Finance chiefs might not be that thrilled when their company’s community bank announces it is being bought by a much larger financial institution. While business customers might get access to higher loan limits and the acquirer’s expanded menu of products and services, CFOs might rightly fear that their company will fall through the cracks as the larger bank passes them over for larger, more lucrative corporate customers.
At the smaller bank, a CFO might have been a “big fish in a little pond,” receiving very high-touch service from a relationship manager or even the bank’s president. But after the merger, they might feel that they are now a little fish in a big pond, becoming just another number to the larger bank.
Moreover, they might not get the types of discounts and rebates, such as the return of fees, as they did at the smaller bank. Larger banks may even start charging for services that were previously free, such as deposited items or individual ACH transactions, because they need to find ways to make a return on their investment after acquiring the smaller bank.
In fact, to achieve its ROI, the larger bank may feel it’s only worthwhile to take great care of “big dollar” business customers. While a $100,000 deposit customer might have been considered “big dollar” at the smaller bank, the larger bank’s threshold for more high-touch service might now be $500,000.
So is it worth switching banks if an acquisition leaves your business in danger of losing the attention of your bank? CFOs need to weigh the pros and cons of being a customer of a large bank.
First, the larger bank has the authority to lend at higher dollar amounts to business customers. The larger bank also will likely have a wider variety of products and services, such as working capital loans, international trade financing, treasury management services, lockbox and cash management services, and more specialized products for business owners, including wealth management and insurance.
The larger bank might also start to focus on the business customer’s industry if it decides to fine-tune its approach to niche markets to match up better against large competitors. Business customers might also get better loan pricing, as the larger bank achieves greater efficiencies due to economies of scale. A larger bank also may have greater resources to invest in emerging online and mobile technologies, such as mobile remote deposit, alternative mobile payment schemes and other emerging technologies.
The disadvantage for business customers after their smaller bank is acquired is that sometimes the larger bank changes its focus and sheds small customers or customers in industries that are not very well-represented among its customer base. Larger banks might also change their mix of loans and other products and services in ways that don’t favor certain business customers, or the products and services might not be as aggressively priced for those industry segments as they used to be. Moreover, the technology used to service particular segments might not be upgraded, so customers may be left with just basic services without all of the newer, more robust capabilities that vendors of those solutions might now be offering.
Access to capital might also be affected. While community banks make loan decisions on a localized basis, at larger banks approvals get funneled up to regional or national centers. A business customer then might not have access to the decision-makers as it once did, when the CFO could just pick up the phone and call the bank president directly if there was a problem.
Of course, CFOs can always play both sides and use the products and services of multiple banks: Tap the larger bank for its more sophisticated and expanded menu of options but keep some business with a locally-headquartered community bank that hands out the bank president’s personal mobile phone number. In the end, diversification might also give the business more leverage when negotiating rates and fees, and the winning bank can get its business for that particular product or service.
Paul Schaus is the president, CEO and founder of CCG Catalyst, a bank consulting firm that provides strategic advice in all areas of banking — lending, finance, retail, operations, mergers and acquisitions, technology, enterprise risk management, compliance, marketing and business development.