Savings banks and the platform economy
One of the best known thought leaders of the digital transformation in Germany, Christoph Keese, has repeatedly reinforced this view in his books and lectures. The thesis also finds numerous supporters in many magazines and in the daily media. Big- and FinTechs themselves and the advisor guild are cleverly influencing opinion and meeting traditional bankers like me, who don't want to be accused of not understanding the disruptive nature of the digital age and turning it into hard strategy pivots.
It is not sufficient to reduce the relationship of corporate client and credit institution to the aspect of convenient procurement of financing. In fact, the range of services offered by a savings bank/bank also includes a whole bundle of products and services, which often only offer added value for corporate customers in their entirety or in their specific form or in connection with explicit advice. FinTechs, direct banks and other protagonists as platform or marketplace operators generally offer nothing comparable in this respect. Especially not for SMEs, which have to shape their financial present and future without extensive finance departments of their own.
Digitization is no substitute for consulting services
Predictions by supposed experts that digital market leaders will take over the business of banks and the venerable industry will vanish into thin air are popular, but also negate the progress of traditional banking providers. In essence, the age of digitization does not mean a mere technology revolution or a reign of algorithms, but ultimately a focus on the essentials, on what only people can achieve.
However, it is also true that digitization will continue to significantly change the banking industry. Technical innovations have repeatedly led to adjustments and further developments of business models: Examples include the introduction of EDP, online banking and the establishment of the Internet. These innovations have changed banking operations just as much as the behavior of customers who want to take advantage of this new "opportunity space".
I, too, assume that digital technologies will largely take over standard processes within five years. And, of course, artificial intelligence will also support more sophisticated consultations and analyses. In addition, consulting services will not be competitive without a state-of-the-art data analytics basis and end-to-end processes free of media discontinuity behind them. Digitization is therefore an indispensable tool for the future of even personal consulting in the SME business. In addition, there is the enormous potential to use data analytics to respond to a specific customer momentum with digitally placed offers in real time.
Upgraded in this way, the traditional stationary, i.e. personal, service channel will gradually take on a specialist function for customers in more complex advisory situations, which will also offer correspondingly higher earnings potential for the banks. The online offerings of the savings bank organization in particular offer an outstanding starting point for this, which other banks and Big and FinTechs would like to have. This is precisely why they are pushing with all their might into cooperative ventures with the supposedly outdated banks.
The effect on demand behavior
The change in demand behavior is by no means a determinant of the dissolution of traditional bank providers. According to a survey (Allensbacher Markt- und Werbetragerayse) on attitudes toward direct banks in 2021, more than 36 million people in the German-speaking population over the age of 14 reject direct banks. Even though Big and FinTechs are not direct banks, this is a clear indication of how much users will continue to literally seek out the human factor on the banking side, especially at key stages of the customer lifecycle, whether corporate or individual.
And consequently, new customer acquisitions at banks still come about predominantly through personal contacts and thus lay a sustainable foundation for a partnership-based and profitable customer relationship. In other words: A bank that digitizes everything, including consulting, in an undifferentiated manner, is giving away massive "analog potential". Because: In many cases, the digital benefit conveyed with snappy "marketing language" is not at all critical to success. The added value of a five-second loan commitment is put into perspective at the latest when the individual needs situation does not fit the standardized offer structure or the margin for "instant gratification loans" overwhelms the respective income streams.
Convenience" is not just a matter of closing a deal quickly – at the latest when additional discussions are needed or additional services are required, the differences between this and the traditional relationship with a house bank become abundantly clear. Or some "digital gimmicks": The refrigerator, which then reorders even the half-empty milk bottle, in the banking context, for example, an automatic new investment before maturity, is often not even on the customer's radar or the customer would first like to have a conversation there.
"Banks must develop into (comparison) platform providers themselves or open up completely to existing platforms": this or similar is what one reads and hears again and again. The strategic implications for any savings bank/bank depend massively on the role it plays on a platform. There are hardly any doubters left in the mainstream of opinion: traditional providers of banking services must make any demand across their entire product range accessible without restriction in an open architecture, analogous to established comparison platforms for competitor offers. This is the only way to secure the (existing) customer interface, tap into new customer groups and at least earn brokerage commissions.
This view reminds me more of suicide out of fear of death. An abolition of traditional banking pillars through the back door. Or in the words of Prof. Buschmeier of the University of Fulda: "The Bank as a Platform? This idea shows naivety and ignorance."Those who believe they are still a house bank when a Big or FinTech or a third bank wins the bid via such a platform will see in real time how their customers are from now on inundated with offers from the same providers and the customer interface is quickly perdu.
De facto, the "the winner takes it all" hypothesis already applies today: established comparison platforms dominate the market from oligopoly structures. Platforms of individual banks, even individual groups of the three classic pillars of the German banking industry, virtually contradict the classic platform idea from the user's point of view. In this case, the neutrality assumed by the customer is missing. And: of course, oligopolistic platform operators will gradually cut off the "margin tap" to the banks, which either forward their customers to these platforms or act as bidders on these platforms.
How are banks supposed to develop realistic, adequate return prospects?? The alternative is to offer sustainable trust-building customer added value that is strictly geared to SMEs. These include, for example, a high quality of advice, convenient processing, continuity of business policy orientation, reliability in credit policy across different economic cycles and life phases of SME customers, and favorable but not cheap conditions. In short: classic house bank virtues. But it is also true that a purely stationary house bank is not enough. Without equally organized omni-channel offerings across all available input and output channels, no principal bank of the future can exist for SMEs.
Test for Big and FinTechs
All the Big- and FinTechs and platform providers in the banking business were born into a fair-weather economic decade. The litmus test from the customer (and supervisory) point of view comes in the economic downturn or in the event of possible legal violations.
In addition to changing user behavior and extremely high marketing budgets, the aforementioned providers thrive on aggressive pricing based on maximum low-cost production, i.e. unconditional standardization. What this means for customers in recessionary phases is obvious ex ante: standardized business models, such as those of credit platforms, will also standardize-anonymize customer relationships in the event of service disruptions and unwind them quickly and indiscriminately.
And what does this mean, conversely, when a loan from such a provider is impaired – for example, because of Corona, an economic downturn or other reasons – and requires a new repayment plan?? Will this then also be digitally routed through to third party collection agencies in five seconds and executed? The answer is usually yes! And what about the prices? Medium-sized companies with credit ratings in the three to four range often rub their eyes and, in the overall context of a house bank relationship, often fare more favorably.
It is a different matter when a bank decides to become a provider on external platforms, for example, to offer a second education. to acquire standardized construction financing on a permanent basis and possibly even build up a permanent connection to the – however, obviously rather yes commitment-less seeking – enquirer through it. In my opinion, however, this variant will not be a promising option in the corporate customer business of major savings banks with SMEs due to the arguments presented here.