Wells Fargo, one of the largest and most prominent banks in the world, has been embroiled in a scandal in which thousands of its employees apparently engage in fraud.

The company, which was founded in 1852, has already paid $185m in fines over charges that it opened more than 2m deposit and credit accounts without the permission of its customers.

And investors have knocked more than $20bn in value off Wells Fargo’s market capitalization.

While scandal in the banking sector is no surprise, particularly since the global financial crisis of 2008, many were surprised to find Wells Fargo at the center of one.

After all, the bank is considered one of the more conservative of the major banks, and with its headquarters in San Francisco, it’s over 2,500 miles away from Wall Street.

Not an isolated dynamic

Unfortunately, as CNN’s Matt Egan has detailed, the apparent motivations for the Wells Fargo scandal aren’t unique to Wells Fargo.

“Banks are under enormous margin pressure,” chief of the Office of Comptroller of the Currency, Thomas Curry, told a Senate panel.

And an anonymous banker told CNN’s Eagan, “There is a blurred line between what’s best for the customer and what’s best for our sales goals.”

To achieve those sales goals, employees are incentivized to cross-sell customers on different products offered by their banks. 

The result, in Wells Fargo’s case, was behavior that led to the largest fine in the history of the Consumer Finance Protection Bureau. Additionally, Wells Fargo has agreed to change its sales practices.

But while Wells Fargo is thus far the only institution known to have engaged in fraud, there are concerns other banks have been over-aggressively engaging in cross-selling, raising the specter of future scandals yet to be uncovered.

The fintech angle

While the importance of cross-selling has been amplified in today’s challenging banking environment, which has seen record low interest rates and ever-increasing regulation, banks are finding it harder and harder to cross-sell because their leverage over customers has decreased significantly.

Historically, banks forged strong relationships with their customers and were one-stop shops for many of their needs.

An individual who had a personal deposit account with a particular bank would turn to that bank for personal and business loans, mortgages, etc.

The internet, and the fintech revolution it fostered, has changed that.

Today, most financial services can be obtained unbundled. That makes it easier for consumers and businesses to shop around, and not surprisingly, the best providers aren’t always the banks they have done business with for years.

For example, many individuals have found that they can be approved for personal loans faster and at a lower cost by non-bank upstart online lenders than the banks where they’ve held their deposit accounts for years.

For large banks like Wells Fargo, this is a major impediment to cross selling.

After all, if it’s easy for customers to find other providers that can offer better pricing and/or a better overall experience, there’s little incentive for those customers to settle for less just for loyalty’s sake.

This makes the Wells Fargos of the world very vulnerable.

How can banks respond?

Obviously, the best way for large banks to address this issue isn’t to engage in massive fraud.

That will only exacerbate the reputational woes of the banking industry.

Instead, if banks want to cross-sell more effectively, they need to ensure that the products and services they cross-sell are competitive in terms of pricing and overall customer experience.

Of course, that’s easier said than done, particularly given some of the challenges in recruiting digital talent, but it’s the only real solution.

The good news is that banks that can improve their products and services, and develop innovative new ones, will not only be in a better position to cross-sell to their existing customers, but to use those products and services as a wedge to lure new customers who do business with other banks.

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