Accenture Banking Blog

Prior to COVID-19, every bank operating in the UK and Ireland faced one overarching challenge: striking the right balance between growth, transformation and cost reduction. This challenge is no less critical now that it has been joined by another imperative: creating customer-centric resilience post-COVID.

Effectively balancing growth, transformation and efficiency is difficult for both top-tier and mid-tier players—a reality that positions M&A as a viable option for realising strategic goals and winning market share. While the M&A market has contracted significantly since COVID and it’s clear the “new normal” is likely to be “never normal”, the core principles associated with strategic decisions to integrate or divest hold true.

While COVID has fundamentally shifted the drivers behind the decision to take on a new partner or move away from an existing one, any bank contemplating an integration or divestment must be prepared for what comes with it. The intensified focus on cost-cutting and the growing trend towards acquiring innovative brands and technologies have increased the already substantial complexity and risks associated with this type of organisational change.

Whether it’s a selective acquisition or a whole-organisation divestment, there are a few key considerations to take into account. Here are four of the most important.

  1. It may be cutting-edge technology… but how does it fit with our legacy?
    Harnessing the power of a new acquisition’s technology estate is exciting, but working through how to integrate it and then decommission a legacy architecture is a daunting undertaking. Those who can quickly realise the benefits of ‘the New’, while simultaneously figuring out how to transform to an innovative target state, will be ideally placed to leverage the best of both. As organisations look to cut costs and segment their books, the question is: How do they carve up a technology estate without jeopardising customer and regulatory needs and while maintaining a satisfactory pace of change? Like acquisitions, separations too are rarely straightforward, although they do offer the opportunity to downsize.
  2. Product innovation… but how do we harmonise?
    Mid-tier banks which have struggled to maintain their growth trajectory are coming together to increase market share and weather competition. This can mean inheriting a diverse mix of products and services, often with differing approaches to their development and delivery to customers. Maintaining cross-heritage products can be costly, yet opportunities to streamline may be challenged by the need to migrate a customer base or to maintain multiple operating systems. There is much to be said, in the current climate, for selling off books of business or discontinuing products that are less lucrative or less strategic. Managed carefully while offering customer continuity, divestment can present a route to both lower costs and more streamlined products.
  3. New brand identity…. but how do we protect our reputation?
    Inheriting a strong brand can transform a heritage institution into a bank of the future. While this is exciting, careful orchestration is required to successfully navigate a rebrand that maintains a trusted and open dialogue with customers. Limiting brand confusion and managing the customer and colleague journeys take time and realistic expectations need to be set. The risk of customer confusion must be managed especially closely: A legacy customer base can give rise to ‘edge cases’ that require careful handling during downsizing. And remember, it takes only one tweet to take the shine off a new logo.
  4. Starting something new, or moving on… how do we maintain control?
    Today’s combination of an intensifying public and regulatory focus on treating the customer fairly, and the ability to chip away at brand integrity with a single tweet, means that control is key. It follows that mitigating the risks associated with M&A is critically important. Whether in the context of the deployment of new technologies, data migration or a product launch, the complexity of ensuring smooth execution of change should not be underestimated. The duration of the transition should also be considered carefully: The costs associated with missing a key contractual milestone or agreed exit date can be substantial, and may create pressure to change quickly and compromise on quality. So, robust transformation governance and assurance are vital, especially since ‘steering the ship’ in this situation is sometimes undervalued as the pressures of delivering on time and budget hit home.

Our deep experience in banking M&A shows that these factors play out differently depending on the size and scale of the operations involved. Similarly, the priorities of cutting costs, growing revenue and staying tech-relevant are realised in different ways depending on the bank.

COVID prompts the need for forward-thinking leaders to rebalance and build resilience, as observed in our white paper. Before COVID we saw examples of mid-tier institutions joining forces to stay the course in terms of revenue growth and maintaining a technology edge. Meanwhile bigger players, needing to streamline, are looking at options to cut costs and shed parts of the business that no longer serve today’s priorities. COVID creates opportunities for fintechs to supplement larger parts of organisations, accelerating key aspects of the business. One example is the provision of CBILs, creating a seat at the table for new partners to disrupt. In each case, these bold moves create great opportunities for innovation—post-COVID the landscape calls for strategic thinking and swift execution, but the need to control complexity should not be overlooked.