Mergers and acquisitions (M&A) have become a common place across many industries over recent years, especially in the payments space. While Fiserv purchasing First Data may be one of the better known acquisitions, many more have occurred, and analysts expect that this trend will only continue in the coming years.
“M&A activity has become the new normal in the U.S. payments ecosystem,” said Raymond Pucci, director of Merchant Services at Mercator Advisory Group. He noted how one driving explanation for this trend is that the industry is in the midst of transformation regarding when, where, and how consumers shop and pay for goods and services.
The transformation is being caused by changes at the point of sale, the rapid growth of e-commerce, and the rise of mobile payments.
In this shifting landscape, companies may pursue a strategy of merging with or acquiring other companies in order to achieve scale and volume. For example, Pucci pointed out that some deals occur because one company wants to buy a technology developer or a company “with a specialized vertical market solution.”
However, while M&A can translate into a more efficient, profitable business, the process comes with many challenges. If a company pursuing a strategy of M&A hopes to be successful, it must navigate these challenges with a clear plan of action.
“A key challenge for the new management and staff structure will be the implementation of the new organization in order to deliver on the anticipated gains,” said Pucci. He identified digital platforms as one key area where focus needs to be placed.
This is because consumers are supremely reliant on digital platforms when it comes to using financial services. If the digital experience is inadequate or outdated, customers are quick to seek out better products. Nobody wants to use a mobile banking app riddled with bugs, or make online payments via a portal prone to crashing.
Merging digital platforms
When one company merges with or acquires another, each company often has its own digital platform. That raises a question of what to do with the platforms: does the resulting company maintain both or create one, unified platform?
At first thought, it may be tempting to leave both platforms in place. Combining the existing platforms into a single one requires a lot of work and can be temporarily disruptive for the customers. However, such an approach is ultimately flawed.
It would require the acquiring company to maintain two applications, meaning that each would have to be updated separately, and customer service would be more difficult, as consumers would be raising questions about different products. Thus, continuing to operate two independent digital solutions would require substantial resources and slow down innovation.
So the best course of action is for the acquiring company to merge the platforms together, thereby reducing long-term costs and enabling rapid improvement to the digital platform.
In an informative blog post from D3, the author argues that, in fact, M&A presents a great opportunity to assess the strengths and weaknesses of each company’s digital capabilities and design one platform that combines the best of both.
But it’s essential that while making this decision, the acquiring company considers how each customer base will be impacted, said Pucci.
Those in charge should evaluate the current systems’ user interfaces, platform features, and data capabilities, in order to determine what aspects drive customer satisfaction. When a final platform is created, it should meet the needs of both audiences.
In order to aid institutions embarking on this digital transition, the D3 blog identifies three best practices for creating a new digital platform that are worth exploring:
- Clearly define the objective
- Determine consumers’ digital priorities
- Designate a core team
The first tip—defining the objective—may seem obvious but it is often overlooked. To successfully create a final product, the digital team must understand what it is they hope to create and why. The sooner a company identifies its goal, the faster the objectives can be achieved.
And as previously mentioned, the second best practice involves determining what the consumers want. The digital team should analyze the data and pinpoint which features are popular. If there is one feature that is used frequently by a large segment of the consumer base—a personalized budgeting tool, for example—then some version of that tool should be made available in the new platform.
The final tip is to create a team responsible for leading the transition. While this may seem obvious, it is nonetheless essential and should be made up of people from both institutions if possible. Everyone involved in the transition should be clear on what their roles are.
“Look carefully at how the different employee cultures, management styles, and geographies of the two companies will work together to achieve the stated business objectives,” instructed Pucci, noting that while change is difficult, it can be effectively planned for if everyone knows their responsibilities.
The call center should be involved in the process from the beginning as well, since customers are inevitably going to be inquiring about the changes to the platform or any problems which may arise as a result.
Combining companies is not an easy endeavor so it must be done intelligently and with much thought, or else the acquiring company won’t gain the scale or profit it hoped to achieve. As more companies merge with and acquire other companies, following best practices like those outlined above will help lead to successful outcomes.
This piece delves into the best practices regarding merging digital platforms but there are many other considerations. From branding to personnel changes, M&A requires extensive change and effort. Regardless of which aspect is being considered, companies should identify key goals, develop a plan, and clearly define the roles and responsibilities of those involved.
Recommended Reading Making the Most of Digital During M&A