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Achieving Stability Amidst The Tremors Of Mergers

Since bank mergers are often tricky to navigate, it would pay to focus on customer acquisition and retention. Eventually, customer loyalty will make or break a bank’s merger.

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In recent years, there has been an unprecedented rise in bank mergers and acquisitions that has changed the global banking landscape as we know it. While such strategic moves could result in synergies of scale and enhanced operational efficiency for banks, the banking sector is grappling with the challenges that arise in the post-merger integration process. Undoubtedly, the smooth transition of IT processes to ensure a seamless customer experience is the most critical issue banks are tasked with in the post consolidation stage. 

The major banking realignment undertaken by the Narendra Modi government—set to reduce the number of public sector banks from 27 to 12—has been done with the view to revitalise the banking sector. The mega merger of 10 public sector banks into four entities is expected to streamline and consolidate the presence and reach of these lenders and transform them into ‘global-sized banks’. The consolidation also aims to stabilise the economy and achieve the target of $ 5 trillion GDP. 

With the announcement of the mega merger, the banking scenario in the country is poised for some big changes. Now, more than ever, it is essential that banks work to eliminate glitches in integrating technologies, especially when it involves the migration of customer data from varied platforms, to a merged IT environment. While experts believe the integration process for the PSU banks may take up to 3 years to complete, they caution the involved banks to action immediate steps to meticulously plan the post-merger systems integration. Further, when banks merge—in any geography—these organisations need to assess the pain points or risk factors in the amalgamation process. Besides technology integration, banks should also keep customers first, as a poorly managed execution could cost a bank its reputation. 

Adopt proactive measures

Businesses are increasingly adopting DataOps to deliver trusted, automated business-ready data to gain speed and agility. The DataOps journey can be accelerated by helping organisations store, protect, enrich and activate their data to ensure that the right data is delivered to the right place at the right time. These steps help businesses monetise their data to unlock their full economic value and propel them on the path to innovation demanded by the digital economy.

In light of the NextGen PSB merger in India,  the lenders should plan for the digital transformation of their organisations through an effective DataOps platform. 

In my experience, I believe that there are five universal steps that organisations must take to digital transformation. First, it is necessary for businesses to make digital transformation a strategic and investment priority. Second, organisations must adopt a business-driven approach. Third, it is essential to fully utilise the potential of data and analytics. Fourth, organisations must adopt an enterprise-wide approach. Finally, businesses must strike the right balance between people and technology.

Today, digital transformation is emerging as a top priority for businesses. A 2017 Forbes Insights survey indicates that as many as 91 percent of businesses are set to increase their budgets on digital transformation. In my view, it is essential for banks undergoing a merger to demonstrate a similar strategic and investment focus. In addition, for the successful implementation of mergers, bank leaders should align IT integration strategy to sync with an organisation’s business goals. Further, organisations will have to take a business view that is centred on the impact of digital transformation during the merger on enhancing customer engagement and acquisition. 

Most importantly, the revamped IT infrastructure should phase out legacy systems and migrate existing data to a new cloud-led system after ensuring quality of the data. As a matter of priority, banks involved in mergers should undertake to build a robust operations environment that will effectively synchronise the backend integration of customer data. As all digital assets of banks are vulnerable to cybersecurity breaches during mergers, bank CTOs should scrutinise data security issues as part of due diligence and planning. They need to be diligent in identifying, assessing and testing sensitive data of other participating banks prior to the merger to mitigate future attacks. 

If customers must be better served, the protection of data security should be a top priority for banks. Due to the sheer volume of customer data generated during mergers, bank security professionals must ensure that customer data privacy is always protected. As recent examples have shown, even if the banks involved in a merger have worked on the same core banking software, chances are they may be using different versions. Alongside this, banks can also utilise this opportunity to improve data and analytics capabilities in order to serve clients better. In fact the 2017 Forbes Insights study revealed that only 3 percent of the financial institutions surveyed had advanced data and analytics capabilities, in comparison to 11 percent in other industries. The current increase in bank mergers could give these organisations an opportunity to reverse this trend.

In addition, for change to be lasting, it must be carried across the organisation. In keeping with this, enterprise wide software upgrades and the integration of Internet and mobile applications are also crucial for systems integration. Finally, besides harmonising the software integration post-merger, banks will also have to impart training to IT teams, ensuring a balance between technology and people requirements. 

Revitalise the banking culture

Financial analysts believe that while bank mergers are not a new phenomenon, a culture-focused revamping often takes a back seat. In many cases, while bank mergers successfully execute the backend systems processes, they fail to integrate varied organisational cultures. When banks are burdened with a massive IT integration overhaul, they often neglect overseeing the cultural needs of a complex merger. To prevent a merger from heading south, banks must be mindful of ushering in positive organisational changes that will iron out differences in disparate cultures. This will result in the best possible experience to both employees and customers alike. 

The banks’ C-suite executives should assess the gaps that need to be closed to better manage the expectations of their workforce. Moreover, if the financial benefits of the transaction must be reaped, an open dialogue with employees will expedite the overall integration process. 

Guiding a successful integration also depends on the level of the customer-centric approach adopted by the merged entity. A cross-functional customer experience team should be created to effectively manage customer issues and ensure they are not inconvenienced during and after the merger.

In conclusion, since bank mergers are often tricky to navigate, it would pay to focus on customer acquisition and retention. Eventually, customer loyalty will make or break a bank’s merger.

Disclaimer: The views expressed in the article above are those of the authors' and do not necessarily represent or reflect the views of this publishing house. Unless otherwise noted, the author is writing in his/her personal capacity. They are not intended and should not be thought to represent official ideas, attitudes, or policies of any agency or institution.

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bank merger banking

Sanjay Agarwal

The author is Technology Head, Hitachi Vantara

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