Germany’s Banks: Delivering a Digital Future
The finance industry is undergoing significant change, with technology creating opportunities to transform the payments space. At a BNY Mellon-hosted roundtable in Frankfurt, TMI sat down with a group of banking experts from Europe’s largest economy, to discuss how they are adapting to the increasingly digital landscape, and how collaboration is crucial if banks are to meet the evolving needs of clients.
At the tableGerald Ertl Programme Lead, Digital Corporate Clients, Commerzbank Olaf Peters Director, Strategy Project Digitalisation, Helaba Landesbank Hessen-Thüringen Gerhard Jurksch Head of International Division, Sparkasse Aachen Chenghui Xu Dealer, Global Markets Department, Bank of China Frankfurt Branch Daniel Sylla Head of Treasury, ProCredit Bank, Germany Güngör Taner Relationship Management & Business Development Germany, Treasury Services, BNY Mellon Iason Chantzis Project Manager, EMEA Innovation Centre, BNY Mellon Peter Williams Financial Journalist (Chair) |
Adapting to the digital environment
TMI: Thank you to everyone for coming today. Firstly, with new technology capabilities unfolding at an astonishing rate, how are you adapting to this evolving landscape? What is your digitalisation strategy?
Peters: Our agenda focuses on four main points: innovation, transparency, efficiency and, lastly, cultural change, which is the most important. We have also established an internal network of digital competencies, where we exchange our experiences, and we are a platinum partner of the TechQuartier in Frankfurt – a co-working space for start-ups. Furthermore, we talk to clients and fintechs and look at where we can collaborate and learn from one another.
Chantzis: In financial services, we tend to feel like we have to lock ourselves away for three years and build things ourselves, but we don’t need to do that any more. We can collaborate with people who have a niche understanding and the ability to do something we can’t necessarily do – or we don’t have the time to do. So, we have really started looking at how we can work in partnership with other experts, and our clients, to develop customised solutions.
Ertl: The future is all about technology, and we would like to have a completely technology-focused approach – to be a technology company. Our digital journey starts with the client because clients are at the centre of our thinking and developing. And we support our staff to ensure they have a clear understanding of what we aim to achieve.
Chantzis: It’s all about the client experience – optimising that by gaining efficiencies through new platforms and ecosystems. We run workshops with clients to understand their pain points, and then we work together to see how we can leverage technology to address those issues and help them grow their business. At BNY Mellon, NEXENSM is the digital ecosystem that enables us to consolidate our solutions, our clients’ solutions and third party services through an open source cloud-based platform.
Xu: There are two keys things that should be considered in a digitalisation strategy: customer needs and co-operation. The customer always has high expectations, and banks need to provide more value-added options and functions to fulfil their needs. The second factor, co-operation, stems from the fact that a lot of new players – eCommerce companies and new technology firms – are coming into the market, and they are able to react very quickly. We have a digitalisation centre here in Frankfurt and we’re also looking at co-operating with eCommerce firms.
Sylla: People should always be thinking about ways in which they could do their daily job more efficiently; how they could streamline processes and digitalise things. The ProCredit group has its own IT company, Quipu, which is an advantage because the whole core system is designed by one company. And that works well. We ring them up, draft a business process and they see what they can do for us.
Ertl: There are two key factors. The first is the need for a changed customer experience. Customers are very familiar with a high degree of usability and functionality, and they also expect a comparable level of digitalisation when they use banking products. The second crucial aspect is velocity – speed to market is becoming very important. We’ve changed our approach to minimal viable products (MVP) – to be able to bring things faster to market. Right now, 600 people are working at our digital campus in Frankfurt, dedicated to working on the digitalisation of processes, and at the end of the year it will top 1,000.
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Sylla: It’s interesting to hear from very large corporations, because you have the resources to build a digital campus. A smaller company like ProCredit Bank in Germany doesn’t have these resources. But the advantage a smaller company has – the things we’ve identified as being important and valuable in terms of technology – is that we can do them very quickly. We make decisions and they are executed within a few months.
