A 2015 Gallup Poll highlights an unintended consequence of bank mergers and acquisitions: customer loss. The poll studies the impact of mergers and acquisitions and how they are affected by the concept of customer engagement. Customer Engagement, as defined by Gallup’s research, is based upon the answer to three key questions.
- Does the company always deliver on what they promise?
- Does the client feel proud to be a customer?
- Is the company perfect for a person like me?
Unsurprisingly, Gallup’s research suggests that fully engaged clients tend to be more loyal and are more profitable to the company. Their poll suggests an increase of an average 23% in premium to share of wallet, profitability, revenue and relationship growth when compared to the average customer. The opposite is true for unengaged customers. Disengaged customers carries an average of 13% less of the same measures. The implication is clear, actively engaged customers spend more with their chosen institution.
The poll acknowledges that some customer attrition is normal after an M&A. In the banking industry, clients who have been acquired tend to leave at an even higher rate. 8% of customers leave following their institution being acquired, this compared with the average annual attrition rate in the industry being around 5%. Following an M&A, banks suffering from low customer engagement typically see an even larger number of existing customers leave.
When an acquiring bank with low customer engagement merges with their target bank, the customer attrition at the target bank rises to 10% – double the industry attrition average per the Gallup study.
As the trend of bank consolidation continues, it will become increasingly important for institutions to consider the existing base of customers at a target bank and to evaluate the level of customer engagement that bank has. Strong customer relationships can ensure that an acquiring institution realizes a more nominal rate of customer attrition. Failure to do so may have unintended consequences on the banks profitability if existing depositors leave following an acquisition or merger.