Foreword by the President„With their overall business per formance, Savings Banks impressively demonstrate their market strength through their decentralised business model.“
In 2017, the business model of the Savings Banks Finance Group once again proved to be stable, flexible and highly competitive.
The extremely low interest rates continue to place a heavy burden on us, and smaller banks in particular can barely manage the organisational effort required to cope with the excessive amount and complexity of regulatory reporting obligations. Savings Banks have responded to this challenge by generating more business with their customers. This is demonstrated by growing volumes of deposits and loans. In loans to enterprises, Savings Banks again achieved new record levels – both in their new business and in their portfolios.
In addition, Savings Banks are investing in modernising Germany as a location for business enterprises. As the market leader, they are setting standards for innovative payment methods and combine this with a continued nationwide presence to provide face-to-face advice at local level.
Savings Banks have responded to the low market interest rates by once again substantially increasing their net commission income. As a result, the expected losses in net interest income were offset to some extent, and the result from operations was kept stable. Despite higher IT investments in the wake of technological innovations and regulatory adjustments, administrative expenses were even slightly lower in 2017. The Savings Banks’ net income after taxes increased slightly to EUR 2.1 billion.
In terms of their overall business performance, Savings Banks have impressively demonstrated their strength in the market owing to their decentralised business model. The general public also benefits from this. With tax payments of nearly EUR 3 billion, Savings Banks are strengthening the scope for action of local governments throughout Germany.
„2018 will be the year of innovation for Savings Banks.“
Landesbanken continued to reduce their risk exposure and further increased their capital ratio in 2017. In the past few years, they have consistently improved their economic resilience. With a slight decline in their new business, Landesbausparkassen are in line with the industry trend. In 2017, all members of the Savings Banks Finance Group – under their own entrepreneurial responsibility – once again made positive contributions to a strong group.
For 2018, we expect that the interest-rate environment will continue to place an onerous burden. In the medium term, growing challenges will also be posed by demographic change, as a result of which the economic momentum may also weaken in parts of Germany. For this reason, we welcome political and social initiatives designed to strengthen structurally weak regions, and we will play our part in contributing to the success of these initiatives.
Savings Banks in transformationThe digital agenda of the savings banks finance group
In this spirit, the services provided by Savings Banks – in co-operation with their partners within the Savings Banks Finance Group – are also designed to meet current challenges such as customer behaviour that is changing because of digitalisation, customers’ greater need for security in financial matters due to geopolitical uncertainties and increasingly tough economic conditions.
This has led to the development of pioneering digital solutions – however, to complement current services, not to replace them. Savings Banks want to be the preferred financial partner of their customers, both in local branches and online. Savings Banks are still their customers’ first choice – owing the high degree of trust Savings Banks enjoy and their customers’ feeling that they are in good hands.
For this reason, “acting instead of reacting” is also the motto of the Savings Banks’ new sales strategy. Under the auspices of the DSGV, Savings Banks, regional associations and their partners within the Savings Banks Finance Group have developed a plethora of measures recommended for implementation.
The purpose of these initiatives is to enable Savings Banks to continue to increase customer satisfaction by being accessible via ‘all channels’. At the same time, they enable Savings Banks to respond to many customers’ expectation that their bank should be accessible around the clock – either face to face or digitally.
The core vision of the new strategy is and always will be the Savings Bank as a learning system – focused on customers. With this vision, Savings Banks will be able to systematically pursue two key strategic objectives: growth and efficiency.
Ready for the future
DSGV President Helmut Schleweis gives an update on the progress made by Savings Banks in their digitalisation process.
„In our view, it is not a contradiction to say that Savings Banks will remain Savings Banks and will become more digital. The core of both is the same: the proximity to our customers.“
Savings Banks experience digitalisation on several levels simultaneously: due to changes in the habits of their retail customers, as a requirement for their internal organisational structure, and as a transformation process in trade and industry. That’s what they are preparing for to help ensure that business enterprises and society will be able to cope with this change.
We maintain a balance by ensuring three things at the same time: a comprehensive ecosystem in which customers can move around naturally and still stay close to their Savings Bank; handling data with care; and providing personalised advice for which we will continue to need branches. To say that “Savings Banks will remain Savings Banks, but will become more digital” is therefore not a contradiction. The core of both is the same: proximity to our customers. The only difference is that this proximity is more diverse today than before.
Digitalisation entails a cultural change which cannot be achieved overnight. We have to remain prepared to change on an ongoing basis. For this reason, it is important that we remain attractive for career starters. To this end, the job description of “bank clerks” will be reformed. All employees will need new skills, e.g. with regard to the use of data-based advisory services. More responsibility means acting more autonomously. We need to remain confident about their ability to do so.
As the market leader, Savings Banks aim to introduce innovations into the broader market at an early stage and thereby set standards. In 2018 – our “year of innovations” – we have done so with several innovations: We have introduced mobile payments at retail checkouts nationwide and we have been the first banking group in Germany to establish real-time transfers (instant payments). “Kwitt” – our peer-to-peer service – is now also available to customers of other banks, and the Savings Banks Internet Branch – our online banking service – can handle multiple banks. All our customers need for their digital everyday lives is one master key: the current account they hold with their Savings Bank.
