During Q3-Q4 2008, the financial services industry witnessed a level of M&A activity not seen in almost two decades. Within the last six months, four of the top five financial institutions have merged and predictions for 2009 indicate a continuation of this trend. As the FDIC watch list grows, many banks are looking to absorb smaller, weaker banks through acquisition. Once the move has been made and the ink on the contracts dries, bank executives are faced with the practical reality of coupling two disparate banking operations into a homogenous entity.The first issue to address is reassurance of the existing customer base. Bank customers are naturally anxious when their bank is absorbed by another-particularly if it follows the failure of their original bank. The window of time immediately following the acquisition is a critical opportunity for the new, consolidated organization to reassure customers and demonstrate its commitment to providing equal or greater levels of convenience and customer service. Failure to do so could result in customer attrition.
If done properly, the ATM can actually serve as the primary tool to communicate the value proposition of the acquiring bank to new customers. The ATM screen is an ideal venue to communicate directly with customers-providing answers to questions they may have about the future of the bank, help screens and contact information, or simply to point out that the acquisition can represent a cost savings and convenience factor to them as they now have access to more ATMs nationwide, which reduces the number of out-of-network fees they may incur.
When considering effective outreach to customers, the ATM is of paramount importance as a delivery channel. ATMs far outnumber branch locations and serve as the most utilized touch point between banks and most customers. A recent Mercator Advisory Group report indicates that currently, there are more than four times as many ATMs as bank branches in the United States and that the ATM serves as "both a billboard for the bank as well as an anchor for the customer's relationship with their financial institution."
The report goes on to say that, "as millions of bank customers involuntarily find themselves (post-merger or post failure) with new banks, the ATM provides the perfect platform for banks to introduce themselves to their new customers. Providing leading edge machines with enhanced services in convenient, surcharge-free locations might be the ultimate introduction."
Consolidation of the ATM network requires more than replacing the logo and branding on individual machines. Following a consolidation, banks need to immediately focus their attention on integrating back-end systems and ATM networks to run on the same terminal driving and authentication system if there is to be true consistency across the entire network.
In many cases, the acquiring bank and the acquired bank will utilize different ATM hardware providers. The acquiring bank will be forced to make a decision: invest heavily to replace existing ATMs and establish a single-vendor environment, or utilize the resources in place and operate within a multi-vendor environment. If the bank is not already executing a multi-vendor software strategy, it should update to a multi-vendor platform capable of running across the entire network, or run the risk of a prolonged, more expensive integration.
From the ATM side, the bank will need to integrate different terminals into its network, and implement a software strategy to support the organization's business goals. Whether the acquired financial institution keeps its name and branding, plans to run its ATM network through its legacy brand of hardware or keep the acquired institution's brand, the bank should have technology in place that provides it with the flexibility to execute its chosen business strategy with relative ease.
The issue of scalability is also important as the acquiring bank will be asking its host system to drive a bigger ATM network. Bankers should be evaluating whether their existing host system is built around a modern, scalable open architecture and is able to handle increasing numbers of ATMs and transaction volumes without sacrificing uptime or ATM speed.
What banks must recognize is that the scale of a migration or integration of two ATM networks represents an enormous logistical challenge. Thankfully, most of the largest financial institutions already have XFS-based, open standards technology in place to help ease the burden of a network consolidation. But for those banks that do not and that are looking to increase their M&A activity in the coming year, they need to carefully evaluate the resources they have in place or they run the risk of a prolonged, expensive integration process which could cost them the trust of the customers that they invested in gaining in the first place. As the industry continues to consolidate, it will be those institutions that take a proactive approach to technology and clearly recognize the importance of the ATM in the customer relationship that will effectively grow their market share moving forward.
Steven Lund is president of Charlotte, N.C.-based Level Four Americas, LLC a supplier of open standards-based ATM software.