“Deal Frenzy”?
More mergers and acquisitions headed our way

MergerBouquetMergers that don’t make national news might create the impression that bank M&As aren’t frequent. The opposite is true. Last week, the Federal Reserve listed 163 pending financial institution merger or acquisition applications. And that’s just in the United States.

But some mergers have caused buzz, like the planned mergers TCF Bank with Chemical BankFifth Third Bancorp* with MB Financial Inc., SunTrust with BB&T, and Alibaba’s Ant Financial’s pending takeover of Worldfirst.

As reported by Bloomberg, Bank of America CEO Brian Moynihan suggested at last month’s World Economic Forum in Switzerland that the merger trend may produce new megabanks:

“How does somebody emerge? The same way we emerged,” Moynihan said. “The emergence will come out of the consolidation of another round of people which still has to happen in the United States. There are now 6,000 odd banks, and you’ll find them continuing to consolidate.”

In the same Bloomberg article, Citigroup Inc. CEO Michael Corbat referred to the current trend in mergers as a “deal frenzy” and suggested a catalyst: “In the U.S. today, there’s probably not much appetite for the big banks to get bigger.” To Corbat’s point, limiting the size of top-tier banks in terms of size may lead to the creation of new global contenders via mergers of penultimate-tier banks.

Not surprisingly, Senator Elizabeth Warren is not thrilled. Her recent letter to the Federal Reserve System’s Jerome H. Powell all but accuses the Fed of dereliction by “… summarily approving mergers.” But it’s no secret that Warren tends toward a binary view when it comes to banking. In one of her infamous senate committee grillings, she accused, “Cross-selling isn’t about helping customers get what they need,” but is all about “pumping up” stock prices.

Warren should know better than to argue all-or-nothing. Of course cross-selling can help stock prices, not to mention benefit banks in other ways. Yet for many if not most banks, better helping customers is implicitly and often explicitly understood as a vital condition. That cross-selling can help banks and customers is what we call non-zero-sum or win-win, an outcome that Warren seems not to acknowledge.

Non-zero-sum outcomes

Likewise, bank mergers and consolidations can accrue benefits to financial institutions and customers alike.

Containing costs may be the bank’s most obvious benefit. Consolidation means that only one, not two banks must meet the considerable expenses of regulatory demands and keeping up with technology. To be sure, cutting such costs nearly by half benefits banks, but it also benefits customers. As with any business, a bank’s costs are its customers’ costs. The fewer a bank’s costs, the fewer costs it must pass on to its customers.

Consolidation offers banks a fast, often lower-cost route to customer acquisition. The risk lies in whether acquired clients will prove profitable. Usually, the risk pays out, resulting in a stronger single institution than either component institution was on its own. Strength portends well for banks, but also for customers, and, for that matter, for economies in general. Safe banks are rather a good thing for everyone, customer or not.

Merging entities may profit from one another’s areas of strength, at the same time bringing one another’s areas of strength to their respective customer bases. SunTrust and its clients alike must surely be pleased to get their hands on BB&T’s digital banking app, which the 2018 MagnifyMoney Mobile Banking App Ratings ranked “best app among the ten largest banks.”

Consolidation can provide an economic boon to municipalities that wind up being home to a new, merged bank’s headquarters. The Detroit News’s Briana Noble wrote:

A proposed merger announced Monday between Chemical and TCF banks is expected to bring more jobs to the city, grow the tax base and expand philanthropic work being done to aid in Detroit’s recovery …

Gov. Gretchen Whitmer said the announcement is good news for the economy and the state’s future … “If we’re going to ensure Michigan’s success, we’ve got to attract more businesses to create jobs and boost the local economies in cities like Detroit,” Whitmer said in a statement. “This merger will create hundreds of jobs in the city, help local businesses attract the talent they need to thrive and provide investment throughout the state. I’m excited to work with everyone who wants to build a Michigan where more businesses move to for opportunity.”

Granted, consolidation can bring casualties in the form of branch closures and resultant job loss. In no way do I wish to trivialize the impact of such at the individual and family level. But I must also acknowledge the overall positive effects of mergers and acquisitions in the banking industry. Otherwise, Adam Smith’s “invisible hand” would have brought them to an abrupt halt centuries ago.

In place of “deal frenzy,” perhaps a more accurate and positive term might be “mutual strengthening opportunity.” Either way, the trend is sure to continue. In our business, mergers have been and likely will continue to be a way of life.


*Who thinks up these names?