Greater standardisation of internal operations can help to unlock significant potential, both for individual Savings Banks and for the Finance Group as a whole. It is a challenge in terms of business management to generate the investment funds required for this purpose in the current interestrate environment, with regulatory expenses rising at the same time. The strategic challenge is to be clearly focused in view of the diversity of options provided by digitalisation. Savings Banks focus on what really benefits customers – and not anything that is possible or done by others.
Data analytics, which is already a reality in Savings Banks, is being used to provide better advice to customers. In the Finance Group, we are dealing with voice-controlled systems, artificial intelligence, blockchain technology and additional development stages of our ecosystem. However, it will also be crucial for Savings Banks that the new technologies are used with farsightedness in terms of social and economic policy – in Germany, for example, through a sound technical infrastructure to strengthen rural and structurally weak regions.
Savings Banks do not want their customers and their sensitive data to have to be at the mercy of global Internet giants. For this reason, they are introducing convenient innovations which ensure data security and which are so comprehensive that they can cover the digital needs of a majority of people. In addition to a wide variety of payment services, this includes, for instance, the secure storage of electronic documents in the “eSafe” and the single sign-on system “YES”, which minimises the data required for identification on the Internet. Savings Banks fully protect their customers’ data and do not sell their data to third parties. Savings Banks handle data just as carefully as they handle their customers’ money.
Innovative and agile thanks to the digital agenda
Savings Banks are making good progress in developing their digital services. To leverage the innovation potential of each individual institution even more systematically, the DSGV has introduced a digital agenda with six key elements.
Three experts from the Savings Banks Finance Group share their viewsEmbracing digitalisation
Dr. Schmalzl: : Digitalisation is radically changing our society. New technologies and the pace at which they are introduced in all walks of life require all of us to be open-minded and to embrace change.
Dr. Stollarz: For us, digitalisation as such is not a business model; instead, it is the key to success. If we get it right, digitalisation will help us to optimise and accelerate processes – and to make services more transparent and more easily accessible for customers. If we use digital technology, for instance, to add supplementary innovative functions to the current account, we can strengthen and further deepen our customer relations.
Brockhoff: : While digitalisation is nothing new for us as IT service providers, it is much faster today, and it is increasingly widespread. Much more so than in the past, we are taking into account our retail customers’ views and expectations, as well as their behaviour on platforms in the market – they are the drivers in many cases. This is what we have to remind ourselves of time and again. We do so with sound pragmatism by simply starting with certain topics and adjusting our approach in the course of the project, if necessary – this is also what characterises digitalisation today. What is expected of Finanz Informatik in this context is that we monitor the technological opportunities provided by digitalisation, that we assess these opportunities at an early point in time and make them available for use by Savings Banks and the Finance Group as a whole. To this end, we are also treading new paths – in Finanz Informatik and also in the S-Hub in Hamburg, for instance.
„In many areas, we have fortunately already reached a stage that our competitors have yet to reach.“
Dr. Schmalzl: Our customers’ behaviour is changing due to radically new technological options, and this trend will continue. Today, customers can handle many simple transactions faster and better on their own, either online or by smart phone. Personalised advice is still needed for complex mat-ters and for important decisions in the life of an individual. However, owing to new technologies, this advice can be provided in very different ways: face-to-face in a branch or in the customer’s home, by phone, by chat, or by video chat. To remain the preferred financial partner in Germany, we have to be accessible both locally and online. In many areas, we have fortunately already reached a stage that our competitors have yet to reach, for instance, with our Savings Banks app, and with Kwitt, our payment product for real-time transfers.
Dr. Stollarz: We are already well on the way, but we will have to become even bolder and always look ahead three to five years to identify topics and developments. Of course, we want to continue to do excellently what has proven to be effective and to address new topics faster and more dynamically. This also means that we will simply try out more things on a reasonable scale, even if they have not yet been fully finalised.
Brockhoff: In my view, we have four key roles to play: first, enhancing OSPlus as the key solution for Savings Banks and the Finance Group, and thereby implementing a common service and sales platform for customers; secondly, intensifying the close co-operation with the partners in the Savings Banks Finance Group and integrating their solutions more firmly into a common solution for Savings Banks; thirdly, building up a common data pool. If all the Savings Banks – and the partners in the Savings Banks Finance Group – have access to the common data pool and use common interfaces as well as standardised automated processes, this will lead to completely new levers for synergies and yet better services for customers. Fourthly, providing and using state-of-the-art IT technologies, such as machine learning, data analytics, cloud applications and banking APIs. We are on the right track, as demonstrated by topics such as OSPlus_neo, the development of Kwitt, and voice banking with Google Home, which we implemented for the Savings Banks as the first financial service provider in Germany. This will then have to be quickly followed by widespread use in the institutions. However, one thing is also clear: Security and data protection will continue to have top priority.
