After weeks of ugly headlines, the worst of the fallout may just be starting for Wells Fargo, according to a new study on the bank’s troubles.
The scandal in which Wells Fargo admitted to signing up millions of customers for programs without their knowledge or consent initially cost it a $185 million fine. However, that could be only the beginning as the reputational damage intensifies.
The bank stands to lose $99 billion in deposits, $4 billion in revenue and a customer base that could dwindle by up to 30 percent, a study released Monday by cg42 showed. Ultimately, about 14 percent of customers are actually projected to switch banks, an at-risk level that a cg42 principal still said is “dramatically higher” than what would be expected from any of Wells Fargo’s competitors.
“While the lion’s share of Wells Fargo customers we surveyed had not directly reported being affected by the scandal, it didn’t matter,” Steve Beck, founder of cg42 and a competitive strategy expert, said in a phone interview. “The breach of trust the scandal created has fundamentally changed the way that they think about their institution, the way they think about the bank.”
Indeed, just 3 percent of those surveyed said they suffered direct impact from the scandal in which the bank admitted that 2 million customers were enrolled in products like debit and credit cards and additional checking accounts even if they didn’t want them. The effort to get customers into additional products is known as cross-selling and served as a cornerstone of the San Francisco-based bank’s growth strategy.
In its survey, cg42 asked 1,000 primary Wells Fargo customers and another 500 primary customers of other top 10 banks what they thought of the scandal and whether it would change their behavior. Among other things, cg42 studies what Beck calls “brand vulnerability” to public perception and its studies are often cited in media reports on industry trends.
One of the more interesting things the firm has found about Wells Fargo is that customer concerns over cross-selling didn’t just start when the scandal broke in September.
“Dating back to 2011, customers have consistently over-indexed on the frustration of being sold products I don’t need or want,” Beck said. “What the scandal has brought to life is that that wasn’t just solely based on a culture that pushed for cross-selling and upselling. But it went further than that.”
The study also found that before the scandal, 60 percent of respondents had a positive impression of the bank. Afterward, that number dropped to just 24 percent. Negative brand perceptions increased from 15 percent to 52 percent.
Wells Fargo officials did not immediately respond to a request for comment. However, the bank reportedly has reached out again to customers in recent days, promising reforms including the end of sales goals, better communication and more transparency.
“It’s important for you to know that making things right and restoring the faith you have in us is the very top priority for our entire Wells Fargo leadership team,” the bank said, according to a letter obtained by the Atlanta Business Chronicle. “There is nothing more important than for you to experience the very best from us.”
Beck said the bank, which has fired more than 5,000 employees and just announced the departure of former Chairman and CEO John Stumpf, needs to be aggressive in reform.
“It certainly has to go well beyond sort of sacrificial lambs and removing people and all that,” he said. “Our perspective would be, get back to re-evaluating the way you ultimately treat customers and get on the hard business of rehabilitating the brand, because it certainly has suffered reputationally.”