For most people, brick and mortar branches have become remnants of prior generations of banking. In the digital age of mobile deposits and non-financial, non-regulated companies like PayPal there is little incentive to walk into a local branch—particularly for millennials. This presents an anomaly in the community banking model. Community banks are built upon relationships, so how can the banks survive in an era so acutely inclined towards, and defined by, technology seemingly designed to eliminate “traditional” relationships?
The solution is to redefine the term “traditional” relationship. While customers may not want to walk into a branch to deposit a check, they still want information and advice. Just because a millennial does not want to deposit a check in person does not mean that he or she will not need to sit with a representative for guidance when applying for their first home loan. Using customer segmentation and understanding where there are opportunities to build relationships provides an opportunity to overcome the imminent threat of technology.
If information and advice are the keys to building relationships, it becomes imperative that bank employees are fully trained and knowledgeable. It is crucial that community banks spend time hiring the right people for the right position and then train and promote from within. Employees must fully understand, represent and communicate a brand. That brand must be clearly defined by executive management and communicated down the chain of command. It is incumbent upon the leaders of the organization to first set an example and then ask their employees to follow suit. Some of the most successful community bank CEOs can recognize their customers by name when they walk into a branch. These are not the biggest clients of the bank, but they are probably the most loyal because of the quality of the relationship.
The focus needs to switch from products and transactions towards specific relationships with specific customer segments. Customer-centric banking strategies will improve the chances of survival for community banks. Those that are not able to adapt will be eclipsed by the recent revival of de novos or will be acquired by institutions that are embracing this customer-centric approach. A customer-centric approach is critical to drive value whether pursuing organic growth or M&A. For banks evaluating an acquisition, there are additional considerations that need to be addressed prior to entering into a transaction, in order to safeguard the customer relationships that the bank has built and ensure that the deal enhances the bank’s brand and business model, while also building value.
If you are one of the survivors and are engaged in an acquisition, what does all of this mean for you?
- FinPro Capital Advisors Inc. advocates having strict M&A principals and parameters when evaluating the metrics of a deal, which will vary from bank to bank. This concept extends to culture and branding as well. A good deal on paper does not necessarily translate to a successful resultant entity. If a transaction will dilute your franchise, disrupt your culture or business model, or in any way undermine the brand and customer base you have built, do not pursue it.
- Signing a definitive agreement is not the same thing as closing a transaction. Integration begins as soon as the ink dries on the contract. Planning should have occurred well in advance. Management needs to focus on employee, customer and investor reception of the deal, along with regulatory approvals and strategic planning. A poorly executed integration can provide an inauspicious start culturally and can increase merger costs substantially.
- Retain the best talent from each institution and take the time to ensure that the employees are in the right position. Roles are not set in stone and an acquisition provides the perfect opportunity to re-position the bank’s staffing structure. This includes implementing management succession and talent management plans for the new entity. Develop an organizational structure for the future, not just for today.
- Communicate effectively throughout the entire process. Be transparent and be honest. Bolster relationships and foster enthusiasm in the new entity from day one. Corporate culture is one of the most difficult attributes to quantify but it is palpable and can either energize every person in the company or rapidly become toxic and disruptive.
For all banks, the brand and culture that you build will directly impact your customer base and define the banking relationships you create. To build meaningful relationships with your customers, banks must first build meaningful relationships within the organization. In so doing, banks will be able to redefine their model by focusing on relationships instead of transactions, customers instead of products, and eliminate isolated divisions to create integrated organizations. The traditional banking model may be dead but banks with strong leadership and corporate culture will recognize the new paradigm and enact change to evolve accordingly.
What if your fridge could sense the absence of a milk container and automatically reorder the milk for delivery? What if your car could sense the deflation of a tire, alert the driver and order roadside assistance service? IoT, or the internet of things, is a sensor-based technology that connects objects with sensors embedded in them for data transmission and monitoring over the internet.
Outside of banking, really big M&A deals appear to be back in vogue. For instance, Finnish telecom-equipment maker Nokia is in advanced talks to buy France’s Alcatel-Lucent, a deal touted by The Wall Street Journal as one that creates “a global networking behemoth” to rival Sweden’s Ericsson and China’s Huawei Technologies. This comes on the heels of Royal Dutch Shell announcing its intent to acquire BG Group for nearly $70 billion. According to a piece by Stanley Reed and Michael J. de la Merced on the New York Times’ DealBook, “if completed, the sale would be a rare bright spot for energy deal makers, as oil and gas companies have largely hunkered down while petroleum prices have plunged… Potential sellers have been leery of making deals during what they consider a temporary dip, creating an often unbridgeable gap with interested buyers.”
Doing a bank M&A deal is nothing like it was just a few short years ago. The regulatory environment has changed substantially. The process takes longer and due diligence is much more involved than ever before, said speakers at Bank Director’s Acquire or Be Acquired Conference on Monday, an annual three-day conference in Scottsdale, Arizona, that attracted more than 800 attendees this year. 
To successfully negotiate a merger transaction, buyers and sellers normally must bridge the gap between a number of financial, legal, accounting and social challenges. Couple this with significant barriers these days to acquiring another bank—such as gaining regulatory approval— and it’s no wonder that bigger financial deals remained scarce this year. For as much digital ink as was spilled on BB&T Corp.’s $2.5-billion acquisition of Susquehanna Bancshares a few weeks ago, here are three news items that may not have garnered national attention as they should have.