At a time when savings banks and cooperative banks are having to cope with declines in earnings of up to 30% due to the ECB’s continuing low interest rate policy, many people are asking themselves what is actually going to happen to the traditional model of the house bank. How long can such a system, which on the one hand is characterized by a dense branch network and on the other hand by a commission-based sales strategy, continue to hold its own against new, innovative market participants, so-called FinTech companies?
In the trend study series “Bank & Future” of the Institute for Industrial Engineering, board members, decision-makers and managers are regularly interviewed about central challenges, developments and strategies with regard to sales, organisation and technology use. Banks have long recognized that earnings in many business areas will continue to decline if no fundamental transformation takes place in the coming years. However, almost half of the banks see cost-cutting measures as a lighthouse project with high priority. There is a danger here that the focus will be too much on the cost side and that the necessary change in innovation policy will receive too little attention. By contrast, new business models, more technology-based processes and a more stringent focus on customer needs could be forward-looking solutions for banks.
More than half of the respondents would like to intensify customer management within the company. Banks are still focusing on generating additional business in their own customer base without fundamentally changing their product range. However, the development of innovative products with high customer benefits would require the customer himself to be more involved in the value-added process. According to the study, however, this is still happening too little. In order to find out what customers really expect from their bank and where they see a need for optimization at your bank, only selective surveys or events are conducted.
To make sales processes more efficient and thus reduce costs, banks are focusing on standardization and the expansion of digital sales channels. According to the study, the question of how to proceed with the traditional bank branch remains open. Banks are ambivalent about the future of the branch. Some are planning to modernise their existing branches, as customer proximity and personal contact is still one of the competitive advantages of the classic house bank. Others speak of closing more branches or merging banking houses within a financial group. As far as the willingness to innovate is concerned, bank board members and managers demand from their employees the will and the readiness to change processes and products. However, the importance of personnel development, which would ensure that employees are equipped with the necessary know-how, is declining compared to previous years. An essential prerequisite for future-oriented business models and innovative products in an increasingly digitalised world is of course the use of innovative information and communication technologies, while maintaining a secure IT infrastructure. But here too, banks are planning budget cuts in the future in order to save costs.
So much for the banks’ target projects. But what does the customer want? If you ask people how they imagine the bank of the future and look at the developments in the financial sector, a completely different picture often emerges. A study by Auriga in cooperation with Doxa, a leading market and opinion research institute, found that customers want more autonomy and independence. New technologies are being used to give them more control over their own finances. Instead of blindly trusting the advisor, customers nowadays like to take their finances into their own hands. Attributes such as higher speed, independence from opening hours, high efficiency, simpler processes and improved privacy describe the bank of the future, according to the study. Developments such as mobile banking will completely revolutionize the banking experience. The younger target group in particular now considers applications such as mobile banking apps to be indispensable. Above all, the ability to carry out banking transactions around the clock and without effort, as well as the ability to interact with one’s bank via multiple channels, are decisive factors that customers expect from the bank of the future.
Such technologies contribute significantly to a change in the relationship between customer and bank. Today’s bank customer no longer has to go to the bank branch for a quick chat with his trusted advisor every time he wants to make a transfer. Instead, they may be on their way to an event and doing their banking from the comfort of their smartphone. Today’s bank customer takes his investment strategy into his own hands and exchanges information with other investors via social banking platforms.
The financial services industry has been in a state of constant change for years. Increasing digitalization has produced new technologies and innovative business models that make financial services more transparent and customers more independent and self-determined at the same time. Customers benefit from greater speed and, above all, more convenience. These developments strongly influence the relationship between customer and financial services provider. Traditional banks are not closing their eyes to changing customer needs. And there is a willingness on the part of banks to rethink their traditional business model and renew their traditional processes with innovative products and services. Nevertheless, it remains to be seen when banks will finally succeed in letting go of old structures and philosophies that have led to decades of success. This process is lengthy and will take years, if not decades.
In our opinion, however, the opportunity for traditional banks lies in taking advantage of current developments and offering innovative, digital services, for example by cooperating with smaller FinTech companies, thus opening up new business models and target groups. Some banks also open up new business areas by founding online direct banks as subsidiaries. Forecasts that the traditional house bank will no longer exist in ten or fifteen years give a very distorted picture in our view. There is not “the” typical bank customer who would like to make all financial decisions autonomously and handle all his banking services online. It is much more likely that the nation will divide – as is also the case in other sectors of the economy, such as the media or retail trade: Some people love to go into business, build up a personal relationship with the dealer or bank advisor they trust and get advice from them. This is easier and more convenient for many customers who feel insecure about financial matters than dealing with complicated capital provision strategies or similar. On the other hand, there will be “early adopters” who have a greater need for independence and self-determination, are more willing to take risks, are very positive about technological change, love to try out new digital financial apps, and would prefer to do everything online.
In this respect, the question of the bank of the future is not just black and white. Small FinTech companies will not be able to replace large banking houses, but they can provide impulses for the digitalisation of the business processes of large banks. Further developments in the financial sector will show where the journey is headed. But we believe that the market will not just develop in one direction, but will become more complex, serve more target group segments and present a more multi-faceted picture than is the case today. One goal for banks can therefore be to ideally combine digital services with personal contact and to create a symbiosis of these two.
Whatever the bank of the future will look like, and whatever players will share the market in the future – at creditsun, customers will still have access to a large portfolio of different financial service providers for many years to come. We rely on well-tried banking houses, but are also open to new concepts and business models. Thus we are constantly expanding our cooperations and can, for example, develop and further develop new target groups by connecting to online credit marketplaces or crowdfunding platforms.