The $66 million, all-stock merger of BB&T/SunTrust merger to create the country’s sixth largest bank is getting plenty of ink these days: what the new entity will be named (nobody knows), what it means for American banking (more consolidation, more systemic risk), or where the headquarters will go (it’s a toss up).
Mergers & acquisitions (M&A) of firms, even small ones, is an extremely fraught process. The deal itself is a primarily financially driven. Regardless of what spin the flacks want to put on it, M&A is always about creating and distributing financial benefit to the shareholders, first and foremost. It’s never about anything else.
Once the financials are worked through, then begins the even more complicated, but less visible, process of executing the merger itself: things like changing the signs in the windows, repainting the trucks, and the bloodbath – it’s always a bloodbath – of deciding who gets to keep their jobs.
But amid all this frenzy, it’s become too easy – because the financial metrics are shaky here – to overlook the impact on customer experience (CX) between the announcement of the deal, the execution of the deal, and then the transitional time following the execution. There isn’t even a name for that phase, because it isn’t a financial consideration.
Anyone who has either been an employee or customer of a target or acquiring firm (and not just in banking – Marriott data breach, anyone?) knows from bitter experience how badly this can go. JD Power says that 46% – nearly half – of banking customers who went through a merger in the past year would definitely change banks (the problem now is that there are so few banks that there’s nowhere to go even if you want to leave).
In the past, CX wasn’t a huge factor in structuring the M&A deal, because banking has until recently been a truly product-focused business. But in the wake of 2008, that has changed – not enough, but enough that even dealmakers have to think about the impact of mass customer attrition, or conversely, the cost of customer acquisition, re-acquisition, and retention.
At Maru/Matchbox, we spend a lot of time contextualizing CX – not just what is an “optimal” customer experience, but the complex financial impact of CX. And as we know the banking industry is consolidating aggressively (18,000 banks in 1990; about 5800 now), we’re thinking, talking, and working on how to leverage CX during the M&A process.
In that vein, a long overdue innovation is the idea of creating a Transition CX Officer. Her job is to design and get buy in for a clear CX plan, with metrics, timetables, and milestones. That officer should be announced when the deal is announced, and be responsible for managing the CX experience with clear goals through the execution of the deal and then throughout the transition process after, whatever that is – 18 months or years. Both the CX teams from both sides of the deal should report to her, but her job is to manage CX for purposes of the transition, not to manage the daily CX of the two parties.
The brutal reality here that no one wants to publish (so here I go) is that there is often a segment or more of customers that are expected to – even targeted to – attrite. The job of the transition CX officer is to make sure this happens to plan, and not in some haphazard way that winds up with your best customers jumping ship.
The transition CX officer has one incredibly complicated job to execute: to figure out which levers to prioritize. You can’t do everything; you have to triage what’s going to work even if you don’t touch it (so leave it alone), what won’t work no matter what you do (so leave it alone), and what will work if you put some effort into it: That’s where you focus.
Typically, here are three areas where transition CX can have enormous impact, both financially and in terms of good will – which, interestingly enough, is a critical valuation metric in the deal structure:
1. Transactionals: This includes almost all digital and non-human interface, for example, waiving ATM and most other fees during the transition, ensuring customer rates of return stay the same (e.g., on MMAs and CDs); pushing one-way communications about the status of products and services during the merger.
2. CSR training: Customer Service Reps include not only the people in the call center, but anyone – branch employees – who have even the most casual contact with customers. These need to be fully briefed and trained on how to respond to concerns and concrete inquiries – will I get a new card? Will my fees change? Will my branch close? What will happen to my loan application? Where’s my favorite teller? – in a way that answers the questions, takes responsibility for solving the problem, solves the problem, and communicates professionally and pleasantly.
3. Community liaison: This last may be the most important. Banking consolidation is great for shareholders, but devastating to communities, which often rely on (highly capitalized, so very healthy) community banks to reinvest locally, creating a system of healthy, balanced, multiplying prosperity.
A major regulatory change notwithstanding, the biggest banks are only getting bigger: 0.2% of US banks own 66% of industry assets (which is a huge systemic risk, by the way – if there’s another 2008, taxpayers will again be on the hook for mega bailouts). In 20% of the nation’s (3000) counties, community banks are often the only physical bank presence. We have lost 1500 of those since 2009, and they are not coming back: Barriers to entry (mostly cost of compliance) is so high, new bank applications are down to a scant handful a year. There used to be about a hundred of them a year before 2009.
If acquiring banks are serious about taking care of their customers, part of the CX plan has to include accountability for communities who will be adversely hit by the deal. Anything else is simply irresponsible – even negligent. Consolidation feels inevitable (I’d love to be wrong about that), but it doesn’t have to be disastrous.