Much of the promise of tech innovation is predicated on people, laws and communities either changing on a dime or simply getting out of the way of that change. Reality is far more complex and nuanced, as evidenced by Germany’s Commerzbank’s approach to digitization.
Dr. Bettina Orlopp, who leads development and strategy for the bank, explained it like this:
“You can only innovate as fast as your clients will let you.”
She noted that when she started in banking in 1995, everyone was talking about the inevitability of direct, with forecasts that it would take less than a decade for direct banks to dominate the entire sector. Instead, it’s less than a sixth of the German market.
Even today, only 50% of German consumers use any sort of online banking service.
“We have different payment behaviors, and the cash component is still big when people buy online [they pay in cash upon physical delivery],” Orlopp explained. “On the corporate side, big entities are well along on digitization, but the middle market is still working in traditional ways. Many corporate clients continue to have expectations for personal relationships.”
Yet digitization is inevitable.
“We debate how to balance digital with geophysical, but in five to ten years from now, nobody will talk about it, because it will be a seamless component of multichannel experience,” said Orlopp.
“Now, our challenge is to digitize our processes so that we can be positioned to leverage our brand and customer base when the market embraces it.”
Orlopp cited three different strategic paths the bank is using to accomplish that innovation. First, it owns two businesses that are agile by definition — comdirect, a purely online bank, and mBank, which is a Polish bank that isn’t burdened by legacy systems — and encourages collaboration and friendly idea competition between them and rank-and-file Commerzbank staff.
Second, it has recruited non-bankers and organized them into “cells” that work in small teams on ideas within operations, and help push innovations out to clients.
Third, the bank runs “scouts” to collaborate on fintech, supports new product ideas via its Start up-Garage, collaborates on product implementation via its main incubator, and runs a corporate venture capital fund, CommerzVentures.
All of these strategies benefit from perspective that didn’t exist a decade ago.
“You can’t differentiate front and back office anymore,” Orlopp said. “It’s really end-to-end, which means we need to think less about digitizing separate functions as we might have done even a few years ago, and more about how to integrate them. We’re working to get faster and reduce costs overall.”
“I’m a strong believer of partnerships between fintechs and banks,” she continued. “At least in Germany we’ll see more partnerships over the next few years.”
“We’ll have the necessary pieces in place when the market is ready.”