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The end of a not-so-great retention tactic

Amazon Bank?According to a recent story by Steve Cocheo in The Financial Brand, “Millennials, Gen X and even boomers will ditch banks for Amazon.” 

Hold on. Even boomers? They’re the group that research usually shows as slowest to adopt nascent technology. But Cocheo cites a Novtantas report that …

… classified those who have switched banking providers in the last few months as “recent purchasers”. In the survey, nearly two-thirds of these switchers were either Millennials (47%) or Gen Z (15%). But one in five (20%) were Boomers, and an equal number were Gen X.

Moreover, writes Cocheo,

Part of the problem, according to Novantas, is that financial marketers overestimate the differences between generations, causing many banks and credit unions to drag their feet. Traditional institutions seem to think they can take their time responding to consumers’ digital preferences, assuming that older consumers are in no rush and will stick around. They are sorely mistaken.

It’s a fair point. A good deal of research indeed shows that younger generations adopt new technologies faster and in greater numbers. But it’s a mistake to infer that older generations are sitting idly by. “Faster and in greater numbers” doesn’t necessarily mean “slow and few in number.” On the contrary, it seems to mean “not quite as fast and in not quite as great numbers.” One could well add, “… and not to be ignored.”

In the digital banking world, it’s prudent to recognize that the heat is on, and will only grow hotter. There’s no resting on laurels in the form of older generations while taking one’s time gearing up for the younger. And there’s no counting on the hassle once associated with changing financial institutions to slow the tide.

For that matter, the younger generations aren’t all that young anymore. Millennials and Gen X-ers were included in the Novantas study because they already account for significant numbers of customers. The wisest course is to pull out the stops to keep them—now—and not risk having to play catch-up to technology companies in hopes of winning them back.

The weakening of older retention strategies

Every financial services marketer knows that it’s easier and, therefore, more cost-effective to keep and grow a relationship than to hunt down a new one. We also know that (come on, let’s be honest) one bank’s array of products is pretty much like any other’s. That’s why in our industry we make customer retention a priority. 

Of course, the best way to retain customers has always been to provide such great service that wild horses couldn’t drag them away. Another is cross-selling, in and of itself a valuable customer service, assuming it’s done in the customer’s and not only the institution’s best interest. Yet another is to surprise and delight—offering the occasional freebie, sharing relevant news, or even the random thanks for being a great customer

Those approaches are still needful and valid. But a strategy that may be weakening is share of wallet. The idea is that the more accounts and services a customer has with one institution, the more loyal that customer will be. Or, to put it more cynically, the bigger pain in the ass it is for a customer to switch banks.

That’s not relationship-building. It’s restraint-imposing. And, thanks to the phenomenon known as digital banking, it’s fast vanishing. Much of what not long ago required a trip first to the prospective former bank and then to the prospective new one, with each trip involving having to face personnel and complete endless forms, has been reduced to a few touches or clicks.

But besides vastly reducing pain to the hindquarters, digital bank also opens customers to thinking outside the bank box. 

Some of you may remember when savings and loans existed. In their final throes, they had won the privilege of offering checking accounts. Credit unions already had that privilege. Technical differences distinguishing the three organization types were lost on the average customer, who tended to lump them all under, simply, “banks.” As long as a financial institution offered needful services, no one much cared what it was called on paper.

Today it is technology that opens new doors to convenience. So perhaps it shouldn’t surprise us that people aren’t uncomfortable doing their banking with technology companies in addition to—or in place of—traditional financial institutions. Especially a technology company like, say, Amazon, which, like banks, largely sells products available anywhere, but, as banks aspire to do, has built its customer base on the kind of convenience and service that’s by and large impervious to wild horses.

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In 2019, I predict …

At the oustet of every year, pundits, experts—and let’s not forget charlatans—roll out their predictions. It’s a relatively safe endeavor, since not many people bother following up a year later to see how they fared. That may be an indication that people view predictions as entertainment more than as actionable items. In the case of predictions that don’t pan out, that’s probably a good thing.

The safest prognostications sound gutsy but on examination aren’t. If you want to convince your friends that you’re a psychic, just predict that 2019 will be a year of great political upheaval. No matter where you live, you will not be wrong. Or predict lots of earthquakes, since according to Incorporated Research Institutions for Seismology (IRIS), “Magnitude 2 and smaller earthquakes occur several hundred times a day world wide.” Just don’t pin magnitudes to specific locales.

I can play the vagueness game with the best of them. In the financial services arena, one could quite safely predict the following:

• The threat of digital payment platforms from non-traditional banks will grow.

