Mr. Ehlerding, how important are banks?
I think that banks completely overestimate their importance to customers.
I beg your pardon?
Let me give you an example, taken from corporate customer business. Funding costs are lower than they have been for a long time. Interest, commissions and fees account for an average of only 1.5 percent of a company's total costs. This means that banks don’t matter that much from a corporate customer’s cost perspective. When companies cut costs, it is currently not their first or even their second thought to talk to their bank advisor about conditions. There are lots of other levers that are much bigger. And here’s another aspect to consider: only 3 percent of corporate customers today have difficulty obtaining a loan. During and after the financial market crisis, it was a different story—back then, it was 40 percent. But, if I don't have a funding problem, why should I talk to my bank advisor?
And this problem is aggravated by increasing digitalization, combined with depersonalization?
That’s right, more and more interactions between customers and banks take place over digital platforms. This, by the way, is in the customers’ interest, as they can act independently of the bank's opening hours and local availability. It saves time and money—on both sides. But it also reduces the frequency of interaction between bank and customer, which applies to every customer segment. For the bank, this means less interaction, but also less knowledge about the customer. And less knowledge means fewer starting points for selling products and services. And so the banks’ importance decreases further and further—based, of course, on the assumption that all other conditions remain the same. Many banks are not yet aware of the downward spiral they are in.
How can banks get out of it?
Only by “charging” their relationship managers with knowledge that can help customers or make it easier for them to take decisions. Apart from advisory skills, everything else becomes interchangeable.
That doesn't sound too good for the banks.
On the contrary, I see it as a great opportunity. They can get rid of everything that is transactional, from the customer's point of view trivial and only time-consuming mass business that doesn’t really set them apart from the competition. Making this as quick and easy as possible, ideally transferring it to platforms and digitalizing it—that's what matters. Once all this baggage has been shed, every bank should consider where it can generate real added value.
Maybe it’s not all about their own services. SME customers in particular depend on a number of external service providers in many areas of their own business activities. But they have neither the research capacity to find the really good solution providers, nor the ability to judge whether these are reliable and safe. Take, for instance, software for interacting with a tax advisor. We’re talking about highly sensitive financial data for any company. Very few medium-sized companies make such decisions based on trial and error. But they don't have the time to compare 15 suppliers either. Plus, it wouldn’t be efficient, because most of them don’t even know the important criteria. Another example: As the owner of a medium-sized company I need a web designer for my new homepage. How do I find one? Again, it’s not one of my core competences ... I could ask my mates over a round of drinks or at the tennis club. But are they well-informed enough to give me a really good tip? These are questions where banks can help: they have both the relevant networks and the necessary research capacity and know-how in their IT, legal and operational departments. Plus, they have a customer portfolio to which they can allocate the costs.
And how do I operationalize that as a bank?
Why not build a platform where it can offer all these services—“approved by XYZ Bank”? The SME owner is likely to say: “Great service—because I trust my bank.” And the bank increases its relevance because it helps customers with the issues they face in their daily activities. In this way, such an ecosystem creates a whole new form of customer loyalty. To me, this is what "banking beyond banking" is all about. The bank will actually no longer be a bank in the classic sense, but a platform. From zeb's point of view, the strategy is not only worthwhile for corporate or retail business, but also for private banking.
This would lead to a massive concentration, right? Because how many of these platforms are necessary?
A counter-thesis: digital technologies make it possible to operate with a strong regional focus again. Many local banks have their network of SME customers who have chosen their respective institution for good reasons. The customers in turn have regional suppliers and buyers. Regional presence and national or even international networking—that should be the motto. Savings banks or cooperative banks in particular can honestly describe their groups as offering services nationwide—including web designers from Hamburg for a medium-sized company from the Breisgau region in southwest Germany. Of course, the relationship manager in the south doesn’t know the web designers, but Haspa or Hamburger Volksbank do. Regional and national networking plus local customer competence—that is a distinct added value.
Who would build and operate such a platform?
That doesn't necessarily have to be the local bank. Especially in the case of savings banks or cooperative banks, I can well imagine this being done by their groups. This makes them extremely competitive against large banks and creates economies of scale for customers. Because—and here the market adjustment thesis is of course correct—synergies require size.
Can banks achieve this radical mind shift with today's staff? Especially with today's executives?
The answer is in our Digital Pulse Check: do we have digital leaders who realize that change is needed? In terms of technology just as much as organizational structures and collaboration?
And what is the answer?
No, we don't have them yet. Even managers themselves tell me so. But I’m sure that the increasing pressure will either lead to changes in the people acting or that the people acting will change. Those who don't change will disappear—that's what we tell our customers very clearly.
What does this change mean for personnel planning in banks?
Banks will no longer need all of the people they need today, for example the large number of clerks. But demography is on their side. Most banks are pushing a big “baby boomer belly” in front of them. Developing new job profiles is a much bigger challenge. We are working with many banks to find and expand these within the organization. The second lever is changing organizational structures—from silos to cross-functional teams in which people from IT, Operations, Products and Sales work together on the same problem. This accelerates processes enormously and increases job satisfaction.
Then what do you do with the organizational structure?
Indeed, in the vast majority of cases, structures are set up quite differently and currently stand in the way of change. If, at the end, I have to justify my cross-functional results to a steering committee which did not accompany the process and in which each director is guided by departmental egotism only, speed and agility once again fall by the wayside. Wouldn’t it be great if I had to talk to one director only?
Are there banks that already think so?
That is the model that Commerzbank is currently building—a process we are supporting.
What does this mean for executives and management organization?
Directors will continue to exist. What we're redefining are the responsibilities: as the most radical example, the IT director of a bank no longer has responsibility for individual IT systems. He is responsible for a uniform and comprehensive process and IT architecture and basically sets the rules so that there is no uncontrolled growth. The systems however are subject to the governance of the specialist department, for example Credit. This department has overall responsibility for products, IT and operations. We eliminate the horizontal cross-section of responsibility that always provided excuses for issues not moving forward. Sometimes another function within that cross section, for instance IT, could not deliver, sometimes the colleagues from Operations found the processes clumsy or the Risk team had legal objections. This system is now turned by 90 degrees. That way, you get a much smaller section, but you get all of it—from the strategic idea to the operational implementation. This is the only way to shift to a customer-centric logic.