The Merger Compliance Issue You May Not Have Considered

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2022 will clearly be a challenging year for bank mergers, with the marketing and communication tools requiring extra attention and effort.

Government agencies continue to review bank mergers more closely; one area impacted by the growing oversight climate is the marketing and communication banks use to announce mergers and welcome newly acquired account holders. These tools are the first items and messages that account holders and staff encounter, but are far too often, they are the last thing bankers review in the process of completing a merger.

When we discuss merger communication planning and execution with our clients, both pre- and post-purchase, we spend the most time talking about the following three issues:

1. Getting solid, manageable, actionable data from the acquired institution
We find that many financial institutions that are acquired have been anticipating such a transaction for a number of years. As such, core systems and files may not be completely up to date; investments in technology upgrades and certain housekeeping details may have been deferred or even scrapped.

On the top of that list is the master  customer information file, or MCIF, or scrubbing the core database for customer contact details and transaction history. The prime culprit is e-Statements; their popularity has reduced the number of mailed physical statements, which generate a change of address notification if they’re returned. Fortunately, there are a number of tools and strategies available to fix this problem. We also encourage our clients to explore this during the pre-purchase phases, in case updating the data requires a costly solution that needs to be negotiated into the final deal. We believe regulators may want to know that customers have received these disclosures — having the right address is a big part of that.

2. Weaving customer advocacy into welcome materials
The new compliance culture is driving more concise and clear messaging for the account holder; the primary contact points coming through online or web communications, along with printed welcome material that goes out with the disclosures. This does not mean “dumb down” your messaging; it is our opinion that this includes presenting the account holder with impact points and advocacy in the clearest possible terms. This is a direct response to the new wave of consumer awareness and advocacy that we see in other parts of banking, like mortgage.

Specifically, in the welcome materials, there is a balance between brand and awareness messaging and instructions for the new account holder. Banks must adjust this combination to create an even mix of both. When in doubt, perfect the message towards the account holder. We advise our clients to consider including strong presentations concerning:

  • What is changing and when.
  • Different methods for getting questions answered or product help.
  • Clear explanations of the features and benefits offered to the account holder.
  • Introduction to new services like digital banking.

Serial acquirers should pay close attention to this; they can fall into the trap of dusting off the material from the last merger, making a few adjustments and moving along. It is our observation that material that may have been delivered more than six months ago may not meet current regulatory oversight needs. (Check out our article in the first quarter 2022 issue of Bank Director magazine for more on this important issue.)

3. Personalization
We struggle to understand why financial institutions send out large — more than 30 pages, in addition to the disclosures — welcome information kits. It is not only much more expensive than necessary and environmentally unfriendly — it makes it harder for the consumer to find the information that applies to them.

There are two parts to this. First, print-on-demand materials means creating welcome kits can be as economical as static materials in all but the smallest mergers. Second, this setting allows you to target the right message to the right household or business. This allows the acquirer to get solid data, complete account mapping and tackle the most challenging task: programming the algorithms to make sure the right material gets to the right household or business.

Increasing Customer Engagement to Exceed Expectations

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The new normal produced by the pandemic has underpinned the need for change and connection.

One impacted area are the adjustments organizations are making as they rediscover the benefits of connecting with consumers, rather than simply selling them a product. These businesses are on the right track, as one thing is becoming abundantly clear in the wake of Covid-19: This is not the time to solely sell and advertise.

While advertising and selling inevitably play a big role in business operations, companies are often too focused on these two aspects and it doesn’t always pay off. Now is the time to connect, reach and engage with consumers on a deeper level. The coronavirus pandemic and economic fallout has impacted nearly all areas of consumers’ lives, and their interactions and needs from their banks and financial institutions need to change as a result.

Focusing on advertising and selling may work for some organizations, but with growing consumer expectations, this just won’t do for banks. Customers choose banks partially because of their emphasis on customer service and will be annoyed if the institution tries to advertise or sell them a product that doesn’t match their financial needs.

Connection goes beyond having the best catchphrase or the sunniest stock photo. True engagement is driven by identifying customer needs and communicating relevant solutions, peaking their interest and building connections that will last.

