Wells Fargo could see almost half its customers exit bank over scandal
Oct 25, 2016
Mark Calvey
Senior Reporter
San Francisco Business Times
Wells Fargo's fake accounts scandal could spur almost half, or 44 percent, of the bank's existing retail customers to walk out the door, according to a study by management consulting firm cg42.
The study found that the unfolding scandal has 14 percent of Wells Fargo's existing customers planning to leave, with another 30 percent considering other alternatives, including walking out the door.
That would be a phenomenal hit to Wells Fargo's retail customer base, but it underscores the challenges new CEO Tim Sloan faces in righting the bank and its ubiquitous stagecoach. Wells Fargo is metro Atlanta's No. 2 bank, ranked by deposits.
At this point, many are still trying to get their arms around the scope of the scandal, in which as many as 2 million deposit and credit accounts were opened without customer authorization, and the long-term impact it will have on the bank.
Wells Fargo is eager to point out that its latest quarterly results. which include September, shows growth in consumer checking accounts, deposits and debit and credit card usage.
The cg42 study found that 14 percent of existing Wells Fargo customers have already decided to leave the bank, which would result in a $99 billion loss in deposits and a $4 billion loss in revenue over the next 12 to 18 months, according to the cg42 study. Wells Fargo had almost $50 billion in revenue in 2015.
Of course, cg42's findings remind one of the old saw: "Three birds are sitting on a tree branch and two decide to fly away. How many remain on the tree branch? Answer: three." In a nutshell, simply deciding to do something doesn't mean action is taken to make it happen.
In the case of switching banks, the process can be so cumbersome, with online banking, auto payments and a plethora of other services entangled, that the New York Times recently ran an entire column as a "guide" to getting rid of your big-bank checking account.
Steve Beck, founder and managing partner at cg42, told the San Francisco Business Times that the 14 percent of Wells Fargo customers planning to leave the bank would be far higher if not for the difficulty in moving to a new bank.
No doubt Wells Fargo's rivals will be big winners if more customers exit Wells Fargo (NYSE: WFC). Credit unions, community banks and even Charles Schwab Bank (NYSE: SCHW) already appear to be benefitting from Wells Fargo's scandal.
Cg42 says Bank of America (NYSE: BAC) and Chase Bank (NYSE: JPM) could also be big beneficiaries, given their national presence.
On top of the 14 percent of existing customers that cg42 sees walking out the door at Wells Fargo, the consulting firm found that another 30 percent say they are "actively exploring alternatives." That would put a total of $212 billion in deposits and $8 billion in revenue at risk over the next 12 to 18 months.
The figures may sound like a worst-case scenario until one reflects on the importance of customers trusting their financial institution to do the right thing. After all, trust is often a bigger factor for more Americans in deciding where to put their money than in choosing their next president.
Wells Fargo being painted recently as a "criminal enterprise" by members of Congress doesn't help the bank retain customers.
The New York Times reported last week on a former Wells Fargo employee and others working on a "Wells Fargo Close Your Account Day," scheduled for Nov. 12.
New York-based cg42 had previously predicted that Wells stood to lose tens of billions of dollars in revenue and deposits due to consumers' top frustration of "trying to be sold on products I don't need or want."
Beck, who founded cg42 in 2010, said an example of a Wells Fargo complaint, which will sound all too familiar to other Wells customers, was a survey respondent who told cg42, "I'm just calling Wells Fargo to get something fixed, and I have to go through three sales pitches to get my problem resolved."
"Their sales culture got out of control," Beck said. "Hopefully Wells Fargo takes some bold steps to show that it takes customer relationships seriously.
"Ad campaigns are easy," Beck said, echoing Wells Fargo customers who say the bank's emails saying they want to make things right have left them cold.
But Wells Fargo's third-quarter results showed year-over-year growth in primary consumer checking accounts, up 4.5 percent in September, Sloan told investors on the bank's quarterly earnings call this month. Wells also said deposits were up by $6.5 billion in September compared to the prior month of August, and debit card transactions were up 9 percent from a year ago.
Wells Fargo also saw a rise in credit card usage, with the number of active cards up 9 percent, while balances and transaction volume are both up 10 percent from a year ago.
Wells Fargo has said previously that it has given back money to affected customers, among other steps.
"We have provided full refunds to customers we have already identified, and we're broadening our scope of work to find customers we may have missed," a Wells Fargo spokesman said. "We are also contacting each of our impacted deposit and credit card customers to ensure they still want and need their products."
The bank debuted a national ad campaign Monday touting its efforts to make things right with customers.
Even the bank's strengths — teller staffing levels in branches to avoid long lines, cutting edge mobile banking and innovative ATMs— don't make up for the lack of trust among Wells Fargo's customers and prospective customers.
"The short- and medium-term outlook for Wells Fargo is gloomy, and the fallout from the scandal will impact the bank's bottom line for years to come," cg42 said in its survey findings.
