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Banks Slow to Click on Digitalization

  • Why it matters

    Why it matters

    German banks have been slow to react to the threat from digital providers and are now having to play catch up.

  • Facts


    • The consultancy Consileon estimates that annual earnings in German retail banking come to €60 billion, of which €15 billion comes from new business. This is where financial start-ups are hoping to lure customers away from traditional banks.
    • Sixteen million Germans use the U.S. online payment service PayPal, while a German equivalent that was launched in 2015 is still having teething problems.
    • Up to €7 billion in earnings is thought to be at stake in retail banking, as a result of fintechs and competition among established banks.
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Traditional banks are losing out to fintechs and online giants such as PayPal. Source: Getty

In his speech, Asoka Wöhrmann made it clear right from the start: while a lot of people might be comparing banks to dinosaurs right now, he does not expect them to die out, despite constant attacks on their business model by young financial start-ups. “The dinosaurs couldn’t escape their fate, but we can,” said the head of retail business in Germany at Deutsche Bank, Germany’s largest bank.

But it won’t be easy. “Banks’ ability to survive depends to a large extent on their adaptability,” Mr. Wöhrmann said at Handelsblatt’s annual conference on retail banking business. It isn’t just financial start-ups, or “fintechs”, as they are known, that are in competition with banks, but increasingly also Internet giants such as Google and Amazon. “This competition will change us dramatically,” he said.

In some cases, fintechs have already overtaken banks. Sixteen million Germans use the U.S. online payment service PayPal, while Germany’s answer to the service, Paydirekt, was only launched in 2015 and is still struggling to get off the ground.

“Our future development will depend very heavily on the extent to which customers switch to digital services.”

Asoka Wöhrmann, head of retail business in Germany, Deutsche Bank

Figures from the consultancy Consileon highlight the scale of the threat to German banks. Between €6 billion and €7 billion ($6.4 billion and $7.47 billion) in earnings is estimated to be at stake in retail banking business, as a result of fintechs and competition among established banks. According to Consileon, annual earnings come to €60 billion, of which €45 billion is from existing business. The remaining €15 billion comes from new business, where fintechs are looking to attract new customers.

In addition, those banks that do not address customers through various channels, including online and in branches, look set to lose market share. Ralph Hientzsch, head of Consileon, said that access to customers was crucial.

Mr. Wöhrmann also said he believes it is vital for customers to have easy access. Google and Amazon have raised customers’ expectations with simple solutions and banks have failed to deliver this, he added.

André Bajorat, head of the fintech Figo, agrees. Customers expect a first-class user experience, he said, having been spoiled by the services offered by Facebook and others. “If banks can’t manage that, they’ll have a problem in the future.” He believes banks need to be more open to fintechs and “get used to a new speed.”

Mr. Wöhrmann’s division at Deutsche Bank is undergoing a major restructuring program, as part of which 2,800 jobs will be cut and 188 branches closed by 2020. “Our future development will depend very heavily on the extent to which customers switch to digital services,” he said. “You mustn’t forget that we will create jobs as a result of digitalization too.” He added that the bank had made very good progress with its planned job cuts and was about two-thirds of the way to meeting its target.

Many banks are attempting to adapt by cooperating with fintechs. Frank Nierhaus, a member of the regional board for central Germany at Commerzbank, said that banks were effectively being left with no choice. “No one will be able to develop all services themselves.”

The sector also knows that it can learn from the big technology companies. Martin Schmidberger, head of product and target group management at German online bank ING-Diba, said that banks should follow the example of major online traders when it comes to digital lending. Online retailers have made it much easier for customers to shop online, he said, and there is a lot to be learned from companies like Amazon.

Mr. Wöhrmann said that banks need to systematically become digitalized, so that they can react quickly and can evolve. He does not think banks have anything to fear from fintechs, as long as they position themselves correctly in terms of digitalization and transformation.

However, not everyone thinks that banks are devoting sufficient energy to all changes. “The change is still being underestimated,” said Mr. Hientzsch of consultancy Consileon. He believes it is also a question of finding the right employees. Mr. Bajorat of fintech Figo said that ambitious IT developers would go and work at Facebook rather than a bank.

Carl-Ludwig Thiele, a member of the executive board of Deutsche Bundesbank, Germany’s central bank, encouraged banks to accept the changes. He said banks needed to “scrutinize their business models” if they wanted to survive. German banks are heavily dependent on interest-earning operations – the granting of loans and acceptance of deposits. The current low interest rates are eroding earnings in this area.

Negative interest rates are also putting a strain on retail banking business. Although banks are in many cases passing on the negative interest charged by the European Central Bank to corporate customers, this is regarded as a taboo when it comes to retail customers.

The ECB charges commercial banks negative interest of 0.4 percent for parking money with it overnight. Banks have so far avoided charging negative interest from retail customers for fear of driving customers away. Mr. Wöhrmann said: “We won’t introduce fees for deposits in general retail business. We can’t ask that of our customers.”


Elisabeth Atzler has been a banking correspondent of Handelsblatt since 2012. Michael Maisch is the deputy chief of Handelsblatt’s finance desk and based in Frankfurt, Germany’s financial capital. Daniel Schäfer is head of Handelsblatt’s finance pages and based in Frankfurt. To contact the authors:,, 

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