Beyond Day One Minimizing customer attrition during bank mergers and acquisitions
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Beyond Day One
Minimizing customer attrition
during bank mergers and acquisitions
Produced by the Deloitte Center for Banking Solutions
Contents Executive summary 2 Risk of customer attrition 4 Key drivers of switching 5 Customer integration framework 8 Conclusion 15 As used in this document, "Deloitte" means Deloitte LLP. Please see www.deloitte.com/us/about for a detailed description of the legal structure of Deloitte LLP and its subsidiaries.
Foreword
The banking industry remains under huge pressure following the financial and economic
turbulence of the last few years. This has resulted in new strategic opportunities for healthy banks
to expand their geographic and customer footprints via acquisitions and mergers. And as the
number of deals grows, so it has become evident that banks face a major challenge – can they
successfully retain the potential value of their deals by reducing or stopping the loss of customers
that tends to follow the announcement and completion of a transaction?
Why have so many acquisitions been unable to generate superior returns and greater shareholder value? A key factor is
the lack of a sufficient focus during the integration process on retaining newly acquired customers and building loyalty.
Instead, many acquisitions are characterized by a primary focus on squeezing out costs and on integrating technology
and business processes so that the combined institutions can operate as one bank. The attention given to reducing costs
is understandable. Acquisition premiums must be recouped, and typically it is easier to achieve this in the near term by
realizing cost rather than revenue synergies. And cost synergies are indeed present, especially with in-market deals, and
can be achieved by eliminating redundant functions and resources.
By under-investing in customer retention, however, the acquiring institution runs the risk of losing a significant portion of
the value of an acquisition in future revenue and profits. The intrinsic value of a bank is largely a function of the deposit
base, loan portfolios, and fee streams of its customer base. Given the difficulty and expense of replacing lost customers,
managing how customers are treated and ensuring that their concerns are addressed during integration should be
considered as an important focus of any acquisition.
To understand the issues around customer attrition in the wake of a merger or acquisition, the Deloitte Center for Banking
Solutions conducted a survey of customers who had recently gone through such a transition to gather insight into what
drives a customer to stay or to defect post-acquisition. This report first examines the behaviors of these customers and
then provides detailed insight into how to build a framework that can guide a bank’s efforts to help ease the transition
process, identify and manage “moments of truth,” and start building valuable relationships even before the merger or
acquisition takes place.
We believe this report will be helpful in guiding you through these transitional times and help you stay focused on the
most important asset a company has – its customers.
Don Ogilvie
Independent Chairman
Deloitte Center for Banking Solutions
April 2010Beyond Day One
Minimizing customer attrition during bank mergers and acquisitions
Executive summary
Consolidation within the banking industry has been
steadily increasing for the last several years and the recent
financial crisis has accelerated this trend. With a merger or
Almost two-thirds of the survey respondents
acquisition comes the opportunity to grow and expand the who had switched an account to another bank
business while capturing efficiencies through economies
of scale. While the latter is a widely achievable outcome,
did so within the first month after the deal was
banks often experience customer attrition after undergoing announced.
a consolidation. One of the key reasons for this may be
that banks primarily focus on cost savings and place too
These results suggest that rather than being able to focus
little emphasis on efforts to retain customers.
only on one aspect of the customer relationship in their
effort to reduce customer attrition after an acquisition, an
Inadequately investing in customer retention can set the
acquiring bank may want to address a variety of customer
stage for lost value because of lower revenues and profits.
events. Further, it would be wise to consider moving
Given the challenge and cost to acquire new customers,
quickly to integrate new customers. Almost two-thirds of
effectively managing customer integration should be
the survey respondents who had switched an account to
considered as a primary focus in any acquisition.
another bank did so within the first month after the deal
was announced.
To assess the risk of customer attrition during an
acquisition and identify key factors driving it, the Deloitte
To increase customer retention, we believe banks should
Center for Banking Solutions and Harris Interactive
consider employing an explicit framework to guide efforts
conducted a survey of more than 800 U.S. consumers who
to improve the customer experience and build relationships
had lived through this experience. The survey found that
with their new customers. Such an integration framework
17 percent of respondents had switched at least one of
includes the following elements:
their accounts to another institution after their bank was
acquired, while an additional 31 percent said they were at •S
tandard customer integration protocol. Even before
least somewhat likely to switch over the next year. But the a specific acquisition is being considered, banks have
potential loss of revenues may be even greater than these the opportunity to develop a standard protocol for
figures suggest because respondents who had switched managing the customer experience throughout the life
had more financial products and more investable assets cycle of the integration. This protocol should identify
than those who had not. the “moments of truth” in the integration — high-
impact events that can determine enduring customer
Rather than one significant event, a number of experiences attitudes, trust, and loyalty. For each moment of truth,
have led respondents to change banks. Emotional factors, the acquiring bank should consider detailing the target
such as feeling that their bank no longer valued them as customer experiences that it seeks to deliver, together
it did before or the belief that it no longer looked out for with the supporting employee behaviors required. The
their best interests, were most often cited as important result of this analysis is a standard customer integration
reasons why respondents decided to switch banks. playbook that describes the specific actions to be taken
In addition to emotional factors, other reasons cited in each phase of the acquisition in order to provide the
frequently were having received a competitive offer from desired customer experience.
another bank, problems with account service, and higher
fees.
