In year 1327, no less than 43 branches of Italian banks were crammed into the French city of Avignon. It was probably the earliest example of what modern-day experts call “overbanking” – where there are too many credit institutions bunched together to make any money.
It took almost 700 years until the unbroken expansion of banking in Europe ended and the demise of local retail branches began. Some German banks, however, still don’t want to accept this fundamental fact – and it threatens their future.
Just how differently German banks are preparing for the future could be seen last week. HypoVereinsbank in Munich said that almost half of its network of branches would be eliminated – from 580 to 340. Commerzbank stressed it would maintain a large number of branches, currently 1,200. The bank’s argument: Despite digitalization, it continues to gain most customers through traditional bank branches.
If that’s true, Commerzbank might be winning the wrong kind of customers. The bank might actually pick up dissatisfied customers of rival banks who are angry over their longtime branches being closed. One of Commerzbank’s strategies is to offer extras to lure customers as competitors cut back. But that’s a short-term gain. In the long run, hanging on to a network of expensive branches simply won’t pay off.
Basic online banking will not be sufficient in the future.
HVB’s path is better-suited to the future – even if it comes now with double-digit losses in customers. These days, nobody still needs a local branch to do their banking business. Even a home loan can be acquired trouble-free online – from direct banks such as ING Diba, for instance – without even having to even talk with a bank employee. And it’s not just young customers who do their banking online. Older customers and even the elderly are increasingly comfortable with it.
The strategic question for German banks is simple: Continue relying on branches in the short-term and lose out in the future, or take decisive action now and prepare for new opportunities in digital business.
The fact is, basic online banking will not be sufficient in the future. Banks must develop and improve mobile banking, payment by smartphone, integrated apps for other financial services and better security. For banks, the technical challenges are growing at breakneck speed – and the medieval ways of 1327 will not get you very far today.
Bernd Ziesemer is the former editor-in-chief of Handelsblatt. He can be reached at: Ziesemer@handelsblatt.com