank buying a bank, i think they have a done an admirable job translating mbna’s affinity card strategy into banking products, which in turn allows them to cross-sell those banking products to (former) mbna card customers leveraging their existing affinity relationship.

  3. JPMorgan’s presentation to investors about the deal is full of references to “expanding footprint” and “extending branch network” and “cross-sell opportunities”. But my bet is that the firm is much more concerned with figuring what they bought and how to manage it.

    You might be familiar with my skepticism over “customer relationships”: as much as financial institutions may feel like they’re creating a relationship, the feeling is certainly not reciprocated by customers, and definitely not in the way that financial institutions delude themselves into thinking.

    The problem with cross-selling is that the terminology and process is almost entirely from the financial institutions’ perspective of what they can sell, not from the customers’ perspective of what they need.

    @Paul: the real question is whether BoA has been able to sell more products to MBNA customers than they would have been able to without buying them. Is there a true incremental impact derived from the existing “customer relationship”?

  4. Dead on Ron. This purchase is all about:
    a) access to cheap deposits
    b) keeping the overlords (Fed’s) happy
    (mostly a) though)

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