2 Deloitte Center for Banking SolutionsBeyond Day One
Minimizing customer attrition during bank mergers and acquisitions
• Tailored approach for each acquisition. When the Ensuring that a bank places sufficient emphasis on the
time comes to develop an integration plan for a specific customer experience during an acquisition helps safeguard
acquisition, banks can use the standard customer the customer base that provides the core value of the
integration protocol as the foundation and customize bank being acquired. Beyond simply minimizing customer
it to reflect the objectives of the deal and the special attrition, an acquirer has an opportunity to drive additional
characteristics of the institution being acquired. This growth by making a positive first impression on its new
process typically examines such factors as the type of customers, communicating the bank’s brand and value
deal, the rationale for the acquisition, the geographic proposition, and starting the process of building
footprints of the two banks, and the similarities and customer loyalty.
differences between their business models. Banks may
also carefully consider, and quantify wherever possible, Finally, the focus on customers is best maintained
the tradeoffs that exist between actions to reduce beyond conversion. The effort to continually strengthen
customer attrition and actions to reduce expenses. customer relationships — both with new and existing
•E
ffective, disciplined execution. Success depends on customers — is never completed, essentially being central
effective execution. Establishing clear accountability to a bank’s culture. This is especially true with existing
for the integration, designating an executive as the customers whose satisfaction is as important as that of
integration leader, and providing support from a newly acquired customers. Investing in understanding and
cross-functional team can help set the stage for good improving the customer experience can help a bank build
execution. The tailored customer integration playbook strong, profitable relationships with all its customers over
provides the foundation for the implementation the long term.
by detailing the key milestones, activities, and
responsibilities. This can be supplemented by an
operating manual that translates the playbook into
detailed instructions for employees. Finally, metrics are
important to assess customer satisfaction and retention
across channels and products and are best captured in a
customer integration dashboard that allows executives
to easily track progress.
Deloitte Center for Banking Solutions 3Beyond Day One
Minimizing customer attrition during bank mergers and acquisitions
Risk of customer attrition
Customer attrition can be significant after an acquisition. Exhibit 1: Vulnerability of acquired clients
Deloitte’s survey found that 17 percent of the respondents
Switching behavior post-acquisition Switching activity during months
that were customers of banks that had been acquired following announcement
switched at least one of their accounts to another
3%
institution (“switchers”). Further, an additional 31 percent
5%
of respondents remained at risk — saying they were
7%
at least somewhat likely to switch one or more of their 17%
accounts to another bank over the next 12 months. (See 21%
Exhibit 1.) 14%
52%
A customer attrition rate of 20 to 30 percent or more 64%
17%
after a merger represents a major loss of potential value.
However, the loss may be even greater because survey
respondents who switch accounts tended to have more
banking products and more assets. Switchers had an Switched banks 10+ months
average of almost six financial products across all their Likely to switch 7-9 months
Somewhat likely to switch 4-6 months
banking relationships compared to four among those
Non switcher 2-3 months
who had not switched any accounts. Also, switchers were Within 1 month
much more likely to have investment and loan products Source: Deloitte Center for Banking Solutions survey, 2009
in addition to checking and savings accounts. Further, 66
percent of survey respondents who had switched accounts
and how it may affect them can create lasting attitudes
had investable assets of more than $100,000, compared to
that either build or undermine customer loyalty to the
just 28 percent for those who had not switched.
new bank.
These findings underscore the potential value at risk in
A bank’s initial communications with its new customers are
an acquisition. A large share of bank profits is usually
important in this regard. But the direct interactions with
generated by 10 to 20 percent of customers, that is, those
customers that occur in the branch and in the call centers
with which the bank typically has a greater share of wallet.
have even more impact. Subsequently, the acquiring
If these customers switch accounts after an acquisition, a
bank may do well to consider moving quickly to convey
significant portion of the expected value of a deal can be
its customer approach to the acquired employees, who
placed at risk.
are the face of the bank to the customer. The fact that
most switching by the respondents occurs quickly after
Critical first month after an acquisition is
announcement highlights how important it can be to have
announced
a customer strategy and integration approach defined
In minimizing customer attrition, it is particularly important
before the deal is announced. By having a standard
to focus on events that occur soon after the acquisition
customer integration protocol and processes in place
is announced. In the survey, roughly two thirds of the
before a deal is contemplated, a bank can then customize
respondents who had switched an account did so within
it to the unique characteristics of a particular acquisition
the first month after the acquisition was announced, while
under consideration.
85 percent switched within the first three months. The first
impressions that customers have regarding the acquisition
4 Deloitte Center for Banking SolutionsBeyond Day One
Minimizing customer attrition during bank mergers and acquisitions
Key drivers of switching
Deloitte’s survey asked respondents whether they had Exhibit 2: Key drivers for switching
experienced any of up to 46 negative events to assess
Top two reasons why respondents switch accounts
which types of experiences led respondents to switch
accounts after an acquisition. These events included Emotional 36%
problems with the level of service, access to services, Competitive offer 17%
competitive offers from other institutions, increased fees, Account servicing 12%
and poor communications, among others.