• Technology will be a major expense area for financial institutions.

• Banks will continue talking about the importance of relationship management as if they are good at it.

• Investment in AI will grow.

• The arms race between security gurus and hackers will escalate.

• Major data breaches will occur in companies you wouldn’t expect.

• We’ll hear less about blockchain.

• Banking regulations will ease, but no one will relax due to the upcoming 2020 election.

• Branches will continue to close, due not to digital banking but to geographic overlap.

Safe and obvious as the above predictions may be, I have decided to go out on a limb and add three more specific developments I foresee for 2019. I don’t pretend they’re earthshaking. It’s just that with the above list and no shortage of predictions industry-wide, there’s not much left that hasn’t been covered.

In 2019, marketers forced to comply with Mastercard’s new policy on free trial subscriptions will act like it was their idea. Book of the Month Club proved early on that negative response (“We’ll send you the product and bill you unless you tell us not to”) makes money on inertia. The modern iteration is the web-based free trial offer. Customers, after providing a credit card number, must remember to bail on time, often a labyrinthine process, to avoid charges. Mastercard has called an end to the practice. From now on, merchants must send a detailed invoice with clear cancelation instructions ahead of the expiration date. With no choice but to comply, you can bet merchants will present the policy as their own, touting it as evidence of their commitment to customer service.

In 2019, Zelle will surpass Venmo in enrollments and use. I admit it doesn’t take much of a futurist to foresee Zelle’s dominance following its leaping and bounding through 2018. Indeed, industry watchers predicted that Zelle would have surpassed Venmo by now. Even so, it’s by no means a sure thing. Venmo cannot be expected to sit idly by. For all I know, it stands at the ready to pull a rabbit from its hat. My money is still on Zelle. Pun intended.

In 2019, user adoption of voice-activated digital banking will plod, but banks will continue adding it to their offering. Voice-activated banking offers a good deal in the way of  convenience. Trouble is, customers are slow to embrace it. Perhaps that’s because digital banking is already pretty danged convenient, making promises of additional convenience seem almost trivial. That may be why Numerica Credit Union, which last March became one of the first financial institutions to offer voice banking, has enrolled only 1,000 out of its 145,000 members. Still, one cannot afford to trust that voice banking will remain sluggish forever. To hedge against being caught unprepared in the event it catches on, banks will continue adding it to their mix. But I think the product will pretty much sleep through 2019.

There you have it. I would urge you not to check back in a year to see how I did. Trust me on this: If it turns out I was right, I won’t be shy about letting you know.

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Marketing and payments M-V

Detail from graphic on Mastercard’s press release

Detail from graphic on Mastercard’s press release

The M

Something seems to be missing from the Mastercard logo. Oh, now I see it. Or, rather, I don’t see it. What’s missing is the word “Mastercard.” 

Following two years of research, Mastercard has determined that the overlapping circles are strong enough to convey the brand without an assist from type. Accordingly, in certain settings the company will omit the name and use only the symbol. A recent Mastercard press release quotes Chief Marketing and Communication Officer Raja Rajamannar:

“… with more than 80 percent of people spontaneously recognizing the Mastercard Symbol without the word ‘mastercard,’ we felt ready to take this next step in our brand evolution. We are proud of our rich brand heritage and are excited to see the iconic circles standing on their own.”

The press release also quotes Michael Bierut, partner at Mastercard-retained design firm Pentagram, indulging a bit of hyperbolic designer-speak:

… Mastercard’s two interlocking circles have always represented their commitment to connecting people. Now, that commitment is given greater presence by Mastercard’s status as a symbol brand.

(Bierut’s comment reminds me of Pepsi’s modest logo redesign in 2009, at a cost of one million dollars, which its design firm claimed calls to mind the Earth’s magnetic fields and the sun’s radiation, thus evoking “… emotive forces [that] shape the gestalt of the brand identity.”)

Thus Mastercard aspires to join the ranks of a handful of companies lucky enough to have a logo that wordlessly represents the brand. It’s a gutsy move. Unlike, say, Apple’s apple, which depicts an actual apple, the overlapping circles depict an actual Venn diagram. But then, Nike’s swoosh depicts a rounded checkmark. Time will tell whether the symbol sans type will continue to communicate “Mastercard.”

Some companies do the opposite: They forego a symbol in favor of a stylized version of their name. That’s a little safer, since there’s no mistaking a spelled-out name for something else. Think Xerox, FedEx, and Nordstrom.

Or, think Visa.

