Three of the largest bank failures in history led to three bank acquisitions in 2023, which meant three upcoming major technology integrations. How banks merge their technology platforms is key to any transaction, and it's complicated, experts said.
Tech integrations are successful when banks have a clear end vision, retain appropriate talent and lay out a detailed plan that leaves room for agility, analysts and consultants who work with banks on acquisitions said.
The banks that swooped in to acquire the failed institutions —
Consultants typically recommend careful planning and a thoughtful process for combining two bank technology infrastructures. However, the playbook for acquisitions of failed banks is different from a normal deal.
First Citizens, which acquired SVB following the run on the bank in March 2023, is still developing detailed integration plans, it said in its 2023 first quarter earnings call. The Raleigh, North Carolina-based bank has continued operating SVB, a stalwart for the startup and venture capital world, without integrating or migrating technology platforms.
"While we are in the early stages, our integration efforts are underway," said First Citizens President Peter Bristow on the earnings call. "Our approach is to seek out the best minds and most experienced people who can develop our go-forward business model. We are formalizing integration plans that we will share in the future."
Vincent Hui, a managing director at research and consulting firm Cornerstone Advisors, said that it's a safe bet to operate the banks separately for now since the acquisition was put together quickly and under distress, but maintaining a separate entity limits an acquirer's opportunities to sell products and services to new customers.
Hui was working at Washington Mutual when it was seized and sold to
"On the positive side, if it's a new line of business that is somewhat separate, it keeps it pure, and it doesn't create any disruption, both for staff and for customers," Hui said. "If there are cross-sell capabilities, that's the trade off by keeping them separate for some period of time."
First Republic was seized by the Federal Deposit Insurance Corporation and acquired by
Hui also said having a customer liaison can help ease conversions. First Citizens Bank said it has been meeting with SVB clients to discuss what they want in the transition.
Jost Hoppermann, principal analyst at research and consulting firm Forrester, said it's important for merging banks to have a clear long-term vision for their technology integration, but remain flexible when executing their plans. He added that multiyear, elaborate blueprints are outdated because of constantly evolving technology. Banks should focus on their immediate next step, he said, and continually monitor potential technology innovations.
"I think what is very important is to avoid detailed plans that cover multiple years," Hoppermann said. "This is an approach of the past. What we are seeing today as a more successful approach, when it comes to transformation … go for what I like to call a continuous transformation."
Hoppermann added that having experienced teams who feel empowered and responsible to push the technology integration is imperative.
"The best and most knowledgeable technology team members leave the bank first," Hoppermann said. "Because these people are the people the bank needs to drive integration, to drive the technology merging the application, it's crucial to make sure that these key team members remain in place."
Dozens of SVB bankers and leaders left the company after its failure. President Bristow added on the earnings call that the bank has had some attrition, but is backfilling key positions. HSBC announced in April 2023 that it
Jeremy Swan, managing principal of the financial services practice at CohnReznick, added that usually, outlining a technology integration plan includes organizing key milestones, deadlines and people necessary for integration.
"It's about making sure that you have a very robust, detailed technology roadmap that covers all the systems, covers all the types of data," Swan said. "Too many times you see these integrations fail, and it's because the right planning wasn't done."
Swan said there wasn't adequate time to develop a full technology conversion plan in the case of the failed banks. Each acquisition plan was put together in several days.
New York Community Bancorp's President and CEO Thomas Cangemi said on the company's first quarter earnings call that the company was devoting the rest of 2023 to integrating and converting Signature and Flagstar Bank, which it acquired in December 2022. Chief Financial Officer John Pinto said the company has been evaluating Signature as it plans its systems integration. The bank plans to convert Flagstar's systems in the first quarter of 2024.
"The most important thing we've been doing from our teams in operations IT is just really making sure we understand the size and the scope of what the private client groups and the teams at Signature are used to on the system side," Pinto said on the earnings call. "So our main focus is to ensure that we avoid any potential customer negativity, and minimize any customer impact."
Technology conversions are expected to succeed, so people notice when banks fumble execution, Hui said.
"You can bring the two organizations together, but if it's a crappy experience, you're not going to get the growth of buying the bank," Hui said.
In enacting conversions, Hui said there's the data component, which includes client information, and there's a processes component, which includes actions like loan accrual systems performing accurately.
The top functions to prioritize in tech integration, he said, are core infrastructure, cards technology and online banking (including mobile and cash management) because those carry the most risk and have the greatest effect on customers.
Hui said migrating all systems from one bank to another can be simpler than when banks choose to patch together the best of their systems. Optimization strategies, like cutting down vendors, technologies and staff to maximize efficiency and reduce cost, add execution risk.
Several major mergers from recent years show that smooth technology integrations are easier said than done.
Charlotte, North Carolina-based Truist
Buffalo, New York-based
Other challenges banks face in technology conversions include outdated core infrastructure that is difficult to migrate, Hoppermann said. Financial institutions are notorious for using years-old, or even decades-old, technology. Hui also said banks should begin authenticating clients and validating data months before the conversion.
Hoppermann and Hui both said it's important to test or practice the integration process in a way that's isolated from clients before the real conversion. Hoppermann added it can be helpful to go live with the integration in phases, like by regions or customer groups. He added banks should consider maintaining the old systems as a fallback option for several weeks after the integration so that customers can always access their accounts and money.
Hoppermann added that M&A can also be a good chance for companies to upgrade their systems.
"It is certainly important for any bank in such a situation to think beyond the pure application merger," Hoppermann said. "I think it is important to use the opportunity to stretch new technologies, new architecture capabilities, as far as possible. For example, it's about microservices, event streaming. … It's an opportunity to modernize, not only to merge applications."