Fees 10%
Convenience 9%
Not surprisingly, respondents who had switched accounts
were much more likely than non-switchers to report that Lost services 8%
they had experienced these negative events. But, in most Communication 4%
cases, switchers had not experienced simply a single Migration issues 4%
negative event, but instead reported several negative 0% 10% 20% 30% 40%
changes in their banking relationship. This suggests that Percent of responses
the decision to switch is not usually driven by one event
Source: Deloitte Center for Banking Solutions survey, 2009
but results from the cumulative impact of a series of
negative experiences.
Emotional
Banks remain vulnerable to customer attrition even months By far the most common type of reason for moving
after an acquisition. Respondents who remain at risk of accounts was emotional factors, cited in 36 percent of
switching appear to have adopted a wait-and-see attitude. responses (versus 17 percent for competitive offers, the
They want to see if their new bank will provide similar next most common reason). These high-impact events
customer service, products, and fees to those provided by included losing trust and confidence in their new bank,
their old bank, and many are shopping around to see what concerns about the security of accounts, not feeling that
other banks can offer. their new bank valued them or looked out for their best
interests as their old bank did, and the loss of a personal
When respondents who switched banks were asked relationship with bank employees.
for the top two reasons they moved their account to
another bank, the types of reasons cited most often These negative experiences can result from a variety
were: emotional factors (the primary driver of switching); of interactions, but the role of employees in building
competitive offers from another institution; problems with strong customer relationships cannot be overstated.
account servicing; and concerns over fees. (See Exhibit 2.) When employees of an acquired bank do not receive
Driven by these factors to switch accounts, 68 percent of clear communications about the changes affecting
switchers said they liked their new bank more than their their future with the new institution and feel they are
previous one. In developing an integration approach, it is not valued, this is a recipe for poor customer service or
important to understand each of these drivers and their even having employees criticize the acquiring bank to
implications for efforts to minimize customer attrition. customers. Employees who are beginning to live the
acquiring institution’s values and who interact effectively
with customers are essential to increasing retention.
Such engaged employees may help new customers fairly
consider the acquiring bank and help build their loyalty.
Deloitte Center for Banking Solutions 5Beyond Day One
Minimizing customer attrition during bank mergers and acquisitions
Competitive offer
Another common reason for switching was receiving
compelling competitive offers from other institutions.
The role of employees in building strong
Specific experiences in this category included offers of customer relationships cannot be overstated:
more appealing products, improved returns on savings,
loans with lower interest rates or more flexible lending
Those who live the acquiring institution's
terms, or services that made banking more convenient. values and interact effectively with customers
This receptivity to competitive offerings speaks to an
are essential to increasing retention.
absence of compelling reasons for customers to stay.
Acquiring banks can go on the offensive and proactively Fees
communicate their strengths and the benefits of the Concerns about fees were another key driver in customer
acquisition for customers. These communications can switching decisions (e.g., the experience of having to
remain positive and go beyond simply assuring customers pay for services that they received for free before the
that the changes will be minimal and that service will not acquisition). In some cases, particularly when buying a
be disrupted. The acquiring bank has the opportunity distressed institution, the rates offered on deposit accounts
to emphasize its brand promise and how customers will by the acquired bank are above the acquiring institution’s
benefit from the products and customer service offered. rates, or the fees charged are below the purchaser’s
These communications can be even more effective when price structure, and may need to be adjusted. But careful
they are customized to specific customer segments. consideration is warranted in determining the path for
changing fees and rates. Alternate strategies include
Account servicing providing different rate/fee adjustments for different
Problems with service were another reason for switching. customer segments and phasing in new pricing in stages,
This includes the perception of an overall decline in service rather than making an abrupt, one-time change.
quality, especially when telephoning the bank, and a
feeling that meeting their needs required too much time Price sensitivity is not surprising. In other studies and from
and effort. Effective integration plans place a priority Deloitte’s experience serving clients, pricing always has
on minimizing disruption and maintaining service levels significance for customers. When it is the primary driver
during the acquisition process, with the goal of avoiding of a customer’s decision to switch, however, it may be
any account errors during the transition that could erode indicative of the weakness of ties the bank has with the
customer trust. customer. Proactive communications of the benefits of
the acquisition for customers can help to ensure that fees,
However, effective planning and execution goes beyond while always important, do not become the exclusive
addressing obvious disruptions. It involves ensuring strong issue. Training employees will be important in this area as
communication that is consistent across channels and well. Employees need to have the information and skills
proactively identifying opportunities to provide service to address customer concerns by answering questions
that exceeds expectations. Given the central role of on fees. It is helpful when they are equipped to move
employees in interacting with customers, acquiring banks discussions from focusing simply on the absolute level
can benefit from investing early in training customer-facing of fees to the relationship between fees and the value
staff, especially in call centers, on product offerings and provided, highlighting the benefits of product and service
expectations regarding customer service. packages for the customer.
