The banking market is on the verge of major upheaval, with companies such as Check24, Apple and Google moving in. To defend its turf, Deutsche Bank wants to become what has long existed in other industries: a platform. Markus Pertlwieser, Chief Digital Officer for private and corporate banking at Deutsche Bank, explains how the bank envisages this change, where the hazards await along the way, and why he doesn’t view fintechs as competition.
Markus Pertlwieser, you want to make Deutsche Bank a platform company. What does that mean?
It means we’ll become a real marketplace rather than just selling our own products. What matters to us is having a direct line to the customers. It’s of secondary importance whether the product we sell is our own or one of a partner. We have therefore opened our interfaces and refer our customers through our platform to
fintechs and other providers carefully curated by us. The customer gets more to choose from, and we keep our direct line to the customers.
Digital transformation enables products to be replicated in any number and in identical quality anywhere in the world.
Deutsche Bank has existed since 1870 – sometimes in good shape, sometimes not so good – with much the same business model throughout. Why change it now?
In other industries, there has for some time been a trend towards platforms. Digital transformation enables products to be replicated in any number and in identical quality anywhere in the world. That’s exactly what’s happening in banking. Bank accounts and loans are becoming commodity services – and the question facing every bank is this: do you carry on being a producer because you can manufacture a product highly efficiently, meaning you have no need for direct customer contact? Or do you become a marketplace? We want to be a marketplace because we anticipate greater benefit. Other banks may decide to pin their hopes on efficient products rather than platforms. This is certainly an option, albeit in a highly competitive market.
A new business model also has its disadvantages, of course. As a platform, you will have to share the profits.
We’ll no longer get 100 percent of the profit, that’s right. But there’s also much less investment. You don’t have to develop and test the products, roll them out and bear all the risk. Another key issue for a bank is the capital expenditure required for a product. If the bank can generate revenues from a product without actually carrying it on its own balance sheet – well, that’s a great opportunity. It also explains why platforms such as
Check24 or Interhyp are growing: they don’t have to deal with the actual nuts and bolts of the policy or the loan, they just sell it. Moreover, the platform business gives us significantly greater growth opportunities, because we can reach beyond our traditional product remits. The profitability structure will end up completely different. What matters, though , is that the decision to become a platform is taken intentionally. Many banks in Germany already operate by this business model: with online banking.
We should put an end to the notion that online banking is a platform. It isn’t. Although important, online and mobile banking are essentially no more than channels to access services. A real platform is different in that it offers access to a variety of providers. Many banks don’t seem aware of this. But the biggest strategic mistake is failing to choose a side at all – with a position as neither a platform nor a producer. This will leave the bank stranded in no man’s land.
Although important, online and mobile banking are essentially no more than channels to access services. (Image: iStock/Pinkypills) What does this business model mean for the banking industry?
I believe this development will accelerate the consolidation of the industry. The industry doesn’t innumerable producers, and nor will it need as many branches as today. If you sell products through digital channels, it only takes a single click. It’s possible to offer a good blend of services, but it will take fewer branches than before. That’s why we at Deutsche Bank have in recent years deliberately slimmed down our branch network.
But we can’t have an infinite number of platforms.
That’s right. But the more fragmented a market is, the more it makes economic sense to offer a platform. That’s why I believe it could work very well, especially in Germany. But the fundamental question for us as an industry is this: will these platforms be provided by banks, or will other players move in? Our competitors in banking will no longer primarily be the other producers, such as loan providers, but the other platform operators. Look at the platform economy in other industries: it’s very clearly the players with the direct line to customers that make the profits. And platform profits are growing from year to year. By way of contrast, profit margins of producers are shrinking. Even so, many banks still take only the producer view and say, “Hey, we’re still among players like us.”
So will Deutsche Bank give up its products and become a platform only?
On the one hand, many products have long life cycles. So we’re not talking about a sudden shift to becoming a platform. On the other hand, we have to weigh up every single product and consider: can I offer something over the long term that will not be copied by competitors? For instance, we decided that a straightforward retail investment product wouldn’t give us this long-term distinctive position on the market. So we created a portal for the interest market that also brokers access to the products of other providers – but people have to go via our website or app. The situation is totally different with Robin, our digital asset management. We’re among the leaders on user experience and, being Deutsche Bank, we have the best knowledge and expertise on risk management and asset allocation. We will continue to market products like this ourselves.
Fintechs are not our problem. Quite the opposite: they are important partners for us. The actual competitors are the big tech groups or the companies positioning themselves as marketplaces.
Who are the other platform competitors?
With Check24, there is already a serious competitor in retail banking that is moving strongly towards a marketplace role. There are Google’s efforts with PayPal to build a marketplace, and of course there is Apple. That’s why I’ve been saying for years: fintechs are not our problem. Quite the opposite: they are important partners for us. The actual competitors are the big tech groups or the companies positioning themselves as marketplaces.
What makes you so sure Deutsche Bank has a chance with the platform business model?
You can never be sure of anything on the open market. And when I talk to tech groups, they don’t sound certain either. Take smartphone-based mobile payments. Apple Pay has great take-up in Germany – but Google Pay doesn’t seem to be so well accepted by users. So not even the tech giants can be certain of success when they push into the banking business. Apple Pay in particular shows that technology companies also benefit from working with us. I’d even go as far as to say that the success of Apple Pay in Germany is in some part attributable to the partnership with Deutsche Bank. So we have a good chance of success.
Then how do you succeed?
In my opinion, the key to success is for the bank to become part of everyday life. And what do people do every day? They go out to eat, they shop, they pursue hobbies. That’s where loyalty comes in, and it’s why we launched Yunar, an app for loyalty points and ratings. Our active users run into the tens of thousands. The next logical step is a mobile wallet. If customers are going to get out their mobile phones for loyalty points at the supermarket checkout, they’ll also want to pay for their shopping. We are the leader in digital credit cards and mobile payment in Germany. But looking into the future, the exciting question is: who will provide the digital wallet? It’s no means certain yet what consumers will end up using. But I believe we shouldn’t just hold our own in the market. We should also shape its direction.
Through the use of artificial intelligence advisors will have much more time for their customers, and will evolve into genuine relationship managers. (Image: istock/Kate_sept2004) What does the new business model mean for private customers?
Customers prefer to have one single partner to manage all their finances with. There are three layers of access. The first is the standard bank account. 60% of the time, people now access their account via mobile devices – which means it is hugely important to be strong in mobile banking, including multi-bank aggregation and payments. This is the basis for being the primary bank for customers in the digital 21
st century world. The middle layer is the marketplace: easy for customers to personalize, and offering a wide variety of products. It doesn’t matter whether these are the bank’s own products or those of partners. And the third layer?
We call this “Beyond Banking”. Today, we can apply pattern analysis or artificial intelligence to work out if you are spending too much on your electricity bill. The app tells you the results right away, and also offers ideas on how to save money. We have similar services available for corporate clients. With the help of fintechs and other partners on the platform, we make finance management easier. At the end of the day, we want the bank app to be our customers’ constant companion.
So the new business model will make advisors superfluous?
You mean through artificial intelligence? No, not at all: on the contrary. Still, the type of work the advisors do is changing. It’s like the future of the medical profession. If a machine can figure out why you’re ill and how to treat you, it gives the doctor more time to spend talking with you, and providing you with much closer care and support. Banking will go the same way: advisors will have much more time for their customers, and will evolve into genuine relationship managers.
Lead image: istock/querbeet