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4 critical areas to understand before your bank’s merger

Apr 21, 2021 / Consumer Banking
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In 2020, consolidation in the banking market declined steeply. It’s easy to blame the pandemic, which forced banks to invest in technologies for new customer support operating models, focus on the Paycheck Protection Program (PPP) loan rollout and adapt to remote operations.

But these weren’t the only factors depressing mergers and acquisitions activity. Capital levels, rising bank stock prices, state and federal elections, and digital transformation also made consolidation look less attractive (or at least more complicated) last year, which is why we saw only 112 deals, fewer than half that of 2019.

Along with many analysts following the industry, we expect deals to pick up in 2021 as banks return to growth paths and scale for the long term. But while scale, efficiency and competition drive deals, sellers and buyers should also consider these four areas to secure the possibility of successful mergers.

Cultural alignment

Both sides of a merger must understand their own culture, the other’s culture and how well they fit together — particularly when it comes to a merger of equals. Banks either oblivious to their culture or defined by negative aspects will struggle to attract acquisition offers or integrate effectively during mergers.

Culture, after all, impacts reputations with customers, employees and the broader market. At its best, cultural alignment can help increase customer acquisition and engagement and recruit and retain talent. At its most challenging, culture can hurt these efforts and affect long-term value creation credibility.

Consumer behavior

The pandemic has changed how people think about consumption, money management and expectations for banks that support their financial lives. Consumer behavior are transforming at a speed and scale never seen before, and those changes are here to stay.

That’s important for banks on the brink of a merger to understand. If one or both of the banks in a deal remains committed to pre-pandemic ideas of what customers want and how they interact with banking services, it’s a red flag. Acquiring banks must understand their new customers’ behaviors. How do they use their banks? What payment modes do they use? Most importantly, can the newly merged bank deliver on new expectations?

Pricing decisions

Bank executives need a growth plan for every acquisition target, which involves two efforts: retaining customers from the new bank and attracting new ones. Growth requires success on both fronts, but that’s exceedingly difficult given the competitive landscape.

While we see reductions in branch footprints nationwide, there are still bank branches everywhere, so it’s challenging to use location or convenience as competitive differentiators. And with a proliferation of neobanks offering value-adds to attract customers, it’s even harder to remain relevant and competitive.

Profitable acquisitions require careful pricing and fee migration strategies; otherwise, the merger could alienate the customers who made the deal worthwhile from the start. Consider the product lines that will come with acquisition and how you’ll retain those activities. For example, one Midwestern financial institution took a one-size-fits-all strategy for mapping consumer products — without examining the value of associated relationships — and found that nearly half of the acquired customers left due to a lack of understanding of those products.

With a priority on personalized experiences, your pricing strategies should become more surgical. This may have short-term financial impacts on the deal, but it gives your institution a runway to build on new relationships.


Customers have never had more banking options to choose from or so many options different from conventional banks. In 2019, Citi Global Perspectives & Solutions estimated that incumbent banks could lose 10 percent to 30 percent of their revenue to digital-first offerings in the financial sector. The message is clear: Banks must differentiate themselves using technology, or they’ll fade out of consideration for acquisition.

Regardless of size, all banks need a technology plan. Banks that haven’t made progress differentiating themselves through technology dilute the value of deals because the technologies, products, services and customers they bring in are out of step with what tech-driven banks aim to offer. Banks aware of this want to build partnerships around the demands of the future, not the past.

There will almost certainly be an uptick in M&A activity during the second half of 2021, but that doesn’t mean banks will rush into any deal available. If there’s misalignment in culture, technology, strategy or vision, it serves neither side’s interest to consolidate — it’s subtraction through addition. Keep this in mind as opportunities emerge in the coming months. The goal of M&A is to get stronger, not just bigger.

Rick Hall is managing director of the banking and financial services practice at BKM Marketing.