Right now, traditional, product-focused promotional efforts and marketing don’t work because people’s daily lives have drastically changed. Their financial situations may have been altered. A more personal approach develops connections and loyalty that will last for years.

It is more important than ever that banks use customer and business intelligence effectively to promote relevant products and services. Some institutions may need to return to their roots and their initial goal: to serve their communities and the people that live in them. This approach may sound simplistic, but it can prove challenging to achieve.

And banks, like their customers, don’t want to merely survive this health crisis, they want to thrive in these unprecedented times. It takes a shift in strategy to do so. “In a matter of weeks, digital and mobile banking technologies went from being a ‘nice to have’ to a ‘must have.’” The pandemic was even the catalyst for tech adoption at some financial institutions. With the help of data-driven communication systems, one-on-one communication is both realistic and accessible. The massive drive for digital solutions allows banks to reassess digital access to products and services. This immediate boost in digital engagement offers a huge opportunity for institutions that are implementing digital marketing plans, perhaps for the first time.

Practically applied, banks need to turn to smart technology to create a clear path to build better customer relationships and return to the longstanding values of one-on-one communication. While this may seem straightforward, using forward-thinking, innovative technology as the way to “get back to their roots” is an approach not previously imagined by many bank executives.

Utilizing a data-driven digital infrastructure allows banks to reach customers personally, uniquely and instantly. Banks need to embrace comprehensive digital outreach to touch people where they are with the services they need most. Customers still need access to financial services, even if they are avoiding branch locations and ATM lines. The solution is simple: Be the bank that communicates what options are easily accessible and available to them. Be the branch that shows that they care. With the help of an intelligent digital experience platform and the right technology, banks can automate the relevant communications, so the right messages reach the right person at the right financial time for them.

The pandemic sparked a much-needed shift: from being overly focused on advertising, selling and pushing products and services to establishing and building better customer relationships, increasing customer engagement as well as gaining consumers’ trust and loyalty for years to come. Returning to your bank’s original mission of serving the community will give you the ability to target consumers at the exact right time in their financial journey – reaching each customer’s specific needs and allowing banks to engage with their customers.

Data Wars to Dominate 2017

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It’s the start of 2017, and many people have already blogged their predictions for the year. I won’t repeat those predictions, as the future isn’t what it used to be, but I do find it interesting to look at the common themes across them all. The standout theme for me is that 2017 is the year of The Analytic.

Data analysis to be exact. Now you can get analysis paralysis if you dwell on this too long, but data analytics will be the fuel for everything else. Effective data analysis is core to being able to leverage artificial intelligence; data analytics will be the key to unlocking the internet of things; and data analytics is essential to chatbots, augmented customer experiences and enhanced services.

Think about it: How can you deliver a decent digital service if you don’t have the data to tell you what your customers want? This then becomes the essential challenge for all incumbent institutions as their customer data is often siphoned into silos. I know that for a fact, having spent 20 years trying to create bank enterprise data stores and services. Now some banks are beginning to wake up and embrace the data opportunity and threat but, for those who are comfortable with distributed data and no ability to analyze it effectively, here’s the hard truth: You will not survive.

I’ve believed this for a long time but, with each passing year, I am sounding the alarm bell louder and louder. After all, we have argued for decades that a consistent customer experience across channels is essential. We haven’t been able to deliver it, but we’ve tried. Now we are not even talking channels anymore, we are just talking about a digital foundation that everyone accesses through open marketplaces online. We have moved from a historical, closed and proprietary architecture to an open platform structure where everyone can plug and play. But how can they do that if the data is locked in old proprietary systems that are siloed and closed?

This is going to be a key conundrum for U.S. banks, which are arguing that the only person who can access customer data is the customer. That’s a great way to lock out third-party players, shut down the aggregators and block the open systems march. However, it strikes me as being like the king who has placed his army at the gates of the castle, while not noticing that the citizens are all leaving via the back door. What is the use of having a kingdom if there’s no one in it? And that is what will happen to banks that continue to have distributed data that cannot be leveraged.

