The euro area banking market has become increasingly concentrated – a third of its banking groups – mainly the smallest banks – have disappeared since the global financial crisis in 2008. Despite this, the sector continues to struggle with profitability and excess capacity, with too many undersized banks and a costly physical banking infrastructure (ECB, Financial Stability Review 2021).
Recent consolidations in the SEE region are confirming the continuous M&A trend. In Bulgaria, Postbank (member of Eurobank Group) acquired the Bulgarian subsidiaries of Alpha Bank and Piraeus Bank, and DSK Bank (part of OTP Group) absorbed Societe Generale Expressbank; while very recently the Belgian KBC Group expanded footprint by acquiring Raiffeisen Bank Bulgaria.
In the Adriatic region, regional banking groups are continuing to consolidate the market – the Slovenian NLB obtained ownership of Serbia’s Komercijalna Banka while Hungary’s OTP Bank acquired Serbia’s Vojvođanska Banka. Romania is not behind the trend with increased 32% M&A market dynamics and major acquisitions by EximBank over Banca Românească and by Bank Transilvania over Idea Bank.
How can digital platform technology power up the success of M&As?
Already embracing digitalization to address changing consumer expectations and market dynamics, banks and capital market players are assessing the technology aspect of any M&A transaction now more than ever, starting from the pre-planning of M&A activities.
The technology ‘roadmap’ of an M&A often addresses three key outcomes reducing IT complexity, decreasing costs by optimising operational resources, and ensuring a secure and seamless customer experience along the way. To add to these mandates, nowadays the fundamental part of such a technological “merge” should occur in less than 12 months, considering the banking market dynamics, volatility and increased regulatory pressure.
Therefore, merging & acquiring organisations are turning to modern digital banking platforms like Software Group’s DigiWave as a powerful tool for a risk-averse and smooth integration between processes, systems, people, and business imperatives for achieving the mandate of the M&A and securing the foundation for future innovation.
M&A approaches from a technology point to view
From a purely technological point of view, there are two major approaches to the M&A process:
Inside-out scenario – where large financial or banking groups are optimising the operations of their multiple subsidiaries and lines of business (LoB) with the help of centralised platform technology. Such an example is one of our clients, part of a leading banking and insurance group in the SEE region, where all LoB – banking, insurance, leasing, factoring and more are integrated, data is augmented and managed through a single open API platform, fully compliant with the regulatory requirements and future-proof from a technical standpoint. (Such platform would be microservices based, cloud-native, compliant with open banking standards, ISO 20022, DP&P, etc.)
This allows the financial institution to “merge & acquire” data, process flows and cross-LoB in a single source of management and business representation for better financial results and client experience. All the while keeping legal structures, independence and brands in place.
Outside-in scenario – where a real legal, financial and strategic M&A process is occurring with the purpose to re-evaluate the systems and re-define the architecture for both merger and merged organisations. The complexity management, alignment of front- and back-end banking processes and selection of the best strategy to “change-the-bank” is a time and resource consuming activity that can take years with mediocre success, if a traditional approach is followed.
Through modern digital banking platforms, the organisational restructuring and creation of a sound 5+ years digital strategy can easily be achieved, while many aspects of technological and business risks, issues and traps can be avoided.
Despite the complexity M&As come with, Software Group can support the digital transformation of financial institutions by solving key technology and business challenges and enabling fast track innovation, efficiency and growth.