Putting the Customer First

The worst possible outcome for two merging institutions is something like what happened to Portland, Maine-based TD Bank when it converted systems of the acquired Commerce Bancorp one weekend about a year ago. An error of the integration delayed the posting of transactions, including deposits customers were counting on to pay bills.

Customers were irate, especially since the problems lingered for days. TD has put the incident behind it, declining to comment. But there is little doubt the malfunction inflicted serious damage to Cherry Hill, New Jersey-based Com-merce’s once-sterling reputation as “America’s Most Convenient Bank.”

Over the years, financial institutions have debated the best way to go about combining bank systems. Should it be done quickly to spur cost savings, or more thoughtfully to ensure the survival of the best of both systems?
As it turns out, the answer to that question is not so important. Each bank has its own philosophy on how to ap-proach post-merger integrations, with some taking the time to weigh the pros and cons of competing systems, and others favoring a fast integration to an existing platform.

The only decisive outcome of the debate is the importance of putting customers at the front and center of any integration effort. “Can you afford the ill will created when a client experiences a nightmare?” asks Paul Schaus, president of CCG Catalyst, a Phoenix-based consultancy. “If the client’s experience is negative, it’s very hard to recover.”
TD Bank’s experience is still fresh enough to serve as a reminder of the importance of putting customers first, whether a bank moves quickly or deliberately through the integration process.

In the industry’s largest systems integration ever, San Francisco-based Wells Fargo & Co. is making customers the focus of its efforts as it wades through its merger with Wachovia Corp. in Charlotte. Wells is about two-thirds of the way through the three-year merger process and recently completed its biggest effort to date, converting the state of Georgia with its 260 branches and two million customers.

Wells adheres to a best of breed philosophy on systems. It was far into the process of picking and choosing the best systems of the two banks even before the merger officially closed at the beginning of 2009. The bank is proceeding methodically, converting systems state by state and incurring the costs of running two separate systems throughout the three-year process.

Wells is much less concerned about cost savings and keeping to a schedule than making sure customers don’t at-trite, says George Tumas, chief information officer and senior vice president of internet services development at Wells Fargo. “The schedule is all about the customer. We want to make sure we do what’s right,” he says.

Often, that means thinking like a customer. When Wells converted Wachovia’s online credit card customers, for example, it redirected them to a streamlined enrollment form on Well’s web site. Once on Wells’ site, Wachovia card customers could view other Wachovia accounts they owned through the site, even if those accounts had not yet been converted. “We tried to make it as seamless as possible to the customer,” Tumas says.

Wells also puts a lot of effort into ensuring conversions run smoothly, hewing to a “practice makes perfect” meth-odology. As it converts data state by state, it typically conducts two dry runs and one dress rehearsal. The dry runs are full simulations of the conversion aimed at ironing out any last-minute issues. “By then the dress rehearsal is flaw-less,” Tumas says. He added, “The last thing you want to do is get so cocky that you run a program for the first time and find out that you have data anomalies.”

MB Financial Inc., a $10-billion-asset institution based in Chicago, which successfully completed seven conver-sions over the last 18 months, is of the mindset that a speedy integration is the best way to serve customers. It exe-cuted each of its conversions in 90 days. “There’s minimal disruption to our existing customers and we can make the new ones feel secure,” explains Larry Kallembach, executive vice president and chief information officer.

Part of the reason for speed is that all of the bank’s most recent conversions have involved failed institutions that it acquired from the Federal Deposit Insurance Corp. in Washington. That means the bank needs to meet certain deadlines imposed by the regulators. It also means customers and employees of the acquired institutions are usually unsettled, and most of their management is gone. “The FDIC failure is not a good experience for customers, so the quicker we can get it behind us, the better,” Kallembach says.

Since 2000, MB Financial has also acquired four healthy institutions. There is more time to complete these transac-tions than with FDIC-assisted ones, and MB Financial takes it, usually finishing them up in about 180 days. Whether a transaction is assisted by the government or not, MB Financial strives to move all operations to a single platform following a high-level evaluation to determine the best system of two similar ones. “We do not like to run multiple systems,” Kallembach says. “It’s not a good experience for customers in terms of consistency.”

While Wells and MB Financial are open to the idea of using the systems of banks they have acquired, others are not in favor of that approach. BB&T of Winston-Salem, North Carolina, for one, takes a hard line against that practice. Over the last 11 years, the bank has adopted less than a dozen applications of acquired institutions, usually in areas where it did not already have a product or service. During that time the bank grew from about $43 billion in assets to its current size of almost $160 billion.

Most recently, BB&T acquired Colonial Bank, a failed institution formerly based in Montgomery, Alabama, from the FDIC in a deal that included $22 billion in assets and $20 billion in deposits. Although Colonial was twice as large as any bank BB&T had previously acquired, it completed the integration in nine months. Paul W. Johnson, executive vice president and chief information officer, credits in part the bank’s philosophy of sticking with its own systems. “That increases the speed of integration and leads to less complexity,” he says.

For banks that are interested in adopting the systems of banks they have acquired, but still would like the benefits of a speedy integration, Schaus of CCG Catalyst recommends a two-step approach. The first is to quickly convert all applications to the acquiring bank’s platform. The acquiring bank can then incorporate the best of any new applica-tions in a separate project, after taking care to maintain the acquired bank’s licenses. “It’s a longer process, but there’s less risk,” Schaus says.

Banks need to make sure they actually get to the second phase of the project. Belinda Sheets, managing director at Foresight Consulting in Stamford, Connecticut, who also recommends a two-step approach, says she has been in banks that never got to the best of breed phase. Instead they ended up with loads of applications to support, all connected by bridges. “Those institutions don’t work as efficiently,” she says.

The two-step approach can be particularly useful in the case of an unfriendly deal, where it is likely that in-house experts of the acquired institution will be moving on to other opportunities, Schaus says. The extra step gives the acquiring bank time to get up to speed on the new systems it eventually wants to add.

An Advantage with FDIC Deals

This more measured approach also helps out in the case of a government-assisted deal, in which an exodus of personnel is not the only concern; time is also an important consideration in these transactions, and completing the integration phase quickly helps in this regard. “Especially with a failed institution, you’re working against the clock,” Shaus says. “The FDIC is giving you a certain number of days to cancel contracts. It’s a lot to deal with.”

Acquiring a failed institution also entails greater risk if the bank had been under-investing in its systems to save money, says Johnson of BB&T. “The first thing we do is a risk assessment,” he says.

Staying disciplined is another important aspect of the merger integration process. During integrations, BB&T takes pains to restrict unnecessary changes to programs. “We limit change wherever we can,” Johnson says. In the Colonial merger, any changes outside the scope of the integration required executive level approval. At the same time, BB&T imposed a streamlined approval process for integration activities.

Planning, communication and training are three elements to any successful integration. Planning and training can occur in almost limitless amounts, while communication, particularly to customers, should be doled out with consideration. “You want to make sure it’s the right amount, but not overkill,” says Tumas of Wells. “You don’t want the customer to get annoyed.”

When it comes to communication with employees, doing it face-to-face is important to overcome the typical silos of a bank. “I find that a complex project can be made very simple if you bring all the people in a room and start talking about it,” Sheets of Foresight says. “The key is to have end-to-end owners, accountability and clearly defined rules and responsibilities.”

Perhaps the biggest challenge of a systems integration project is making decisions. There’s rarely ever a clear best, for example, when it comes to choosing between two systems. Someone in the organization just has to have the nerve to pick one. “The worst thing is not making a decision,” says Kallembach of MB Financial. “It’s hard to program a non-decision. I’d rather make a bad decision because you can change it.”

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