6 Deloitte Center for Banking SolutionsBeyond Day One
Minimizing customer attrition during bank mergers and acquisitions
Exhibit 3: Investable assets of switchers vs. non-switchers The rationale for placing a greater focus on customer
retention during an acquisition is compelling. The loss of
newly acquired customers who switch can seriously erode
the value of the customer franchise being acquired. The
loss may be even greater if those who leave represent the
bank’s more valuable customers. And, indeed, this survey
Switchers 30% 49% 17%
indicated that those respondents who switched tended to
have more banking products and more assets. In particular,
among switchers, 66 percent reported having investable
assets of more than $100,000, compared to just 28
percent for non-switchers, while 17 percent had more than
$500,000 in investable assets. (See Exhibit 3.)
Lost customers, especially profitable customers, cannot
Non-switchers 58% 17% 11% easily be replaced. The cost to a financial services
institution of acquiring a new customer is a multiple of the
cost of retaining an existing customer. For this reason, even
modest improvements in customer retention rates can
lead to substantial improvements in profits and
0% 20% 40% 60% 80% 100%
shareholder value.
Less than $100K $100K - $500K More than $500K
Beyond simply minimizing attrition, an acquisition
Note: Percentages total less than 100% because some respondents
declined to answer. provides a unique opportunity to forge a relationship with
Source: Deloitte Center for Banking Solutions survey, 2009 customers at a time when they fear the worst. If managed
correctly, it can build satisfied, profitable customer
relationships, which not only contribute directly to topline
growth, but also can increase brand loyalty and trust for
the bank.
Deloitte Center for Banking Solutions 7Beyond Day One
Minimizing customer attrition during bank mergers and acquisitions
Customer integration framework
Banks should consider establishing an explicit focus during establishing a standard protocol allows for the
an acquisition on retaining and building relationships with incorporation of lessons learned from previous acquisitions,
their new customers. To do so effectively requires strong, where fundamental approaches, guiding principles, and
focused preparation before a deal takes place. To drive decisions are addressed and defined anew with each
greater retention, banks may want to consider employing deal. A customer integration protocol is one element in a
a customer integration framework that includes, for comprehensive approach to managing acquisitions that
example, the following three dimensions: can also include similar protocols to guide integration in
• Standard customer integration protocol other key areas such as operations and technology.
• Tailored approach for each acquisition
As outlined in Exhibit 4, establishing a standard protocol
• Effective, disciplined execution involves developing both an understanding of the ways
and times customers could potentially be impacted in
Standard customer integration protocol an acquisition and a definition of the target experiences
Even before a specific acquisition is being considered, that can be delivered to customers to generate positive
banks should consider developing a standard protocol impressions and foster retention. Ideally, how customers
for managing the customer experience throughout are treated during the integration reflects both what
the integration process. By having a standard protocol customers desire as well as the acquirer’s brand promise.
developed in advance, they can be ready to move The brand promise, translated into key attributes, provides
quickly when a specific deal presents itself. Additionally, direction to the definition of target experience, with which
Exhibit 4: Standard customer integration protocol
Acquirer's brand promise
and positioning
Considering brand promise and positioning
and the experience that acquired customers Target customer experience attributes
want during an integration…
Integration lifecycle
…and the events that impact the customer Announcement Legal day one Post-
Conversion
across the life cycle of an integration … to legal day one to conversion weekend conversion
Announcement
to conversion
Point of customer impact
…as well as how the attributes should be manifested Moment of Moment of Moment of
in key moments of truth – the most significant points truth one truth two truth three
of impact – across the integration lifecycle…
Target
…supports the development of target Target customer customer
customer experiences… experience experience
…and the associated target employee experience Target
Target employee behaviors Target employee
that will directly impact the delivery of the employee experience
customer experience… behaviors
…which provide the foundation for identifying
opportunities to enhance the customer and employee Playbook for customer and employee experiences
experience components of an integration playbook
Source: Deloitte Center for Banking Solutions
8 Deloitte Center for Banking SolutionsBeyond Day One
Minimizing customer attrition during bank mergers and acquisitions
the integration decisions and approach are then aligned. and concern about what happens to them, which can all
This is particularly important if the bank plans to adopt translate to eroding customer service.
an offensive mindset, i.e., using the integration period to
proactively engage with customers and employees and Following day one, many decisions concerning channels,
demonstrate the acquirer’s virtues. products, and staff can have important impacts on
customers. For example, what changes will be made in
Moments of truth and target experiences how customers can access the bank? If the call center
A foundational element in crafting an effective customer number is changed, but calls to the old number are not
experience protocol is defining events that can potentially automatically transferred to the new number, customers
impact the customer across the life cycle of integration, may have a negative experience when first contacting their
from time of announcement through post-conversion. new bank.
