How to Keep Customers After a Merger or Acquisition

Bankers meeting after an acquisition.

Mergers and acquisitions are on the minds of a lot of banks these days. On paper, they offer an opportunity to generate large returns and greater shareholder value. In reality, numerous studies have found that more than half of all mergers fail to deliver the intended improvement in shareholder value.

Why? During an acquisition, many banks focus on integrating technology and business processes to ensure the combined financial institutions can operate efficiently as one bank. But they often fail to place enough emphasis on retaining newly acquired customers and building loyalty. As a result, customer defections contribute to high failure rates and can undermine the value a merger once promised.

J.D. Power and Associates says the likelihood for customers to switch banks increases by up to three times after their bank merges with, or is acquired by, another financial institution. That kind of post-merger attrition rate—20 to 30 percent or more—represents a major loss of potential value.

According to a study by the Deloitte Center for Banking Solutions, 36 percent of bank customers who switched after an acquisition did so for emotional reasons—underscoring the fact that there’s an air of uncertainty whenever two financial institutions merge. Fear of the unknown, resistance to change and feeling undervalued are key emotional reasons why customers leave.

Lack of communication with customers about the merger is a root cause of customer attrition and a key reason mergers fail to meet shareholder expectations. J.D. Power and Associates says fewer than half of customers at banks that are being acquired report they received a sufficient amount of information from their financial institution about the merger.

That’s not all. When a customer finds out about the merger from a source other than the financial institution, they’re twice as likely to switch banks compared with customers who reported receiving merger or acquisition communications directly from their bank.

I’ll say it again: The best way to retain customers during an acquisition is through frequent, consistent, personalized and relevant communications—a series of value-focused touch points designed to deliver value and open a two-way dialog with customers.

Customers’ first impressions about an acquisition and how it might affect them can create lasting attitudes that either build or undermine loyalty to the new bank. A relationship-building brochure is an effective communication piece that gives the acquiring bank an opportunity to emphasize its brand promise, show its strengths and the advantages of the acquisition for customers, and share how the bank gives back to the community. It also should let customers know what to expect in the coming weeks and months (key dates, new product offerings, etc.).

Relationship surveys are an effective tool to create a dialog with new customers. They allow the acquiring bank to determine what’s important to their new customer in their banking relationship. These surveys help the bank measure loyalty and uncover why customers are switching to another financial institution. Only by understanding the key drivers of dissatisfaction can management take actions to minimize customer attrition during the acquisition process.

Adding value and communicating with customers through the acquisition process is critical in retaining customers. Even a small improvement in customer retention can make a big difference to deposit balances, fee revenue, loan portfolios and, ultimately, shareholder value.