Tags: Gallup | Bank | Mergers | Customers

Gallup: Bank Mergers May Chase Away Customers

Tuesday, 02 Jun 2015 12:51 PM

Mergers and acquisitions pose many risks for banks, but there's one risk leaders may be overlooking: increased customer attrition, according to a recent Gallup analysis.

According to the FDIC, there were 1,581 mergers and consolidations of banks and credit unions between 2010 and 2014. The majority were "business as usual" acquisitions, while 332 involved a failing institution that was sold with government assistance.

Customer loss after M&A is common. But banking customers leave at a much higher rate from banks that were acquired (8%) compared with the average annual attrition rate across the industry (5%), according to recent Gallup analysis.

Because of this, banks may lose more customers — and therefore deposits — than they anticipated following an acquisition. But if a bank already suffers from low customer engagement, post-M&A attrition can be substantially worse.

When an acquiring bank has lower customer engagement than its target bank, customer attrition at the target bank rises to 10%, Gallup's study shows. This is twice the average rate of attrition for the industry and represents a significant risk for lost value for the acquiring bank.

On the other hand, when an acquiring bank has higher customer engagement than its target bank, the attrition rate at the target falls to 6% -- much closer to the industry average.

These findings suggest that customers of the target bank quickly learn the customer service experience they can expect from the acquiring bank. When their experiences with the new bank are worse than what they encountered previously, customers leave in large numbers.

However, when their experiences are an improvement from the previous bank, they are not much more likely to leave than the national average across the industry.

Meanwhile, merging banks often close branches to cut costs and streamline services.

MIT graduate student Hoai-Luu Q. Nguyen contends that branch closures in low-income neighborhoods turn out to have huge — and negative — impacts on the local economy even if other branches remain open.

Nguyen claims that when a branch closes in a low-income area, small-business lending disappears. The impact is very localized, which is likely why it hasn't been uncovered in earlier research.

Nguyen's research found that small-business lending declined by 13 percent within a small area, but dissipates within 8 miles. The eroded small-business lending is concentrated in low-income and heavily minority areas.

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Mergers and acquisitions pose many risks for banks, but there's one risk leaders may be overlooking: increased customer attrition, according to a recent Gallup analysis.
Gallup, Bank, Mergers, Customers
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2015-51-02
Tuesday, 02 Jun 2015 12:51 PM
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