Martin Blessing joined Commerzbank as a member of the board in 2001 and took on the top job in 2008, a few months before the financial crisis was triggered by the collapse of the Lehmann Brothers bank. In 2009, he oversaw Commerzbank’s takeover of his former employer Dresdner Bank.
Commerzbank’s precarious financial position at the time, combined with the acquisition of Dresdner Bank, almost broke the institute and it had to be rescued by government bailouts totaling €18 billion ($20.2 billion). The bank is now moving back into the black, and is investing heavily in its digital strategy.
Digitalization is changing the banks. Why are you only now dealing with the issue of fintechs?
I have been involved in new distribution channels since the 1990s. In 1994, we at Commerzbank founded the direct bank Comdirect, and in 2000 we expanded private banking with mBank. Today, it is, with more than 4 million customers, the largest and most modern online bank in Central and Eastern Europe. That should mean that I dealt with questions early on that are now being posed with new urgency.
Are you impressed by the pioneering work done by some fintechs?
Of course, I think it is exciting that many things are being tried out. Many new companies are being founded, and there will be some that turn into major players in 20 or 30 years.
How many fintechs are you involved in?
We are now involved in five fintechs.
What can the fintechs do better?
They are starting in a niche of our business and are developing very consistently, which means that they have a lot less complexity. In doing so, they are targeting just one part of our value-added chain.
Where are the banks most vulnerable?
The greatest challenge is with payments. We are concerned here with strong competitors such as PayPal or Google Pay. Things look differently in the credit business. I am skeptical if the new business models will work over the long term in that area. Because as a company they, in the end, have to go through the cycle of credit losses. And there is the question if those who have to bear the losses are prepared to do so and will still remain loyal as a customer.
But one has the feeling that many company founders would prefer to use the new, unbureaucratic sources of money.
A start-up needs equity first of all. A business startup is not possible with just borrowed capital. If you look at 10 start-up companies, maybe two or three survive the first five years. You need to earn the money from these two or three that you have written off for the other seven. The failure rate is therefore very high in the beginning. Therefore, one needs one’s own capital to found a start-up.
And what happens if the entrepreneur does not have enough capital?
One must find someone who injects it. Therefore, we have founded two investment companies, Main Incubator and CommerzVentures, which invest equity in companies to finance their start or growth phase and get a share in them.
How should a CEO prepare for the start-up world?
If you really want to know what is “hot,” then it helps to look at what our children are currently doing online. You get a feeling there for what is happening.
Do you have an example?
So far, 1.5 million apps have been downloaded for Commerzbank. Our account balance app is used more than 400,000 times per day in peak periods. If the 400,000 customers who use the app all came into our branches, they would form long lines. It is mind-boggling how much things have already changed.
Where are the banks surpassing the fintechs?
Compared with the fintechs, who are more focused and in some areas also faster, we as banks have the advantage of having a large customer base. We can offer new products to our customers directly. Secondly, we have large financial resources. And thirdly, we master the complex regulatory requirements that support the processing of financial services.
But with customers suffering a crisis of confidence in banks and more trust being placed in new companies, do you have the necessary foundation for winning over new customers?
The fintechs are providing a portion of the innovation and new ideas. That is what they were also founded for. But they must also implement them quantitatively and also win the necessary trust of the customers for that. And financial crisis or not, we have won over a net 660,000 new customers since the end of 2012. That speaks in our favor.
That also cost you a lot of welcome bonuses.
That is true, but less than the welcome bonuses at Handelsblatt.
And how high is the level of satisfaction?
It is high, otherwise the customers would leave.
Are you prepared for a major online company, similar to Apple, Google or Amazon, to emerge in the banking sector?
I think that in 20 years we will see one. I do not know today who that will be. Banking services are suitable for start-ups at first glance primarily because they can be offered digitally. A lot of things surrounding the account can be digitized and made simpler. On the other side, banking also has a lot to do with trust and regulation. My prediction is that in 20 years there will not be many of the current fintechs around, but there will still be banks.
How important will branches still be in the future?
There will be fewer branches in Germany. There are customers who organize their lives without branches, and they can do that with Comdirect. But we know from customer surveys that younger “Digital Natives” would also like to have the possibility of going to a branch. That does not mean that they don’t do their transfers online. But there are things for which customers want personal advising. There are also still some hurdles for digitalization, where politicians must still help us.
For example, with the issue of signatures. Today we must fill out forms, print them out for signature, scan them again and return them. We, as in other countries too, must remedy this disruption, otherwise we cannot effectively digitalize the process. Or think about the notary’s office. Today, in Germany you cannot get a legally binding notarial certificate online. That has already been possible for a long time in Poland.
How are things going at Commerzbank? Are you on target for your goals?
With the goals, we have got a couple of things right. A couple of things will be more difficult. But we continue to fight for our goals.
Such as the return on equity?
Yes, that will certainly be a challenge. When we defined our goals in 2012, the Bund (German government bond) yields were at 1.5 or 1.6 percent, now we are at far below 1 percent. That has an enormous effect on the profits and losses of a bank. On the other hand, we have promised to earn our capital costs. I am currently talking to a lot of people about where our capital costs lie. They consist of risk-free interest rates and risk premiums. There are people who say that the risk-free interest rate must be at 3 percent. I can only say that in our private and small and mid-sized business units we have €30 billion ($33.7 billion) more in deposits than in loans granted. If I knew where I could invest this money at 3 percent, it would be simple. But that does not work.
Still, there is the impression that the bank has a foothold, and is climbing out of its deep hole. What dividends are you promising shareholders?
We have said that we will gladly pay dividends in 2016 for the financial year 2015. We have also set aside money for that. I currently have no reason to assume that things will look differently at the end of the year. But I remember 2008 when before the Lehman Brothers bankruptcy everything looked very different to the situation at the end of the year. Do I expect another Lehman in 2015? No. But I have simply become more cautious.
You also never appear distressed in difficult times. What role does optimism play for you?
Optimism is very important. In the end you must also teach your children that many things can happen in life, but giving up is not allowed.