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So You Want to Buy a Bank? Don’t Forget About Its Customers

There’s no doubt that it can be tempting to pursue an acquisition — especially in today’s banking world where scale is required to compete.

But banks often ignore an obvious aspect of integration that can have a big impact on the long-term economics of a merger or acquisition: the customers of the acquired bank.

Novantas sought to better understand acquisitions from the customers’ perspective by speaking to them directly about their experiences in migrating between institutions. We interviewed customers of banks involved in seven major recent transactions, evenly splitting conversations between those who stayed with the merged bank and those who ultimately left. The goal of our research and analysis: to identify the drivers of success and failure in retaining the customer during an integration.

The upshot? Banks need to work harder at retaining customers after an acquisition occurs, especially because news of the transaction may very well “wake up” customers who previously hadn’t been paying much attention. A successful strategy not only helps to reduce attrition, but also can increase the value of the customer relationship.

We find this to be more important now than ever for regional banks as national banks dominate in new customer acquisition, and low-cost deposits are becoming increasingly scarce. In the old world, M&A was used to expand the branch network, leveraging the acquired branches as a way to organically acquire new customers. Today’s M&A is about acquiring in-market, consolidating a significant portion of branches, using cost synergies to invest in technology, marketing, and other investments required to win with customers, and spreading those investment costs over a larger customer base.

But what good is acquiring a new customer base if a significant portion of those customers ultimately leave?


Although there is solid rationale for bank M&A — with industry executives, investment bankers and lawyers agreeing that the sector is ripe for more consolidation — deal activity has been relatively sporadic. The market for somewhat larger deals has picked up this year (see Figure 1), and acquirers are paying up for core deposits (see Figure 2). But challenges remain as investors have largely punished banks that have recently pursued M&A. Such reaction has cast doubts among some about whether Wall Street is ready for a big consolidation wave. In a recent memo to clients, Sullivan & Cromwell said the negative market reactions shouldn’t discourage others from seeking combinations. “It will be necessary, however, to explain clearly to investors the investment thesis of the merger,” the law firm advised. Novantas agrees with this statement and believes that it is also critical to clearly explain the benefits the customer will receive from the merger as well.



Novantas research and analysis has led to three key insights that are critical to consider when integrating another institution.

First, an acquisition often triggers a “wake up” for acquired customers, impacting some customers to a greater degree than others. Second, branch closures are still a major driver of customer attrition, but actions can be taken to reduce the likelihood the acquired customer leaves the combined institution. And third, the acquirer’s messaging and brand perception play a critical role in customer retention.

A bank’s ability to recognize these factors and prepare for them can significantly enhance deal value. Novantas estimates that appropriate retention mitigation tactics can reduce attrition up to 50%.


Acquirers historically have worried that the announcement of an acquisition will “wake up” customers of the target bank, prompting some to leave for another banking institution. This sentiment was validated in our research. But this “wake-up” event doesn’t impact every customer segment in the same way. Our customer-level research and analysis reveal two key segments that are impacted by acquisition events to a disproportionate degree.

The inactive checking customer is one of the most likely customer segments to jump ship after an acquisition. Indeed, probability of attrition declines by 75-85% when customers actively use their checking account and related services, such as a debit card. Inactive checking customers — more so than any other type of customer — “wake up” after an acquisition is announced, prompting them to consolidate their financial products with their other, primary bank.

That is why acquirers need to invest time in examining the make-up of the target’s deposit base — an exercise that should take place during the due diligence period. Evaluating the target’s deposit mix is not enough; acquirers need to evaluate the activity of the target customer base as well.

The second group that is most impacted by an acquisition is the customer who incurs service charges; that person is significantly more likely to attrite during an integration. To some degree, this didn’t surprise us because these customers represent a disproportionate degree of attrition volume during other periods as well. What is surprising, however, is that customers whose maintenance and service fees are reduced still attrite at a higher rate than those who don’t incur fees pre-conversion.

That means a simple reduction in fees isn’t enough for these customers to stick around at the new institution. They may not be aware of the product benefits that are available to them after the conversion, instead focusing on the fees they incurred at their original institution. This is important to consider as acquirers think about the fee income versus retention trade-offs when making decisions about product conversions.


There is no question the importance of the branch is declining, both in terms of sales and customer service. Simultaneously, there has never been greater pressure and desire to reduce costs by consolidating branches in an acquisition. This is reflected in recent acquisitions, where acquirers are taking out a greater portion of the target’s branch network than ever before.

But acquirers should be cautious when considering branch closures, as they still have a material impact on customer retention and future new-to-bank sales. While typical branch consolidation tends to show minimal customer run-off, customers whose banks are being acquired have heightened awareness and are far more sensitive to disruption. Our analysis indicates that attrition from branch consolidation tends to be 20-40% higher in M&A situations compared with business-as-usual activity.

Branch cuts are still worthwhile when pursued correctly, however. Based on our experience, we offer three suggestions to reduce the impact from branch consolidations.

First, banks must go beyond the typical proximity analysis and analyze the underlying customer base to determine impact on customer experience, notably looking at where and how the customer of the acquiring bank transacts. Do they transact predominantly in the branch or digitally? Do they transact at multiple branches, or just the consolidation candidate?

Banks should also identify ways to change distribution without pushing the customer away. For example, Novantas has found that leaving ATMs behind in places where branches have been closed can be very powerful in retaining customers who deposit checks or withdraw cash, but don’t need a teller to do so.

Finally, banks must control the message by reaching out to customers and providing them with options. Novantas research has found that standard mailings alone often aren’t effective, but that calling high-value customers can be well worth the effort.


Messaging and brand perception play a critical role in the success of customer retention after an acquisition. Upon announcement of the acquisition, customers want to know, “What is this new bank and how will this acquisition affect me?” This is particularly important when the acquired customer has little-to-no awareness of the new bank brand. Novantas research indicates this is often the case for regional banks and new-market entrants.

Acquirers should capitalize on this moment to tout the benefits the customer will be receiving by becoming a part of the new institution; the post-announcement period is the best opportunity the buyer will have to shape the customer’s perception of the new brand. But too often, banks fall short in this realm. While management of the acquiring institution may be quick to announce the financial benefits of the merger to the investor community, such explanations often bear no significance to the average customer.

Novantas believes that acquirers should focus their messaging on how the acquisition will improve the customer’s situation, whether that is access to new branches and ATMs, new services, or better digital capabilities. Even communicating the areas in which there will be no changes — such as access to existing products — can go a long way in comforting the customer.

This communication should be made frequently and consistently through all channels to make the customer feel “in the loop” during the integration. Banks tend to focus such communication via direct mail and email, but often fall short when it comes to the branch. Branch employees are not always equipped to handle the types of questions customers immediately have about an acquisition. Arming employees with that information can reassure these anxious customers.

As banks consider acquisitions as a way to gain scale and compete, they shouldn’t lose sight of the most critical driver of deal value: the customers and the revenue they generate. Getting smarter about the customers that are part of the acquisition should start during the due diligence phase and continue through the integration. Such a strategy can go a long way in making for a successful transaction.

Michael Jiwani
Director, Chicago

Matthew Sharp
VP, Head of Customer Knowledge, Chicago

Robin Sidel
Director, New York

For more information, contact Novantas Marketing

+1 (212) 953-4444

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