(See Exhibit 5.) Walking through the integration life cycle
from the vantage point of the customer can help highlight Customer experiences when attempting to access account
possible events that could be disruptive. Determination information and conduct transactions are even more
is then made as to which of these events would have important. Banks may want to consider whether the
the greatest impact and thus represent “moments of transition will be seamless for customers or whether it will
truth” in the customer relationship. Once these moments instead require significant effort on their part. For example,
of truth are identified, the bank can define the target if checking accounts are renumbered, customers may need
experiences for each of them. The expectation is that these to remember all the companies that automatically debit
experiences, if delivered, will lead to customers staying their account and then contact each of them to provide
with the bank. Once established, these target experiences the new account information. If the sign-in process for
should provide the foundation for developing a standard accessing their accounts online is changed, this can require
protocol to follow in an integration to address and a significant amount of effort for customers and lead
manage customer concerns and retention. to frustration.
In identifying moments of truth, a variety of customer How the bank provides account information can also
touch points and events are considered, including: affect the customer experience. For example, if checking
• What communications, both formal and informal, account statements at the acquired bank included savings
customers might receive account information and this is removed by the new bank,
• How well employees can address customer questions customers may view this as a reduction in service. On the
and concerns other hand, if the information provided in the ATM display
• Changes that might occur in how customers interact is altered, few customers will care, provided that their PIN
with the bank, whether in person, by phone, or online works and they can withdraw cash.
• Changes to products and services
Finally, an acquiring bank should carefully consider how
Customer experiences to be considered span across the changes to product offerings and prices are managed. The
integration life cycle, from the first day that the deal is challenge, and opportunity, is to present these changes as
announced through the post-conversion period. In the providing a better value proposition for the customer —
early stage of an acquisition, for example, customers have where higher prices are justified by better value or where
fundamental questions that arise as they hear news of the fewer features or service is matched by more competitive
deal. If these questions are not addressed sufficiently and prices. If customers do not see how they will benefit from
in a timely manner, there is the risk that early concerns and any changes in products or fees, they might consider
skepticism about the deal will become permanent. This can seeking out and entertaining offers from competitors.
be aggravated by the efforts of competitors to “poach”
customers. In the early stage, the morale of employees of
the acquired bank can also suffer, with increased anxiety
Deloitte Center for Banking Solutions 9Beyond Day One
Minimizing customer attrition during bank mergers and acquisitions
Exhibit 5: Examples of potential moments of truth for customers
Representative integration lifecycle
Announcement to legal day one Legal day one to conversion
Conversion Post conversion
Announce- Day one Legal day Planning Customer and weekend
ment planning one employee prep
• News of acquisition deal • Branch closures and • Access to account • Re-enrollment in
covered in media openings or fund information online bill pay
Examples of key customer
• Competition begins to • Product offering and pricing • Migration to future • Customer service
interfacing events
contact customers to solicit changes state online channel levels
business
• Employee morale and • Availability of legacy • Account information
• Ability to answer customer attrition accounts accuracy
questions
• Access to legacy accounts • Employee morale
• Employee morale and impact and retention
to customer interactions • Maintenance of legacy
account numbers
Source: Deloitte Center for Banking Solutions
Key role of employees Employees typically want to be reassured about these
Interaction with bank employees is often the most critical personal concerns. Banks should consider clearly informing
aspect of the customer experience. As outlined in Exhibit employees about such issues as job security, compensation
5, for each moment of truth, the behaviors required by and benefits, reporting relationships, and job prospects
employees to deliver the target customer experiences can so they have confidence in their future and are motivated
be defined. Banks can consider taking several actions to to deliver high-quality customer service. A key element to
foster these behaviors, including: positively engaging employees is transparency about what,
• Communicating clear expectations how, and when decisions are to be made. Also, making
• Providing tools, information, training, and support on timely decisions about issues that affect employees is
new processes and systems important. For example, communicating benefits coverage
• Delivering the information required to respond to at the outset can address some of the most pressing
customer questions concerns. Similarly, quickly making decisions concerning
retention, severance, and supervisory alignments can help
But these elements may have only limited value, unless lessen employee anxiety and allow employees to focus on
employees are effectively engaged and motivated. maintaining customer service.
Employees have concerns about how their jobs will change
and about their future with the new institution. Many Customer integration playbook
acquisitions involve consolidating branches and eliminating These target customer experiences provide the foundation
redundant positions. These actions, while often necessary, to develop a standard customer integration playbook
clearly have the potential to undermine employee morale that specifies the activities required in each phase of
and can lead to reductions in service quality and a failure the acquisition cycle. The playbook should provide the
to communicate a positive message to customers about standard operational template for customer integration,
the benefits of the acquisition. which can then be customized to fit the unique profile and
requirements of individual acquisitions. For each phase of
the acquisition cycle, the playbook can specify in detail
what is to be done to manage events affecting customers,
10 Deloitte Center for Banking SolutionsBeyond Day One
Minimizing customer attrition during bank mergers and acquisitions
who is responsible, when activities should be completed,
and any interdependencies among different activities. Special considerations for failed bank deals
It can also include what tools, information, or other In the current market environment, an increasing
resources are required. number of acquisitions have taken place after a bank
has failed. The number of bank failures rose from just
Developing a playbook early can help identify any gaps in three in 2007 to 25 in 2008 and then skyrocketed to
capabilities needed to deliver the target experiences, so 140 in 2009.3
that steps can be taken to fill these gaps before an actual
deal is undertaken. For example, a bank may conclude Deals involving the acquisition of distressed
that it needs to develop training programs for acquired institutions have a special profile. Customers of failed
employees, define a roster of managers who can be institutions can be even more prone to switching
dispatched to acquired branches to oversee the transition, accounts upon being acquired, given concerns about
or develop a process for transitioning customers’ bill pay the viability of their institution and its continued
information to the new systems. ability to meet their needs.
