One of the biggest drivers behind the BB&T-SunTrust merger announced Thursday is the need for regional banks to up their technology game.
The competitive pressures surrounding innovation were directly cited by BB&T's chairman and CEO, Kelly King, shortly after the banks announced the deal, which includes moving the merged bank's headquarters to Charlotte and setting up a innovation and technology center there focused on digital transformation.
"Bill and I have talked for a long time … about the changes in our industry, and the tremendous increase in the need for technological investment to be able to provide the level of digital capabilities that our clients now demand,” King said Thursday morning on CNBC, referring to his counterpart at SunTrust, Bill Rogers. "Our clients now demand what I call real-time satisfaction. They want what they want, when they want it, right here right now. And so we are all facing an increasing set of complex economic realities where we have to invest more and more in technology.”
King said the additional scale provided by the merger will allow the new entity to make “the technological investments necessary to provide the digital platform and other technological support features.”
Daryl Bible, BB&T's chief financial officer, also noted that one of the most important benefits of the merger will be “to take significant costs out from redundant areas and reinvest it into innovation, technology and our talent.”
Like many of their smaller brethren, regional banks often struggle to compete with the seemingly limitless technology budgets of the largest institutions on the one hand and the nimbleness of fintech upstarts, which can quickly partner and pivot, on the other.
At Davos last month, Mary Callahan Erdoes, JPMorgan Chase's head of asset and wealth management, pointed out that her bank has 50,000 people working in technology.
"Today, it is really hard to imagine not being a bank at scale," she said. "I can't imagine having to figure out how to protect yourself from a cyber perspective, or a technology perspective. We spend $10 billion a year on technology."
It appears to be no accident that the new BB&T-SunTrust bank, which has yet to be named, is centering itself in Charlotte. In addition to recertifying the North Carolina city as a banking hub (joining Bank of America, which is also based there), Charlotte has a vibrant market for tech.
"It's a crowded market in Charlotte,” said Sam Maule, managing partner for North America at 11:FS, a consultancy. “This is a big win for Charlotte and tech talent in the Carolinas.”
Jacob Jegher, senior vice president of banking and head of strategy at Javelin Strategy & Research, agreed "there’s a lot of opportunity in the Charlotte market."
"There will clearly be a huge competition for tech talent and that will create a lot of movement amongst Wells, BofA, and this newly formed entity,” he said.
In recent years, Charlotte has also become a fintech hub. There are many fintech startups in the city and organizations that support them, like Queen City Fintech and the Carolina Fintech Hub.
Both banks have taken steps in tech recently. In 2016, BB&T announced it would be renovating its core banking technology, starting with the use of the Loans Management component of SAP for Banking for its retail lending operations. Last year, the bank
Also last year, BB&T announced it would set aside up to $50 million to invest in or acquire emerging digital technology companies to “benefit and delight clients and lower operating costs.”
“That’s very interesting; there’s a lot that can be leveraged there,” Jegher said.
Both banks have significant investments in online and mobile banking, Jegher said.
“Are they going to merge them into a single solution? Are they going to start from scratch with something new? Will one prevail and go forward, resulting in a migration? Those are all possible scenarios,” he said. “None of those is wrong. But the challenge could certainly be that they run the risk of getting bogged down in integration or migration while some of those larger banks move ahead with investments in digital.”
Merger integrations take tremendous amounts to time and energy, especially diverse technology infrastructures.
The two banks will need to focus on two things, Jegher said. One is remaining relevant in the eyes and wallets of the customer in an ever-evolving digital world. The other is doing that while dealing with a bank merger and big-bank competition.
“It’s a tall order, when put in perspective of larger banks that can spend significant dollars,” he said.
