Meld Data Bases to Jump-Start Merger

Article excerpt

From January 1994 through August there were 797 bank mergers.

Since there are more than 10,000 banks in the United States, experts predict consolidations will continue at a rapid clip, with institutions in the $10 billion to $100 billion asset range likely to be the most active players.

Analysts say the trend will not end until the 25 largest banks hold 80% or more of industry assets, up from 60% now.

In bank boardrooms across the country there is a palpable sense of urgency - not only because of overcapacity in the marketplace but also because of nonbanks' relentless pursuit of banks' traditional franchise.

To address these issues, banks are devoting much attention and money to the development of computer-based marketing and delivery systems.

Using a marketing data base for customer segmentation is hardly a new concept. What is new are the methods available to leverage marketing data bases and segmentation to provide solutions in the bank mergers and acquisitions arena.

Creativity and flexibility, rather than sheer size, will determine success. Even though the banking industry seems obsessed with largeness, bank marketing must focus on the small, because most bank-customer relationships hinge on one-on-one contact.

Banks that know how to apply segmentation strategies to manage customers will have the power to effectively match an offer to a customer's need and thus realize a merger's true potential.

Segmentation allows banks to develop and implement marketing and service strategies based on a customer's product usage, channel preference, and current and potential profitability, as well as on a demographic and psychographic profile. The data that can reveal all this information already reside on the data bases maintained by most banks.

It has been a generally accepted rule that, from an implementation standpoint, mergers and acquisitions are unfortunately but necessarily chaotic undertakings.

Restrictions on the sharing of data between banks prior to legal consummation of a deal make it difficult to do any planning at the customer relationship level.

So when the data finally become available and marketers for the first time have a view of the merged entity, they must quickly address time critical issues, such as customer overlap, account retention, and deposit runoff.

There is a surprisingly straightforward solution to this problem. Once a merger or acquisition is announced, both banks can sign a confidentiality agreement allowing a third party to merge the banks' data bases. At the legal merger date, the third party can install the merged data base on-site so marketers and systems managers can immediately get down to the business at hand.

There are numerous issues that can be addressed by using a merged marketing data base.

Before the Merger

After the announcement of the merger, but before it is legally consummated, the merged marketing data base can be used to plan merger activities and communications, to identify opportunities and risks in advance, and to establish benchmarks against which the impact of the merger can be measured. Here are a few examples:

Customer Segmentation

It is important to know early on how the banks' customer profiles compare, where the similarities and differences can be leveraged, and what the implications are regarding image, competitive positioning, service delivery, and pricing.

Shared Relationships

Given an in-market merger especially, what may appear to be an unprofitable customer on each bank's separate data base can turn out to be a profitable customer on the combined banks' data base. Being able to target your newly identified best customers is crucial to retaining significant business, for if these customers leave, they are likely to take both halves of their business with them.

Community Reinvestment Act

Bank mergers are big news, and often the local media will choose sides in a merger, which can seriously disrupt merger proceedings. …