Digitization and mergers and acquisitions in central and eastern European banks

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Bank mergers and acquisitions activity is on the rise in Central and Eastern Europe (EEC). The value of transactions increased by 46% in 2020 compared to 2019, to € 4.3 billions. And until 2021, so far large-scale transactions, including the acquisition by Italian Intesa Sanpaolo of small rival UBI Banca and the CaixaBank-Bankia merger in Spain, demonstrate that the consolidation of the sector remains lucrative and is poised to reshape the region’s banking landscape.

Undoubtedly, mergers and acquisitions bring many benefits, allowing banks to join forces to become more efficient, adopt new technologies, remain competitive and, above all, grow. Indeed, the ECB seems to encourage banks to consolidate in order to remedy overcapacity and low profitability.

But as this trend of consolidation proliferates, many banks in the region grapple with the technological consequences. Banks need to quickly integrate not only their downstream legacy systems, but also their banking layer of customer engagement – all under tight IT budgets.

Often, banks try to focus on merging downstream systems first, but from a technological standpoint, this traditional approach to navigating the post-trade period may not be the most efficient. Research indicates a negative correlation between M&A activity and customer satisfaction, which can ultimately lead to loss of business – the exact opposite of the intended outcome.

At Backbase, we offer an alternative – and perhaps counter-intuitive – approach: Banks should prioritize the external customer experience to harmonize disparate digital presences, implement a comprehensive engagement banking platform, and help customers realize the merger value sooner.

In doing so, these institutions will face less customer attrition and also allow innovation to continue while working on integrating legacy downstream, giving them a significant competitive advantage.

Mergers and acquisitions on the rise

Bank consolidation is accelerating in the EEC – and it is likely that the consequences of COVID-19, which is expected to weigh heavily on banks’ profitability and capital positions, will further strengthen M&A activity as players less solid will find themselves unable to face such challenges on their own.

This trend is further exacerbated by pressure from neobanks who have increased customer expectations for digitization and personalization, making the disruptive influence of technology and the critical need to meet today’s customer expectations ahead. all digital two of the main engines of mergers and acquisitions.

But as small regional banks join forces and large global players enter these lucrative markets, many banks in the region are struggling to navigate the required technological integration.

Outdated perspectives

Currently, banks are stuck in a cascading mindset when it comes to technology and innovation. They want to know everything, plan everything and plan everything years in advance, and they tend to ‘big bang’ upgrades one at a time, each taking approximately 3-5 years to implement and deliver.

And the post-trade period is no exception. In the aftermath of a merger and acquisition, banks often focus on getting the whole system right: integrate their data layers, seek to cleanse and migrate data from both organizations on a single platform, and consolidate API layers. Only then do they turn their attention to the external engagement banking layer.

But in today’s rapidly changing landscape, treating the customer experience in this way – as secondary to the product – is a massive mistake, for two main reasons.

First, data integration is a long and resource-intensive process that can cripple innovation drivers, which in turn slows their efforts to provide employees and customers with a smooth transition. This leads to customer dissatisfaction and potentially lost business, with several studies estimating that up to 10% of a bank’s customers leave as a result of a bankruptcy. merger. In addition, this approach can create significant friction for employees. Adding even more disparate applications and processes to their workload, rather than streamlining them, will almost certainly result in reduced efficiency, as employees will feel less empowered and valued.

Second, this approach can actually exacerbate existing silos, making it more difficult to introduce change and innovate in the long run. In fact, there have been many instances where, as a result of aggressive acquisition strategies, banks lost their momentum in innovation as they focused on back-end integration. The combination of different IT architectures with vendor bottlenecks and huge technical debts took their attention away from what really mattered: the customer experience.

What is needed is a more agile and iterative approach to innovation – and it’s something that many banks have yet to master.

An “outside-in” approach

There is a better way to approach post-merger technology integration. Instead of focusing on downstream systems first, banks should prioritize the banking engagement layer and reconcile disparate digital presences to ensure that customers do not experience any disruption to their services as a result of the downtime. fusion.

Why is this important? Because banks don’t need to accept customer attrition like the cost of mergers and acquisitions. Ensuring that the banking experience is structured around the customer prepares banks for long-term success. A strong and stable customer base is, after all, the lifeblood of any financial institution.

Additionally, this ‘outside in’ approach will ensure that the entire technology department is empowered and equipped to handle multiple issues simultaneously, resulting in a much more efficient business model and a range of benefits. for the institutions which adopt it, in particular:

  • Activation innovation to continue, even as downstream integration continues – which will ultimately keep them competitive as the market continues to evolve.
  • Eliminate friction for customer and employee. Separate engagement, digital Experience with data and API layers will enable banks to quickly implement changes that ease the post-transaction transition for the end user. The processes that customers and employees worry about will be transparent, although the back-end processes fueling the integration are still being developed. Customer and employee satisfaction and retention are most vulnerable at the start of the transition period; The immediate success of these front-end processes is essential to avoid attrition and frustration.
  • Enabling banks to remain agile. Technology is changing rapidly. Separating the different layers of technology from each other allows large companies to quickly adopt new solutions, rather than having to rely on each layer. be recast each time they want to put new technology online.

This approach also has longer-term benefits, allowing banks to own the integration process in perpetuity. By separating the underlying processes from the systems themselves, banks can own those processes, build digital equity, and lay the groundwork for the integration of new technologies (or businesses as a whole) smoothly and quickly, again. and again, while maintaining the same higher level of clientele. to live. This approach can play a major role in the future M&A strategy, mitigating the risks associated with post-merger integration and ensuring the continuity of customer engagement over the long term, effectively helping banks to “go beyond »Competition.

This method may not be easy for banks navigating the difficult landscape of merger. However, it is certainly the most sustainable way to ensure long-term growth. Over the next decade, advanced engagement banking technology – and with it, end-to-end customer experience ownership – will be a clear catalyst for mergers and acquisitions and growth. Those who take this ‘outside in’ approach will be able to prepare for the future by demonstrating their value as an innovative disruptor, making them more powerful and attractive players in the market. both for customers and potential buyers.

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About the Author: Pierre-Alexandre Boulay, director of the CEE, Rear base


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