The number of banking mergers and acquisitions worldwide rose dramatically in the last year, from 619 in 2019 to 1,316 in 2020, according to Statista. And even though the number of bank mergers in the United States has generally slowed since the 1980s, the total number of banks in the U.S. has dropped from more than 18,000 to less than 5,000 today — overwhelmingly because of mergers and acquisitions.
Anyone who’s been involved in one of these mergers knows that the process can throw individual projects into disarray and even paralysis. You have a clear line of sight into how to implement a certain technology at your bank or credit union, and then — boom! — suddenly you don’t know how the team you’re working with will sit with your decisions, much less how you’ll sit with theirs. What if your systems don’t align? What if someone has a totally different idea about how to proceed? What if your budgets are focused on completely different things?
Despite the difficulties inherent in any merger or acquisition, it’s critical to not give in to paralysis when it comes to your data strategy. Here are three reasons why:
1. Your New Competitors Won’t Wait For You
You can be certain that your competitors won’t wait around for you to figure out your financial data strategy — especially new competitors from technology companies, which are used to moving quickly.
In the past, this wasn’t as pressing an issue since for the most part people didn’t have extensive choices about where they banked. They generally had to choose whatever institution had branches nearby. But today, anyone can search for a banking product — mortgages, payments, deposit accounts — on their phone and immediately see dozens of results on the first page alone.
These technology companies can no longer be ignored. For instance, JPMorgan Chase CEO Jamie Dimon shows in his latest annual shareholder letter how, over the course of just a decade, Big Tech has ballooned from $0.5 trillion to $5.6 trillion, payments companies have ballooned from $0.1 trillion to $1.2 trillion, and private and public fintech companies have ballooned from being essentially non-existent to $0.8 trillion — all of which are encroaching on traditional banking.
In addition, consumer sentiment is changing quickly, particularly in the wake of the Covid-19 pandemic. To illustrate, the percentage of consumers who say they trust banks and credit unions most to handle their financial needs plummeted over the course of one year, while the same period showed large gains for tech companies.
Over the past year, people often had no choice but to use digital banking products, and their habits changed as a result. As we illustrate in our Ultimate Guide to the Top 2021 Bank Challenges, 87% of consumers say they visit their financial institution’s branch less often than they did before the Covid-19 pandemic, while 89% say they use mobile banking more often. The shift to digital banking has accelerated faster than anyone anticipated.
Turning Point:
Almost nine out of ten people are visiting branches less than they did before Covid. And equally as many are now relying on mobile banking.
So if you decide you’re just going to hold off on moving your financial data strategy forward, or just coast along where you are today, you might be surprised by how quickly technology companies move ahead to meet customer demands.
2. Technology Is Changing More Quickly Than Ever
When ATMs were first released in the late 1960s, they felt innovative. By the late 1980s, they were table stakes. Likewise, mobile banking felt innovative in the early 2010s, but now it’s table stakes.
Now, with the rise of artificial intelligence and machine learning, technological advances are set to happen more quickly, as each new technology makes it easier to create tomorrow’s technology. This means that people are getting more and more used to experiences that are seamless, intuitive and simple. They’re also realizing they can find these experiences outside of a bank or credit union.
As the technological aspect of banking gets simpler and more convenient, traditional modes of banking will feel more and more archaic. It used to be a no-brainer that people would go into the branch to do their banking. It was the only option! But today, people are changing their attitude and becoming less willing than ever to entertain the notion that banking has to be done inside of a branch. Given how quickly technology is changing, this situation is bound to speed up, not slow down.
3. Your Work Won’t Be Wasted (If You Take the Right Approach)
It’s understandable that people in banking might be wary about the idea of getting too involved in a tech project only to have the project stymied by a merger or an acquisition. They’ve likely seen it happen before.
Wasted effort is not an inevitability, though. A better approach allows flexibility in tech partnerships and contracts — using open finance APIs and adaptable core models that enable financial institutions to pivot far more quickly and seamlessly than they’ve been able to pivot in the past.
To get more specific, one way to bypass the friction of new systems during M&A is through the effective connectivity of middleware. By leveraging existing core integrations, a provider such as MX can bridge the gap between the two cores and create a common language by which the new organization can thrive.
With a connectivity API solution in place, you don’t have to feel paralyzed by the notion that a single wrong step will lock you into a tech stack you don’t actually want. Instead, you’ll be able to mix and match the solutions that work best for your new team. Because of this, you’ll put your learning to work even if it so happens that you end up with a different tech stack than you initially thought you would.
Conclusion: Stalling Is Too Expensive
In the past, some of the paralysis around tech projects in the midst of a merger and acquisition was justified. External competition was scarce, financial institutions moved slowly, and there was no way around burdensome contracts that locked companies into tremendous inflexibility.
However, the scene has changed. External competition from national banks, credit unions, fintechs, and tech companies is quickly picking up steam, the industry is moving much faster, and technology now allows for a level of flexibility previously unthought of.
Bad Timing:
By putting new technology and data capabilities on hold, your institution will fall further behind right as the industry picks up speed.
As long as you start thinking about how you can integrate your two teams early, find the right partners, and integrate a flexible, API-enabled tech stack, it’s a far better option to keep running and don’t look back.
About MX
MX is the leading data platform for financial institutions, providing the industry’s fastest, most secure, and most reliable connectivity network. MX partners with 16,000+ banks, credit unions, fintechs, and 85% of digital banking providers to power the money experience for over 200 million consumers.