When I think back on the 1990s, I will probably remember an era of consolidation.
At Honor, we began the decade by merging with two other southeastern regional networks, Avail and Relay, and the final conversions of those transactions were just being completed near the end of last year when we embarked on an even larger undertaking: the merger of Honor, Most, and Alert into Honor Technologies Inc.
David O'Connor, former president and chief executive officer of Most and now vice chairman of Honor, and I first started talking about a merger when Ronald Reagan was President, and it is now a reality.
Before the end of the decade, we are likely to consummate a merger with other networks.
It is tempting to draw parallels between the consolidations of regional electronic funds transfer networks and those of banking companies. But such comparisons only go so far.
In bank mergers, the industry is largely eliminating the Great Middle, while leaving many smaller community banks to compete with large regional or superregional banks. Small institutions still can be competitive by delivering a high level of personal service to a local audience or market niche.
By contrast, in the EFT environment, size and service quality go hand in hand. We are in the business of providing convenience, and that is defined by locations and geographic coverage.
Assuming everything performs as it should, the more locations a network is able to provide, the better it is for the consumer. Providing high- quality processing at a reasonable cost also is a factor in a network's longevity.
These two factors mean larger networks will process the majority of transactions in the highly populated states, with a limited number of small networks handling most transactions in the less populated areas of the country.
For those of us in the midst of the consolidation of the industry, two things stand out: First, it was a long road getting here; second, it is a complex process.
I envy those industries where mergers can be completed in three months or less. In the EFT world, we must recognize and work with several constituencies. Our shareholders, other network members, hundreds of processors, and of course the federal government must all be considered.
When companies in other industries merge, the respective boards of directors can take a purely global perspective. Since regional network directors also are the users of our services, they have a great deal more at stake than conventional directors.
Wearing their "network hat," the directors must take on the big picture and evaluate a merger in terms of global issues: coverage, resources, economies of scale, brand dominance.
On the other hand, they are all employees of their respective financial institutions. In that role, they must address some very real competitive and cost issues: Would a network merger cause my bank to lose any competitive advantage? What is it going to cost my institution to do this in terms of signage, advertising, operations, and other elements?
The fact that these mergers are accomplished is evidence that the board members are able to meet these often conflicting demands, and we are very appreciative of the guidance they have supplied.
A second important issue that must be resolved is the management structure.
A hierarchy in a new organization needs to be established as early as possible.
In our merger, we made it clear that Mr. O'Connor, Ron Freiwald (former head of Alabama's Alert network), and I would all have roles in the merged network. If such a line of succession has not been clearly defined, confusion and distrust can be created, lengthening what is already a long merger process. The third critical element is communication.
Our members, our employees, and all the other entities that work with us want to know the details of mergers. We must clearly communicate the advantages of the merger to all members.
Among the benefits of our merger, as well as others going on in the industry: The smallest community bank or credit union can offer cardholders the same number of automated teller machine locations as the largest regional banking organization.
But on the other side, the merger means expense.
Bank members must change signs, reissue cards, retrain their employees, and reeducate customers. And although we assist in many of these areas, a merger still may stretch the resources of a small institution, though in the end it will benefit. We need to communicate that the end result is worth the cost of conversion.
Communication with the general public also is a high priority, especially where branding issues are concerned. Honor is retaining the shape and typeface of the Honor emblem but changing the color of its logo from purple to the green color of the Most mark.
As part of the merger process, we will devote significant resources to signage subsidies and consumer advertising.
A final point of concern is flexibility. We have given members several options and substantial lead time for complying with changes in network rules because we recognize the impact of reissuing cards and refitting signs is significant.
Mr. O'Connor was telling me the other day that the biggest surprise to him was the amount of paper the merger generated, in terms of regulatory filings and legal documents. We were fortunate to have a talented team of attorneys, consultants, and other outside sources who pitched in to help us with the many details and decisions that accrue when merging three networks into one.
The merger process is taxing, trying, and time-consuming but very much worth the effort.
Look at the result: a new network covering 16 states and the District of Columbia with 27,000 ATMs and 330,000 point of sale terminals. The network has 40 million cardholders and nearly 1,900 participating financial institutions. Very soon, the new Honor network will be processing one billion transactions a year.
When is a merger successful? When you have positioned your network to serve members better tomorrow than you did yesterday and when those same members recognize the value the new company brings to their bank, credit union, or thrift.
Completing the merger is not the end, it is the beginning. We can now begin achieving the potential that we have created.