Tailored approach Having a standard integration protocol in place is
The standard integration playbook should serve as thus especially important for failed bank acquisitions.
a template in addressing the high-impact customer Not only are the risks of customer attrition greater,
events and activities common to most acquisitions. executing the acquisition of a failed institution
Once a bank starts planning for an actual deal, it can typically has an accelerated timetable that requires
tailor this playbook to reflect the unique objectives and management to make faster decisions and leaves
characteristics of the acquisition at hand. The result may be little time for customizing the approach. The fact that
a customized customer integration playbook that contains the management of a failed bank is often changed
a comprehensive inventory of the integration activities, only makes integration more difficult. The acquirer
milestones, and responsibilities for delivering the target must be ready to move quickly to reassure customers,
customer experience in each phase of the acquisition. maintain service levels, and make fast decisions on
Deal characteristics that factor into the tailoring playbook the acquired bank's portfolios. Quickly reassuring the
include deal type, rationale, geographic footprint, and employees of the failed institution and making timely
business models. retention decisions are also important since they
will have specific concerns about benefits coverage
Deal type as well as their continued employment. Banks that
The type and size of the acquisition are important when anticipate acquiring failed institutions may want to
customizing the standard playbook. In smaller acquisitions, consider developing a playbook that is specifically
for example, the bank being acquired will usually adopt designed for the unique characteristics of these deals.
the business model and employ the infrastructure of the
acquiring bank. In contrast, in a merger of equals between
two large institutions, management is more likely to
consider a wider range of options. Each bank may adopt
the aspects of the products, processes, or technology
systems of the other bank that are deemed to be more
effective. In some cases, integrating products, channels,
and processes of two large institutions may be so complex
the banks decide to leave them separate at the outset
and only integrate them in a phased process over time to
minimize disruption.
Deloitte Center for Banking Solutions 11Beyond Day One
Minimizing customer attrition during bank mergers and acquisitions
Acquisitions of distressed institutions will typically require branch managers. When the two institutions involved
faster integration time frames. In these cases, it will be in the merger or acquisition serve different geographic
desirable to immediately convert the brand of the acquired markets, there may be a greater competitive threat since
institution, even before all the operations have been the acquiring bank may be entering a market in which it
integrated, since the brand reputation of the acquiring has less brand recognition than its competitors, potentially
bank can play an important role in allaying leaving it vulnerable to efforts to steal its customers.
customer concerns.
Business models
Deal rationale An acquiring bank also needs to consider the extent to
The rationale for the deal, and where benefits are expected which the two institutions have similar product offerings,
to be gained, should also be considered. Is the deal the primary channels and capabilities for each, the
principally predicated on achieving cost synergies through customer service philosophy, and the service quality. When
rationalizing branch networks or achieving economies of there are important differences between the business
scale by merging back-office operations? Or does it depend models of the two banks, a greater emphasis on change
on expected revenue synergies from cross-selling to its new management activities may be required. Alternatively,
customers through more effective marketing or a wider the acquiring bank may choose to minimize customer
set of product offerings? In deals that expect benefits to disruption by integrating product offerings more slowly.
accrue primarily from revenue synergies, the playbook may It may decide to maintain the products or services of
need to accelerate marketing, training, and IT activities to the acquired bank for an extended period before finally
enable new products to be introduced quickly. A deal that integrating them into a single set for the entire institution.
is more focused on cost savings may place a higher priority
on other activities, such as rationalizing overhead. Managing tradeoffs
The objectives of the deal may also have an impact on the The decisions on the specific integration approach to
speed and timing of integrating brands and IT systems. adopt often involve tradeoffs between increasing
If generating revenue synergies is paramount, a bank customer retention by improving the customer experience
may decide to first convert IT systems and only integrate and reducing cost by rationalizing operations. (See
brands after system conversion is complete to ensure more Exhibit 6.) We believe the more a bank invests in executing
consistent delivery of service. a seamless transition and delivering a better customer
experience during integration, the more likely it will be to
Geographic footprint retain its new customers. For example, creating special
When acquiring a bank that operates in the same helplines in call centers and additional staff in branches,
geographic market, the integration team will typically deploying trainers to help employees with the integration,
want to evaluate the degree to which overlapping and only integrating systems and consolidating branches or
branch networks can be consolidated. With these deals reducing headcount slowly may all result in more satisfied
it can be beneficial to pay special attention to managing customers and less attrition. The challenge is that these
the concerns of branch employees and maintaining investments also entail additional costs that can reduce or
morale. Bank management may consider having an delay the forecasted cost savings from the deal.
employee communication and retention plan ready,
especially focused on retaining high-performing branch Aggressive moves to slash costs — such as consolidating
employees across all levels from junior employees to branches, reducing headcount, and introducing new
service levels or fees — can increase cost savings.
