Beyond Day One Minimizing customer attrition during bank mergers and acquisitions

Beyond Day One Minimizing customer attrition during bank mergers and acquisitions
Beyond Day One
                              Minimizing customer attrition
                              during bank mergers and acquisitions

Produced by the Deloitte Center for Banking Solutions
Beyond Day One Minimizing customer attrition during bank mergers and acquisitions

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 for a detailed description of the legal structure of Deloitte LLP and its subsidiaries.
Beyond Day One Minimizing customer attrition during bank mergers and acquisitions

                        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 2010
Beyond 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

2   Deloitte Center for Banking Solutions
Beyond 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
  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   3
Beyond 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
institution (“switchers”). Further, an additional 31 percent
of respondents remained at risk — saying they were
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%

A customer attrition rate of 20 to 30 percent or more                                                                                           64%
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
                                                                     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 Solutions
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                                                                        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.
         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   5
Beyond 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 Solutions
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                                                                   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   7
Beyond 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-
                  across the life cycle of an integration …          to legal day one to conversion         weekend        conversion

                                                                                           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…

                     …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 Solutions
Beyond 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   9
Beyond 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
                                                                    • Employee morale and                       • Availability of legacy   • Account information
                           • Ability to answer customer               attrition                                   accounts                   accuracy
                                                                    • 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 Solutions
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                                                                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   11
Beyond 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 Solutions
Beyond 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

                                                                                        …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   13
Beyond 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
  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
  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
  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 Solutions
Beyond Day One
                                                                        Minimizing customer attrition during bank mergers and acquisitions


         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   15
Beyond 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 Solutions
Authors                                                                                             Industry Leadership
Toby Kilgore                                        Arikan Olguner                                  Jim Reichbach
Principal                                           Senior Manager                                  Vice Chairman
Deloitte Consulting LLP                             Deloitte Consulting LLP                         U.S. Financial Services                                               Deloitte LLP
+1 404 631 2626                                     +1 212 618 4196                       
                                                                                                    +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                               Solutions
                                                    +1 212 436 4676

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                            Banking Solutions                                       
1+ 212 618 4976                                                  + 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.

  Dragoon, Alice, “Customer Relationship Management (CRM) – Banks Fight Customer,” CIO, April, 2004.
  Cover, Jerry, "Profitability Analysis--A Necessary Tool for Success in the 21st Century," ABA Banking Journal, 1999.
  Federal Deposit Insurance Corporation,
   Deloitte Consulting LLP.

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