Chantzis: You have to be proactive. The speed of change is so fast that if you don’t act, you are going to be left behind. I think every single firm needs to be proactive in their approach and in their strategy.
Fintech and collaboration
TMI: We are seeing lots of fintechs entering the payments space with innovative concepts and solutions. Do you view fintech companies as friends or foes?
Ertl: Fintechs are very helpful as they are specialised and can develop things very quickly. We are completely open to co-operation – within the industry, with banks, fintechs and corporates.
Taner: A friend of mine who runs a fintech described fintechs as “an extended workbench for banks”.
Xu: They are neither enemies nor friends for us, but we definitely need to learn from them. There’s a famous Chinese company called Tencent – an eCommerce giant that launched a software called WeChat six years ago. Now, up to 700 million use WeChat in China each day. It’s incredible. At first, this software was just a simple chat software, but over time it’s included more and more functions, including a payment function – a new payment method. The whole consumer payment landscape has changed. People can pay with their mobiles. Everything is very efficient and convenient. We need to learn from fintechs and develop our own solutions.
Peters: I think fintechs differentiate from classical banks because of their look and feel – they have a specific product that is modern and looks smart. Initially, fintechs talked about disruption. But now it’s progressed more to a stage of partnerships. We invested in a venture capital fund, which gives us the ability to scan the fintech market in a systematic way. It shows us fintechs that might be interesting to Helaba. We want to collaborate with fintechs to create new value-added services for our customers, to create something of a win-win situation.
Sylla: The question of whether a fintech is a threat largely depends on whether you think as an organisation you can provide a unique selling point. If you are confident with your own identity, fintech isn’t necessarily a threat. In my view, fintechs are a welcome addition to the market and provide new perspectives.
Chantzis: The growing presence of fintechs shouldn’t be viewed as a threat. It’s an opportunity for banks to improve what they do – whether that’s by leveraging fintech or optimising what they’re doing internally. But it should be a key driver to do things differently and do things better.
Evolving needs
TMI: Is technology having the biggest impact in the retail or corporate sector? How are corporates’ payment needs changing?
Ertl: In the retail sector, it’s been clear for a long time that digital services create value. But in addition to digital services, a branch network allows us to be close to customers and maintain physical proximity. In the corporate sector, we are currently seeing the change – that this very relationship-based business is enriched by digital services and channels, including API-banking. Application programming interfaces (APIs) will play an important role – this is the next technology that’s coming to the fore and we are working very intensively on this.
Taner: I can see the corporate world, especially trade finance, benefiting from technology immensely. Cross-border FX solutions, nostros and reconciliation are also areas that could potentially be significantly enhanced, with improved efficiency and cost effectiveness.
Ertl: Yes, the corporate business can change dramatically. Right now, there is a lot of data, but only parts of it are really used. If you combine all the information in an intelligent way, then you are able to make much better offers to the customer, and reduce risks and costs.
Peters: Most important is that we make our employees ready for this changing environment. We have to adapt because we need different skillsets for the future.
Jurksch: I think there are three groups of people. First there are digital natives – you don’t have to make a cultural change here because they are technology savvy. Then you have employees and clients who are not digital natives but who are able to deal with these topics. Lastly, you have clients who have no contact with digital content, and don’t want to. So you cannot digitalise all clients. When we prepare our strategies, we also have to take care of non-digital people – that is important. But the background will change totally within the next 10 to 20 years.
Xu: Certainly, customer focus is very important. For example, I think the electronic trading system is very welcome in Germany – a lot of financial institutions and corporates want to do online trading with us on our online platform. They are giving up traditional calls or emails. We need to adjust ourselves to them and their changing needs.
Peters: How we interact with clients is certainly changing when it comes to innovation. Now we go to our clients and ask them what they need. We question them about what they think about our prototypes. For me, it’s a cultural shift, a better shift, to the customer interface.