However, they can also result in customers feeling less
valued, dissatisfied with service quality, and more likely to
switch to another institution.
12 Deloitte Center for Banking SolutionsBeyond Day One
Minimizing customer attrition during bank mergers and acquisitions
Exhibit 6: Tradeoffs – decreasing cost vs. increasing customer retention
Increasing customer retention
Acquirer's brand promise & positioning
By… By…
Decreasing cost
• Closing branches • Creating helplines in call center and
• Consolidating call centers branches
• Reducing service levels • Deploying trainers to help with execution
• Decreasing employee compensation and messaging
• Eliminating nonstandard products • Elongating the overlap for systems
• Reducing account history conversions
• Maintaining service levels to high-tier
customers
…results in increased costs, but can also
result in customers…
• Feeling more valued
…can result in… • Understanding the benefits of
• Customer disruption changes
• Increased attrition if not proactively • Becoming brand advocates
addressed through integration activities • Increasing loyalty
Source: Deloitte Center for Banking Solutions
It is important to address these tradeoffs explicitly, Clear accountability
considering the implications both for cost reductions and The bank should give consideration to designating a
also for customer retention and revenues. Quantifying customer experience leader of the overall integration
these tradeoffs wherever possible allows these decisions to effort. The integration leader would be responsible
be made in a factual, data-driven way. for defining the target customer experiences and for
overseeing and coordinating the activities of all the areas
Clearly, delivering an enhanced customer experience of the bank involved in delivering these target experiences.
may not always take precedence over reducing costs. The integration leader may be supported by a cross-
But making these decisions with only a focus on short- functional team involving all products and channels as well
term benefits that could destroy long-term value by as other key functions, such as communications, IT, and
losing valuable customer relationships is a trap to avoid. human resources. Banks may also find it helpful to create a
While some disruption is unavoidable, explicitly assessing senior-level customer experience steering committee that
the tradeoffs between cost reduction and customer can help the integration maintain high visibility and senior
retention can lead to more balanced decision-making management commitment.
and help identify where more cost-effective attrition risk
management actions could be developed and taken. Appropriate tools
A key to achieving seamless integration is having
Effective, disciplined execution a customer experience protocol that provides a
In addition to preparation and planning, successful comprehensive view of the key milestones, activities,
integration requires effective implementation. To enhance and responsibilities throughout the integration life cycle.
execution of customer experience management, consider Building on the customer experience protocol, banks
the following success enablers. may also consider developing a customer experience
operating manual that provides detailed instructions for all
Deloitte Center for Banking Solutions 13Beyond Day One
Minimizing customer attrition during bank mergers and acquisitions
post-conversion activities designed to increase customer By understanding the extent to which it is delivering the
retention. Such an operating manual can help employees target customer experiences identified in the customer
provide appropriate answers to questions from customers integration playbook, the acquiring bank is then better
and give them the tools needed to help reduce the positioned to make adjustments in its integration
confusion and complexity that customers can experience game plan and its execution. This can help ensure that
during the transition. The operating manual should serve employees remain focused on the customer and deliver the
as the “source of truth” on the integration and its benefits target customer experiences needed to satisfy customers
for customers. and reduce attrition.
Well-designed metrics Consideration of effective practices
Banks can benefit from having metrics to monitor the In addition to these foundational elements of an effective
impact of the integration on the customer experience and integration, there are opportunities to take up more
business performance. To provide a comprehensive view effective practices. For example, employee councils can
of customer satisfaction and retention across channels and help empower employees and leverage their critical
lines of business, the metrics address the following four role as the face of the bank in delivering the customer
major areas: experience. Employee councils can gather feedback “from
•A ccess to channels. Assessing any operational issues the field,” which can be invaluable in identifying emerging
that customers may have in interacting with the bank or customer issues and identifying appropriate responses.
accessing their accounts during integration. Another effective practice to consider is using employees
•E
mployee engagement and retention. Tracking both from the acquiring bank to act as trainers for front-line
employee satisfaction and turnover, which are often employees in the bank being acquired. This approach can
leading indicators of problems with customer attrition. help employees in the branches and call center learn the
new bank’s processes and product offerings, and how
•C
ustomer satisfaction. Understanding the perceptions
to communicate to customers the rationale and benefits
of newly acquired customers and highlighting any areas
of the integration. These are but a few examples of how
of increased customer dissatisfaction.
acquired customers and employees if positively engaged
•C
ustomer growth. Tracking new customer acquisitions could lead to more effective integration planning
and further penetration of the existing customer base and execution.
through cross-selling to reap the potential synergies of
the acquisition.
These metrics should be captured in a customer integration
dashboard that enables executives to easily monitor
key customer experience indicators and take action
quickly when customer experience problems emerge.
The customer integration dashboard should provide a
comprehensive view of the customer experience during
integration, while having the flexibility to be customized to
the needs of individual users.