The V

Speaking of which, Visa is reaching out to women, with a program called “She’s Next, Empowered by Visa.” According to BusinessWire:

She’s Next will be supported by the Female Founder Collective (FFC)—a network of businesses led by women, supporting women—that launched in 2018 and quickly grew to over 3,000 members. From streamlining payment methods to linking women small business owners with like-minded peers and experts, Visa and FFC will together offer unmatched resources and opportunities for female entrepreneurs.

Visa is planning “… pop-up events around the world that offer a range of practical tools, resources, insights and networking opportunities for female entrepreneurs.” These include community-specific, interactive workshops, and advice from experts representing the likes of Visa, Square, and Yelp.

Research “… from a forthcoming survey commissioned by Visa of US-based female small business owners will help to inform the issues that matter most to women entrepreneurs.” The research promises to focus on topics women cite as motivators in starting their own businesses, information on funding, and use of social media and digital marketing. Visa plans to launch an ad campaign promoting the program this year. 

There’s something surreal about the fact that it’s 2019 and marketers are still discovering there are women in the business world. But good on Visa and others for being “woke.” Better late than never.

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The wearable bank

Watch-calendarWe can expect wearables to play a major part in the digital payments arena. Which is all the more reason for bankers to lose no time in getting behind it.


APRIL 24 will mark the three-year anniversary of first day you could purchase an Apple Watch. That the first month of Q2 2015 had all but passed didn’t stop Apple from selling over four million units before July 1, making it the quarter’s top selling wearable technology. 

It was an impressive debut, even though at the time competing wearables hadn’t exactly flooded the market. Since then, the wearable tech category has been swelling. If that’s an indicator, we can expect wearables to play a major part in the digital payments arena. Which is all the more reason for bankers to lose no time in getting behind it.

The coming boom in wearable tech

Research and advisory company Gartner predicts a boom in wearable tech sales:

… worldwide shipments of wearable devices will reach 225 million in 2019, an increase of 25.8 percent from 2018. End-user spending on wearable devices is forecast to reach $42 billion in 2019. Of that, $16.2 billion will be on smartwatches.

Likewise, PYMNTS.com reports this optimistic prediction from International Data Corporation’s Quarterly Wearable Device Tracker:

In fact, global shipments of wearable devices will reach 125.3 million units in 2018, an 8.5 percent increase from the previous year … the five-year compound annual growth rate (CAGR) is expected to hit 11 percent, with shipments reaching 189.9 million units in 2022.

Despite sales to date, it’s possible that Apple Watch’s $399 to $1,500 price range exerted a dampening effect. If so, that’s about to change, for two reasons. First is the influx of competing, lower-end wearables driving prices down. Walmart will set you up with a Tagital watch for $15.99. Second is the fact that no law confines wearable technology to wrists. You’ll find it adorning heads and feetneckshands, and even fingers.

The banker’s wearables challenge

Let’s be honest: What isn’t driving wearables sales is consumers who can’t wait to execute payments from their wrist. 

Much of the credit for the wearables category growth goes to fitness-related applications. Popular wearables measure heart rate, monitor blood sugar, track miles walked or run, remind wearers to get up and move, and measure exposure to ultraviolet light. Conveniences like being able to subtly check alerts, emails, and text messages without pulling out a phone certainly play a role. And, if you can imagine, some people even using smart watches to check the time.

Not to be overlooked is the upward spiral of fashion. As increasing numbers of non-geeks adopt wearable technology, herd mentality inclines us to follow suit. I can hardly think of a better harbinger of wearables-as-fashion than the fact that Louis Vuitton has gotten in on the act with its Tambour Horizon watch. The most basic model will set you back a mere $2,450.

Wary of offering a one-trick pony, many wearable tech marketers are building payments capabilities into their products. But since few people are likely to purchase wearable technology expressly for banking purposes, the banker’s challenge is to become an immediate, attractive afterthought the likes of, “Since I have this device, I might as well use it for digital banking.”

It follows that banks had better give their clients effortless setup and functionally complete apps. Given the growing range of devices and applications, this will be no small challenge. PaymentsSource observed a roadblock in the form of …

… the lack of infrastructure; wearable devices need the buy-in of major technology players, and many have different strategies for this market. 

On the other hand, marketers of wearable tech want their payments apps to work just as much as bankers do. Device sales depend on it. So bankers may find a willing partner in wearable tech marketers.

Financial institutions would do well to make a priority of moving into the wearable tech space. As wearables become increasingly commonplace, demand will inevitably grow. Even if consumers adopt it as a “might as well.”

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