• Pierre-Alexandre Boulay, Head of CEE at Backbase


• 06.09.2021 10:30 am
#M&A #digital #banks

With bank M&A activity on the rise in Central and Eastern Europe (CEE), many banks in the region are struggling with the technology aftermath. Banks need to rapidly integrate their downstream legacy systems; and engagement banking layer – all within tight IT budgets.

Often, banks try to first focus on merging the downstream systems, but this can feel like changing the wheels of a car that is already in motion. At Backbase, we propose an alternative – and perhaps counterintuitive – approach: banks should prioritise the external-facing customer experience to harmonise disparate digital presences and help customers realise the value of the merger sooner.

In doing so, these institutions will face less customer attrition and also enable innovation to continue, as they work on the downstream legacy integration, giving them an important competitive advantage.

M&A on the rise

Bank consolidation is ramping up in CEE. 22 M&A deals were completed in the region across 2019 and 2020, and 6 were ongoing – and it is likely that the aftermath of COVID-19, which is expected to weigh heavily on banks’ profitability and capital positions, will bolster further M&A activity as less solid players might find themselves unable to cope with such challenges alone.

Further exacerbating this trend is pressure from neobanks that have raised customer expectations when it comes to digitalisation, making the disruptive influence of technology and the critical need to meet the expectations of today’s digital-first customer one of the key drivers of M&A.

But as smaller, regional banks join forces and larger, global players enter these lucrative markets, many banks in the region are struggling to navigate the technological integration required.

An “outside-in” approach

In the aftermath of a M&A deal, banks often focus on getting the overall system right before turning attention to the external-facing engagement banking layer. However, data integration is a long, resource-intensive process that can halt innovation efforts and lead to customer dissatisfaction or loss. This approach can also exacerbate existing siloes, making it more difficult to introduce changes and innovate further down the line.

There is a better way to approach post-merger technology integration. Instead of focusing on the downstream systems first, banks should prioritise the engagement banking layer and reconcile disparate digital presences to ensure minimal disruption to users.

In doing so, these institutions will reap many benefits, including: enabling innovation to continue even as they work on the downstream integration; eliminating friction for both customer and employee; and remaining nimble.

And it also has longer-term benefits, allowing banks to own the integration process in perpetuity.

While this approach may not be easy, it is certainly the most sustainable way to ensure long-term growth. In the coming decade, advanced digital banking technology – and along with it, owning the customer experience from end-to-end – will be a clear enabler of M&A and growth. Those that take this “outside-in” approach will ultimately make themselves more powerful and attractive players in the market – both for customers and prospective buyers down the road.