Taner: As a relationship manager, I deal with culture a lot. Relationships are about identifying my client’s culture, how the culture is changing and how I can adapt to that – while meeting existing cultural needs. We don’t have a single ‘culture’ of client, so it’s hugely important to be close to our clients. That is where banks have an advantage. That, and the data they have.
The future of payments: innovations and initiatives
TMI: Moving on, what technology initiatives/concepts hold the most promise for creating real benefits in the payments space and why?
Ertl: Blockchain is important. We founded our own Blockchain Lab as we aim to further understand this technology and track how it can create value for our clients. Furthermore, we are also part of the R3 blockchain consortium.
Chantzis: KYC requires considerable resources to manage effectively, and blockchain could be a tool to assist with that. Regulation and compliance are increasing, and the consequential costs can be significant, so the next step is to start looking at regulatory technology – or ‘regtech’.
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Taner: And there’s a lot of excitement around SWIFT’s global payments innovation (gpi) initiative.
Sylla: I think what SWIFT gpi is trying to achieve is crucial – to enhance transparency and speed. No customer understands why an email can arrive within 20 seconds, but payments take days and cost so much. The whole process needs to be more efficient, transparent and cheaper for all participants.
Jurksch: There are questions surrounding SWIFT gpi. I think it will work but I don’t know at what cost. Maybe blockchain will be cheaper.
Taner: The next phase of SWIFT gpi is blockchain – it’s already being tested. We are one of the first pilot banks.
Addressing challenges
TMI: What challenges are you encountering as you look to adapt to the new landscape?
Peters: With the amount of technology developments and new fintechs coming into the market, it’s important that banks are the owners of these new, sophisticated platforms, and don’t simply become the back office for the customer journey.
Taner: A key challenge is that we need to think of our existing business whilst we are thinking of the future.
Jurksch: We feel the same at Sparkasse Aachen – we need to bridge ourselves. We know we must act because in several years we might lose some of our revenues on the transaction services side. But we still have to make our revenues today as well. It’s this trade-off – that’s the challenge.
Peters: I want to mention the availability of internal resources, especially at the back end. We have so many new regulatory requirements – things we need to create, build and report – and it’s increasing all the time. We need to update our existing systems to report more data and meet compliance requirements. And, on the other hand, we have to invest in the future, into new modern systems and technologies.
TMI: What effect is PSD2 going to have on the German banking sector? Will that present opportunities as well as challenges?
Ertl: It is an opportunity. It pushes our API approach and will create sophisticated services by combining different businesses.
Peters: Third party providers have to register and supervision will keep an eye on their activities, which is good. We’ll have a common regulatory playground for all the account information and payment initiation services – certainly, we need the same regulatory rules for all players.
Sylla: I think PSD2 brings many benefits. From a regulatory point of view, it’s a standard that makes sense. The customer will benefit. I think we should make the most of it.
Taner: Thank you to everyone. I would like to finish off by mentioning the two words that I heard the most today: collaboration and culture. Both of these strategies are important as we continue to adjust to the new landscape. I wish you all well for your digital journey.
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Left to right: Iason Chantzis (Project Manager, EMEA Innovation Centre, BNY Mellon); Gerald Ertl (Programme Lead, Digital Corporate Clients, Commerzbank); Gerhard Jurksch (Head of International Division, Sparkasse Aachen); Chenghui Xu (Dealer, Global Markets Department, Bank of China Frankfurt Branch); Güngör Taner (Relationship Management & Business Development, BNY Mellon); Daniela Eder (Managing Director, Cash Management Business Development, BNY Mellon); Noon Ali (EMEA Innovation Centre Analyst, BNY Mellon); Olaf Peters (Director, Strategy Project Digitalisation, Helaba Landesbank Hessen-Thüringen); Daniel Sylla (Head of Treasury, ProCredit Bank Germany) |
The views expressed herein are those of the authors only and may not reflect the views of BNY Mellon. This does not constitute treasury services advice, or any other business or legal advice, and it should not be relied upon as such.