14 Deloitte Center for Banking SolutionsBeyond Day One
Minimizing customer attrition during bank mergers and acquisitions
Conclusion
Banks that fail to place a sufficient emphasis on the An acquisition is a critical moment in the customer
customer experience during an acquisition run the risk relationship. It is only natural that customers are concerned
of not achieving the value they anticipated when the when they learn that their bank is being acquired by
transaction was originally conceived. All too often, another institution. They are worried that their products,
however, acquisitions have focused principally on achieving pricing, and service may deteriorate. The change can
cost reductions, while paying too little attention to make them more aware of their banking relationship and
customer retention.4 more sensitive to any problems that may occur during
the transition. If their worst fears are realized, and they
The result has been that many of the customers, especially experience problems during the integration or believe
many valuable ones, which a bank believed it was that the new bank has lower-quality service or product
acquiring quickly move their accounts to other banks. The offerings, our survey indicates that they are more likely to
risk of customer attrition lingers for a significant period switch to a competitor.
after the transaction is completed, as customers consider
whether or not to remain with the new bank. But while any acquisition runs the risk of customer
attrition, it also creates a unique window of opportunity.
To achieve the potential value of an acquisition, banks The first impressions that the acquiring bank makes on its
can benefit from having an explicit plan designed to drive new customers, especially when they are concerned about
greater customer retention. Even before an acquisition is the acquisition, can have a lasting impact. Banks that can
being considered, a bank should consider developing a deliver a seamless integration, while providing quality
standard customer integration protocol that identifies the customer service and good value in its product offerings,
target customer experiences that it seeks to deliver during can acquire a new set of loyal, profitable customers and
an integration. When a specific deal is being planned, this help maximize the long-term value of their acquisition.
protocol can then be customized to reflect the special
characteristics of the deal at hand.
Deloitte Center for Banking Solutions 15Beyond Day One
Minimizing customer attrition during bank mergers and acquisitions
About the survey
This survey was conducted online within the United States by Harris Interactive on behalf of the Deloitte Center for
Banking Solutions between February 26, 2009 and March 11, 2009, among 825 respondents who are 18+ years
of age, with a household income of at least $50,000, and reported their bank underwent a merger or acquisition.
Figures for age, sex, race/ethnicity, education, region, and household income were weighted where necessary to
bring them into line with their actual proportions in the population. Propensity score weighting was also used to
adjust for respondents’ propensity to be online.
All sample surveys and polls, whether or not they use probability sampling, are subject to multiple sources of error
which are most often not possible to quantify or estimate, including sampling error, coverage error, error associated
with nonresponse, error associated with question wording and response options, and post-survey weighting and
adjustments. Therefore, Harris Interactive avoids the words “margin of error” as they are misleading. All that can be
calculated are different possible sampling errors with different probabilities for pure, unweighted, random samples
with 100 percent response rates. These are only theoretical because no published polls come close to this ideal.
Respondents for this survey were selected from among those who have agreed to participate in Harris Interactive
surveys. The data have been weighted to reflect the composition of adults 18+ years of age and earned at least
$50,000. Because the sample is based on those who agreed to participate in the Harris Interactive panel, no
estimates of theoretical sampling error can be calculated.
16 Deloitte Center for Banking SolutionsAuthors Industry Leadership
Toby Kilgore Arikan Olguner Jim Reichbach
Principal Senior Manager Vice Chairman
Deloitte Consulting LLP Deloitte Consulting LLP U.S. Financial Services
tokilgore@deloitte.com aolguner@deloitte.com Deloitte LLP
+1 404 631 2626 +1 212 618 4196 jreichbach@deloitte.com
+1 212 436 5730
Deloitte Center for Banking Solutions
Don Ogilvie Andrew Freeman
Independent Chairman Executive Director
Deloitte Center for Banking Solutions Deloitte Center for Banking
dogilvie@deloitte.com Solutions
aldfreeman@deloitte.com
+1 212 436 4676
Contributors
Lallande de Gravelle Kristen Esfahanian Malika Gandhi Michael Stachowiak
Senior Manager Research Manager Manager Senior Manager
Deloitte Consulting LLP Deloitte Center for Deloitte Consulting LLP Deloitte Consulting LLP
ldegravelle@deloitte.com Banking Solutions malgandhi@deloitte.com mstachowiak@deloitte.com
1+ 212 618 4976 kesfahanian@deloitte.com + 215 446 3979 +1 312 486 2084
+1 617 585 5854
About the Center
The Deloitte Center for Banking Solutions provides insight and strategies to solve complex issues that affect the
competitiveness of banks operating in the United States. These issues are often not resolved in day-to-day commercial
transactions. They require multidimensional solutions from a combination of business disciplines to provide actionable
strategies that will dramatically alter business performance.
Endnotes
1
Dragoon, Alice, “Customer Relationship Management (CRM) – Banks Fight Customer,” CIO, April, 2004.
2
Cover, Jerry, "Profitability Analysis--A Necessary Tool for Success in the 21st Century," ABA Banking Journal, 1999.
3
Federal Deposit Insurance Corporation, http://www.fdic.gov/bank/individual/failed/banklist.html.
4
Deloitte Consulting LLP.
This publication contains general information only and is based on the experiences and research of Deloitte practitioners. Deloitte is not, by means
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or taking any action that may affect your business, you should consult a qualified professional advisor. Deloitte, its affiliates, and related entities shall
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