4 reasons to keep IT/
CX top-of-mind during your mergers and acquisitions journey
Consolidating and integrating your combined tech infrastructure is a major headache. Here’s our approach to make sure you get things right.
Director of Value Consulting, Backbase
It’s easy to understand why banks go through mergers and acquisitions. They’re a great way to right-size your portfolios, scale your products and services, enter new markets, and increase your competitive positioning, and that’s only a few of the upsides. The cost and revenue benefits can also be considerable, and when you factor in other motives — like economic conditions and valuations — it’s a no-brainer, at least on the business side of things.
Of course, let’s not neglect to mention a huge downside — consolidating and integrating your combined tech infrastructure is a major headache. We’re talking migraine-level, here.
While others may have the burden of ironing out the commercial aspects of the deal, as a CTO or CIO, you have the unenviable job of reducing the complexity of your two tech stacks and maintaining a high level of customer service at the same time. It’s a tough situation, no doubt. If you don’t get the post-merger integration phase right, you’ll never maximize the value of your deal — and the potential disruption to your bank’s operations could be significant, lasting for years on end. And it doesn’t get any less stressful when you consider that, according to J.D. Power and Associates, customers are three times more likely to leave your bank during the M&A process. If you don’t have the right tech in place, your customer experience is absolutely going to suffer, and the last thing you want to do is give them an excuse.
No pressure, right?
In any case, if you’re reading this, the task has fallen to you. And before you even get started with the actual integrations, you’ll need to plead your case to the boardroom, hopefully getting sponsorship early in the deal cycle. These conversations are never easy, and your bank may be too busy considering matters like commercial and organizational feasibility, making IT and CX something of an afterthought. But that doesn’t make them any less essential.
As you can see in the diagrams above and below, there’s a huge difference between planned and unplanned mergers and acquisitions. In the latter, banks are still heavily reliant on their monolithic tech, even as it fragments their front and back-end channels, resulting in silos and broken customer experiences. But with a planned M&A journey — and the power of an omnichannel platform — you can unify your channels and underlying operations, allowing you to deliver instant value, both for your customers and for your business.
And yet, the question remains — how do you approach the challenge ahead of you, getting buy-in from the boardroom so you can do justice to your consolidation and integration project?
As the Director of Value Consulting at Backbase, I’ve spent years talking to banks just like yours who are undergoing the same issues. Of course, every merger and acquisition journey is unique, but let’s not kid ourselves into thinking that there aren’t similarities. Here’s the top 4 M&A lessons I’ve learned from banks around the world, so you can get your project right the first time.
1. New business, new IT
Integration headaches aside, mergers and acquisitions are a great opportunity to create a new IT platform to support your combined business entity — harmonizing to create an excellent customer experience in the process. In short, if your two banks have been in need of a digital transformation for a while, you’d do well to seize this chance to do so. Of course, modernization journeys are far from a walk in the park. But when you stack this up next to the complexity — and cost — of stitching together dozens of point solutions, code bases, and operational silos, it’s an easy sell.
One of the most common problems I’ve seen in mergers and acquisitions is the misalignment between business and IT criteria. And unfortunately, while boards are increasingly made up of leaders with tech backgrounds — including 43% of board directors at S&P 500 companies and 38% of those in Russell 3000 companies, IT/CX considerations still continue to take a back seat compared to business ones. That’s why you need to have these conversations early and often, so you don’t find your tech-related needs — or your customer experience — sidelined or neglected.
2. Curbing your IT-related spending
You know the saying “you’ve got to spend money to make money?” Well, when it comes to mergers and acquisitions, it’s more like “you’ve got to spend money to save money.” You’re never going to get around the significant — yet necessary — capital outlays, but if you don’t update your tech infrastructure as part of the restructuring, you’ll just keep burning money and providing a sub-par customer experience for years to come.
According to our research, IT-related spending makes up 15-20% of the average bank’s total costs, but that’s only the beginning. As banks continue to shoehorn updates into their legacy tech, this number will continue to rise annually, especially when you consider things like new products and distribution channels. If these services are built upon an outdated, siloed tech foundation, it’ll be significantly more costly to maintain, both in the short and long term — making IT costs a growing problem that won’t go away overnight. And don’t underestimate the effect that broken customer journeys can have on the overall user experience. If you can’t give them an exceptional experience, they’re going to head to your competitors, cutting into your revenue and making it a lose-lose situation all around.
3. Driving your mergers and acquisitions timetable
Many banks dive into mergers and acquisitions head-first, hoping to realize cost savings from things like branch closures, a streamlined tech infrastructure, and a reduction in IT spending. But the fact of the matter is that your bank can’t possibly realize these savings until after you’ve fully consolidated the combined bank’s channel and core retail system.
If you don’t get integrations out of the way early, you’re sure to drag out the entire process, and that means time, money, and effort that could be better used elsewhere. And the funds your bank was planning to spend on driving your timetable and creating customer value? That’s going to go right back to maintenance. So be sure to create a solid plan for consolidating and integrating your IT systems. Your board will thank you, later on down the line, and so will your customers.
4. Realizing the full synergies of your merger/acquisition
Mergers and acquisitions are meant to get the best out of your two business entities, uniting your strongest features and leaving the rest behind. But without a solid tech infrastructure, you’ll never reach this lofty — yet achievable — goal, and the customers are sure to notice. You probably already know this, but your board might not — IT integration directly affects the realization of a ton of merger and acquisition synergies. In fact, research from McKinsey indicates that the share of such synergies is between 30 and 50 percent of all projected M&A synergies. And those are numbers that no bank can afford to ignore.
Taking the first step
Unfortunately, when it comes to mergers and acquisitions, digital banking integration and modernization is often looked at as the last mile, rather than the pivotal first step, and customer experience is usually an afterthought. That’s why you have to convince your board to invest significant time and money into IT/CX — before you get started. That’s the only way to ensure your M&A journey gets real results sooner, rather than later. And when I say later, I mean literal years, and no bank should have to wait that long to start creating value.
Already finished with that tough conversation? We’ve got you covered with a pamphlet that will guide you through your consolidation and integration journey.