With the merger of FleetBoston Financial and Bank of America a done deal as of April 1, the technology systems that control everything from core deposit systems to online transactions are already in the long process of being integrated.
Industry experts say the bigger issues facing consolidation of the information technology sides of the two businesses are matters of whether the banks have learned from the tech pitfalls of previous mergers coupled with the desire to resolve probable cultural differences on the IT side of the operations.
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The majority of Fleet’s technology and systems need to be moved over to Bank of America’s, and company spokeswoman Eloise Hale said the process of deciding what infrastructure and applications must be put in place is still being determined.
Bank of America promised its shareholders $1.1 billion in cost savings when the deal was announced, a large piece of which is expected to come from savings on IT operations. Last month, bank executives announced that job cuts throughout the operation would number around 12,500, with the bulk of those cuts expected to be spread among other back-house jobs in accounting, leasing and human resources. About one-third of those cuts will come through attrition; the remainder will be culled from the staffs of both banks.
Full integration of the banks’ systems won’t be completed for more than another year, Bank of America spokeswoman Betty Riess said.
“Each system, whether we’re talking processing loan applications or the systems platforms used across our operation, those are each going to have their own timeline,” said Riess, adding that the specifics of many decisions on departmental technology have yet to be made. “The only specific timeline we have is for total integration by the summer of 2005.”
Whether that’s good news for the employees working out of a 500-person technology center in Johnston remains to be seen. Fleet did not return calls by press time concerning what kind of work is being performed at the local facility, or whether those workers have job security for at least another year. Fleet’s main technology centers are located in New York, Connecticut and New Jersey.
Jim Eckenrode, vice president of consumer banking research at TowerGroup in Needham, Mass., said lessons from past mergers bode well for Bank of America’s ability to get the integration done smoothly. Eckenrode said Bank of America derives more of its history from Nation’s Bank, which it merged with in 1998, after Nation’s drove many of the banking acquisition deals through the 1990s.
Eckenrode said it was Nation’s that developed a “SWAT team” approach to acquisitions and putting new systems in place. With the exception of only one deal for a Florida-based bank (that had an abnormal system in place), Eckenrode said the approach worked well throughout the decade and prepared Nation’s for its merger of the much larger Bank of America.
“That merger they really executed very well,” said Eckenrode of the $42 billion merger. “They made the hard decisions with what technology to go forward with and what to get rid of.”
Eckenrode said the merger left Bank of America with a few different core deposit systems spread throughout the country, and he wouldn’t rule out the possibility that the New England region (where Bank of America had little to no presence) could largely stand on its own technology systems. “If it ain’t broke, don’t fix it,” he said.
In its 1999 merger with BankBoston, Fleet elected to keep some of the acquired bank’s locations and eliminated several of its own overlapping branch sites, but also elected to rip out much of BankBoston’s equipment and replace it with older platforms already being used by Fleet. Several customer accounts were not notified and, Eckenrode said, a variety of “training and service nightmares” were created.
Scott Lloyd, a business professor at the University of Rhode Island who teaches courses in management information systems, said the technology for both banks has improved markedly over the past five years.
“They’re dealing with much better technology this time,” said Lloyd, who added that economies of scale would undoubtedly be created by improved hardware systems and the ability to have greater expertise in-house. “Bank of America has better systems in place and what’s in place at Fleet is much better than what BankBoston had,” he said.
“Both have battle scars from previous mergers and both have different philosophies,” Eckenrode said. “They have some hard choices to make over how best to streamline their operations, whether they want to move the newest technology in now and how all this is going to affect their vendors … this is all with a goal that the customer will notice none of that. I think they have a chance to succeed in that.”
Alenka Grealish is the manager of Celent Communication’s banking group and works out of the firm’s San Francisco office. She has advised many financial institutions, including Fleet and Bank of America, on their technology strategies. She said the biggest difference between the banks is that Bank of America has been focusing on building efficiencies, adopting the six sigma strategy used in manufacturing to streamline its operations in the front, middle and back sides of its operation.
Fleet has taken another tack, looking to shift its customers to self-service channels such as ATMs and the Internet, where the bank has subsequently developed a competitive advantage. “They just made those channels a priority,” Grealish said. “From the senior management on down, everyone in the organization was galvanized to that and they’ve been very effective in building that customer base.”
Grealish also said while Fleet has generally concentrated more on its consumers, Bank of America has had an eye on its shareholders, which leads back to different expectations from Wall Street.
“The disadvantage is that the Bank of America executives have had a lot of naysayers and they are under some pressure,” she said. “They may try to move faster than is prudent.”
Lloyd, the URI professor, said the larger culture differences between the two companies could prove more challenging in the long-term than the integration of hardware and software. He said those concerns will include how the management is structured, how the IT departments are divided, the procedures for new development and whether the chief information officers at both banks have been working toward the same issues the past several years. Many of those concerns are rooted more in business management than information technology headaches, but Lloyd noted that, “Geeks, as a general rule, tend not to play well.”
Pointing to the Oracle and PeopleSoft deal that was announced last summer, Lloyd said the hard-charging, buttoned-down workers at the more traditional Oracle have clashed with PeopleSoft’s more informal IT setting, leading to issues that have caused conflict only recently. With Bank of America leading the merger, Lloyd said it’s likely the bank’s CIO is going to win the vision battle.
“A lot of the core systems and processing technology to the upfront, customer-facing staff will stay pretty much the same,” Grealish said. “Ultimately, you’re not going to mess with the hardware unless you have to.”
What becomes of the companies’ Web portals (www.bankofamerica.com and www.fleet.com) is one of the technology issues that is likely to be touched last. Grealish said the melding of Web sites will likely be the “messiest thing” the two banks deal with, in terms of what to consolidate and what to get rid of completely.
At this point, she said the companies have likely decided what system is going to take precedence and users will see a gradual transitioning to the same look and feel.
In comparing the two sites, Eckenrode said it’s a “slam dunk” that Bank of America will retain their online site, which offers technical and design functionality that he called “best in class.”
Bank of America announced last month that with the Fleet merger, the bank’s total active online subscribers had grown to 10 million, including 4 million active bill payers. Combined, the organizations are adding more than 350,000 new active subscribers and 150,000 new bill payers every month.
For now, the FleetLink online banking system will be staying mostly the same, which Lloyd said indicates the systems are compatible on some level. He said the services offered by both of the banks online are similar.
“There’s only a couple of ways to skin the same cat,” Lloyd said.
Eckenrode said the trickiest part would be keeping the behind-the-scenes work behind the scenes over the next year. The first goal of any bank merger is to retain customers while finding shareholder returns within economies of scale.
“Bank of America is talking about a fairly aggressive time frame,” Eckenrode said. “They’ll take their time rolling this through if they’re smart. Smashing everything together and not worrying about redundancies is not the way to go.”
