In the run-up to the WatchIT Forum on 17th Oct. 2023 at the DHBW Mosbach, we are excited to feature Prof. Wolf Wössner‘s Q&A with Frank Schwab on the digital transformation of banks. If you are a FinTech founder or investor, this is a quick journey through nearly 3 decades of European banking and FinTech.
Q: Frank Schwab, the digital side of banking has been a common thread throughout your career from the very beginning. One of your first positions was “Head of Online Banking” at what was then “Deutsche Bank 24” around the turn of the millennium. Was that already “digital transformation” or was it more of a fancy appendage in the Deutsche Bank Group, which was characterized more by investment banking these days?
A: From my point of view, this was already the second step in the digitalization of private customer banking. Four years earlier, in 1995, there was Bank 24, a subsidiary of Deutsche Bank. Bank 24 already offered digital banking via telephone, fax and BTX, which many people forget or don’t know. Its use was still reserved for technology-loving customers because it wasn’t really easy to use. But many services were already available online and were actually used. This was significantly accelerated in 1999 with Deutsche Bank 24. With the breakthrough of the Internet, Deutsche Bank was able to attract around 100,000 existing and new customers to online banking every month. From this point on, daily banking was used by customers 24 hours a day and 7 days a week. Interestingly, back then, Sunday mornings around 3:00 a.m. were often the busiest. Back to the question: at the turn of the millennium, private banking was a business area that contributed significantly less to Deutsche Bank’s profits than investment banking. However, Deutsche Bank 24’s online banking was a win for private customers in Germany. At that time, Deutsche Bank’s market share in German online banking was >16%, roughly double the market share in the entire retail banking market at the time.
Q: “Digitization” has moved from the sidelines in German Banking to the very center of the action. To start with a look on the bright sight: What progress and which breakthroughs have already been achieved in the German financial services industry so far?
A: There is a lot of talk about the theme. This is progress. And in some places tangible progress is being made, such as opening a new bank account via cell phone in just a few minutes including authentication, concluding savings products in seconds, or making instant transfers between banks. Overall, the number of digital services and products has increased significantly. Many things can be done using a computer or cell phone, regardless of bank opening times. But from the point of view o a customer, many banking transactions could still be perceived as slow and often paper-based.
Q: What are the most important digital challenges the financial services industry has to tackle the years ahead?
A: In my view, it is necessary to automate all banking processes and business transactions that can be thought of as automated. In addition, it is about integrating banking transactions (payments, savings, loans, investments) into the original business processes. Daily banking in particular is a service and not an end in itself. The automotive industry is showing the way. Car dealers not only sell cars, but also provide financing through their automobile banks. John Deere, for example, does a similar thing when selling its tractors and harvesters. – In both cases, traditional banks play minor roles, if any. And tech giants like Amazon and Apple will continue to advance their highly integrated banking services. Therefore, the traditional financial industry must redefine its role in an increasingly digitalized world.
The biggest digital challenges of the next few years will be identifying and processing the right target groups and achieving a correspondingly very high data quality. Agile developments are necessary, as is the effective use of new technologies such as artificial intelligence for the next level of automation. Ultimately, it is important to establish error-free and smooth digital customer experiences across all products and services.
Q: On October 17th, at the WatchIT Forum at DHBW Mosbach, you will not only talk about the status and challenges, but also take a look at areas of action and implementation strategies. Without giving much away here: What do you think will be a high priority in the coming period?
A: An average German bank has a cost-income ratio of 75%. This means that German banks are significantly less profitable in international comparison and have limited ability to invest in order to safeguard their financial future. Many German banks still offer all products (accounts, payment transactions, loans, investments, …) across all channels (branch, self-service, internet, mobile phone, API, …) to all customer groups (private customers, SMEs, companies, corporations, …) of all industries. It is unclear where they differ. Medium-sized traditional banks in particular need to reconsider and reevaluate their unique competitive advantages in order to retain their existing customers and attract new ones. And they´ll have to find out what products and services these customers need, when and where. It will be important to make these products and services available in a cost-efficient and scalable manner in order to significantly improve the cost-income ratio.
Q: Frank Schwab, your advice is in demand far beyond Germany; You know the inside view of fintechs, challenger banks and international banks from both a management and consultant perspective better than almost anyone else in this country. In your opinion, what can established banks in this country learn most from these players?
A: For me there is no universal role model. If you look closely, you can pick up individual aspects of some players. You can learn from some neobanks and FinTechs how to reach certain target groups digitally and how the digital interface to the customer should be designed. Some (online) payment players are particularly agile and adapt very quickly to customer requirements, markets and new regulations. And tech giants are even creating new customer needs, such as mobile payments. You can also learn from them how to develop digital ecosystems and platforms.
About Wolf Wössner
Wolf Wössner is a banker-turned-professor, who startet his career in 1985 as a strategist for European Fixed-Income Markets in the Capital Markets division of Dresdner Bank. Later on he acted as an Investment Adivsor to private and institutional Clients. In 1993 he moved from the Capital Markets division to the then newly-formed Retail Banking department. During this time he was responsible for the design and the development of Germany´s first fully-automated and fully-scalable investment fund-based asset management solution for retail clients in the 1990s. This product turned out to be quite successful, attracting up to 20 bn Euro assets under management.
In 1996 Wolf Wössner moved to Baden-Württemberg Cooperative State University at Mosbach (DHBW Mosbach), where he headed the Department of Banking until his retirement in 2022. In 2015 Wolf Wössner and his colleague Prof. Dr. Jens Saffenreuther pioneered a new approach in the course of studies, integrating digital topics into the more traditional lines of banking and finance.
About Frank Schwab
Frank Schwab is a strategic advisor in the financial industry, co-founder of the Frankfurt FinTech Forum, member of the supervisory board of Addiko Bank in Vienna and Hauck & Aufhäuser Innovative Capital in Frankfurt, member of the board of directors of Gulf International Bank in Bahrain and of the Risk Advisory Committee of PayU in Amsterdam. Over the last 10 years he has invested in several European FinTech and blockchain startups. His focus is on the intersection of innovation, transformation, technology and banking. Frank Schwab previously worked, among other things, as managing director and CEO of GIZS (paydirekt/Sparkassen), CEO of Munich-based Fidor Solutions, senior advisor for McKinsey and chairman of Hufsy in Copenhagen. He began his career with an apprenticeship at Deutsche Bank, where he worked for a total of 21 years.
The global finfluencer Brett King says about Frank Schwab: “If Frank comes your way, take the opportunity to work and learn from him!” On October 17, 2023 at 3:00 p.m. he will speak at the Watchit Forum of the DHBW Mosbach about the status and challenges and implementation options for the digital transformation of banks and financial service providers.
About WatchIT Forum
„WatchIT“ was set up as a joint and interdisciplanary project of the Departments of Banking and Applied Information Technology at DHBW Mosbach. This project is devoted to topics on the interface on banking and finance and information technology. WatchIT aims to build a platform for interdisciplinary research and for high-profile annual conferences („WatchIT Forum“), where academics, experts and students can meet and share their views on trends and developments in „digital banking and finance“. WatchIT is sponsored by Deutsche Bundesbank.