The march of the fintech community, the regulator and the customer is towards easy, convenient, proactive and personalized financial providers. Those providers are increasingly like the Amazons of the world: they know their customers digital footprint and maximize their knowledge of that footprint to the hilt. In 2017, as we watch the progression of AI, machine learning, deep learning, chatbots and personalization, any bank that keeps its data locked up in a chastity belt is missing a trick.

Using Data Science to Combat Internal Fraud

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It’s no secret that fraud prevention is a hot button topic in banking, and an increase in internal cybercrime has spawned a new wave of regulations to prevent violations like money laundering and insider trading. One need look no further than the recent allegations of Wells Fargo’s cross-selling misconduct to see the potential for financial and reputational loss.

Banks have long used monitoring and data analysis technology to flag potential instances or transactions related to internal fraud. Now, data science is being used as a tool both to prevent and predict fraud on accounts before it occurs. Here’s how financial institutions are joining forces with data science innovators to help monitor internal behavior to prevent and predict fraud.

Detecting Suspicious Patterns
One of the major areas that companies are looking at is analyzing spending and transaction patterns to detect fraud. This means analyzing the payment and purchase history of each customer on a granular level, and determining if any of those transactions appear to be out of the ordinary. Data science is now pushing the envelope into analyzing these activities for targeted marketing of rewards programs or other products in the future.

In addition, companies like RedOwl are using data analytics to spot internal fraudulent patterns to prevent employee malpractice before it happens. The RedOwl Analytics platform is specifically designed to predict whether an employee is likely to commit certain acts such as insider trader trading or intellectual property theft. Instead of simply monitoring employee emails and messages, RedOwl goes a step further by detecting and analyzing abrupt shifts in communication patterns or behaviors. Behavior such as suddenly changing to different languages, an increase in external messaging or emailing outside of normal work hours are some of the behaviors that may predict fraud and that RedOwl Analytics takes into account.

Monitoring Transactions and Flagging Activity
After suspicious patterns have been detected, the next challenge for big data is to monitor or flag specific transactions in order to step in at the appropriate time. At what point is the likelihood of fraud great enough for bank management, regulators or law enforcement authorities to step in and investigate? Palantir is one of the big players in the space, working with big banks like JP Morgan Chase & Co. to help identify rogue traders, for example.

Such needles in the haystack are tough to find, and that’s why Palantir’s technology is so useful. The Palantir Anti-Fraud platform, which originates from data science technology designed for U.S. Intelligence services, initially monitors and flags attempted hacks into client accounts or ATMs. Today, Palantir’s software monitors a variety of activities to prevent internal fraud as well. This includes a combination of trading data, email communications and keywords used in company phone calls.

Fraud Prediction and Investigation
The key to minimizing financial and customer loss due to fraud is quick detection and resolution. But the challenge is not just to accurately predict fraudulent actors—it’s to investigate and intervene accordingly. That’s where big data companies like Splunk are stepping in, to aid banks in pivoting from monitoring suspicious activity to taking action. One of the unique advantages to Splunk software for fraud prevention is the ability to analyze data from disparate, siloed sources to better predict who may perpetuate fraud.

What Splunk’s anti-fraud software does is establish a risk profile baseline for certain user groups. It then applies statistical analysis to employee activities–stock trading for example–to determine if they are acting within the baseline risk profile. Users whose activities are seen as anomalies by Splunk are then able to be flagged for further monitoring and investigation. Alerts for these anomalies can then be configured in real-time, or over a certain period to further validate potentially fraudulent patterns. Once potential fraud is detected, investigators will then have access to historical data to quickly determine who is involved and what they might be trying to accomplish. Splunk and other fintech companies that use data science techniques are also trying to add another layer to fraud investigation, cross-referencing patterns with other users in the company to determine if that person is acting alone or could be part of a larger ring.

Unfortunately, as of today there is no silver bullet in technology or big data that could prevent each and every instance of internal fraud from taking place. But as fintech innovators like Splunk, Palantir and RedOwl continue to push the boundaries in making sense of big data, banks can at least be more proactive in countering fraud before it happens.