„If all Savings Banks have access to a common data pool, this will lead to completely new levers for synergies.“
Dr. Schmalzl: We are still in the process of rebalancing the access channels to Savings Banks and their services by adopting a multi-channel approach. Much more than in the past, branches will focus on providing qualified advice locally – across the whole of Germany. This will continue to be guaranteed, even if we further reduce the number of small branches and replace some of them with self-service branches. The remaining branches will be developed into places that bring people together in their community and that provide high-quality advice and information. At the same time, we will consistently move services and transactions to the web because this is what customers expect.
Brockhoff: : Digitalisation poses a challenge for the Savings Bank as a whole, ranging from the creation of digital “awareness” at all levels of a Savings Bank – i.e. among customer relationship managers in branches as well as executives – to the installation of solutions and infrastructure such as mymo and Office_neo. Processes are automated and standardised, service processes are completely re-aligned in the interplay between digital processes and bricks-and-mortar branches. These developments free up resources for more sales-oriented advice and more personalised customer service and also open up opportunities for the strategic development of the business in the region. As service providers, we actively support Savings Banks in this process, and we quickly get the sim-plest possible and standardised solutions (such as currently OSPlus_neo) up and running in Savings Banks, with as little effort as possible.
Dr. Schmalzl: We want to offer our users a platform where they can find all the information and services relating to finances which help them make their lives easier. I have deliberately referred to “users” because we want to offer this platform not only to customers of the Savings Banks Finance Group. Quite deliberately, we also want to open ourselves to customers of other banks and provide a range of services that they like to use, and use often. To this end, we co-operate with companies from the insurance sector, but also with young FinTechs and InsureTechs. We create interfaces through which third-party offerings and services can be easily and seamlessly integrated into the platform.
Dr. Stollarz: The Savings Banks Finance Group is already planning to introduce additional integrated options within the framework of its payment agenda. Conceivable options include, for instance, digital bonus programmes, loyalty cards, premium services or vouchers, which will turn a mobile payment app into a multifunctional wallet. This will give traders the opportunity to successfully set themselves apart from their competitors. However, what is important once again is that the added value is assessed from the customer’s perspective, and not from that of the trader. Customers will then use the offer and feel well looked after.
Brockhoff: In the Savings Banks Finance Group, there is an enormous “wealth of data”. Anyone who uses these data can optimally develop their range of services and significantly im-prove their sales performance. Data analytics can help to understand customers better, permit more personalised and customised communication with customers and target groups, and increase the efficiency of sales activities via all channels. The integrated data repository which we have built up in the past two years provides a very good basis for this purpose. Another advantage is that it may be possible to include not only the Savings Bank data, but also a large number of data from companies associated with the Saving Banks Finance Group because their IT systems are also operated by our subsidiary FI-TS. We have already provided Savings Banks with first applications based on the integrated data repository, and we are continually extending the range of these applications in co-operation with DSV and S-Rating. We work together with our partners, and each contributes its own strength: S-Rating contributes its analytical expertise, DSV its market and campaign know-how, and FI its ability to operate such solutions with reliable performance and scalability.
Dr. Stollarz: In the Savings Banks world, we have a great deal of information which, most importantly, is valid. The Savings Banks Finance Group should make sensible use of this great treasure because intelligently analysed information can help to accurately assess the circumstances of Savings Bank customers. One of the challenges is to build intelligent tools that will enable Savings Banks to provide their customers with services they need.
Dr. Stollarz: Our three major business segments, which are the foundation of the DSV Group, are media-based business, the payments segment and business operations. Maybe we will have to become somewhat more agile in some areas. To this end, we will systematically use our new innovation management system to identify and channel new ideas from the three business segments. Our real challenge is customer satisfaction. Anything that helps us to achieve this objective is conceivable.
„What is important is that the added value is assessed from the customer’s perspective, and not from that of the trader.“
Brockhoff: Without proper investments, you cannot keep up in digital competition. In view of the current requirements, we have increased the budget by nearly 50 percent compared with previous years. However, one must not forget that the market and competition have become highly volatile, and that the Big Techs from Silicon Valley and China have quite different budgets and levers at their disposal. To be able to keep up, we will have to more effectively focus our co-operation within the Savings Banks Finance Group and beyond, as illustrated by Kwitt. Where it makes sense, we already co-operate with Fin-Techs – for instance via S-Hub – to implement innovations faster and sometimes also more cost-effectively. And in some cases, the Finance Group will have to decide whether it wants to co-operate with a Big Tech or develop market areas on its own. Whether innovation budgets need to be increased will therefore have to be reviewed on an ongoing basis.
Dr. Schmalzl: Digitalisation is not a one-man show. We are, and will continue to be successful only if we work together to lead the Savings Banks Finance Group into the future. Together, we must ensure that agile working methods and short decision-making processes are established in the Finance Group. At the same time, we will have to become so flexible that we can test and continually develop ideas in the market with customers, and that we can adjust them in response to new developments. Establishing flat hierarchies and delegating decision-making authority to Groupwide project teams or working groups is just as important as creating a culture of error tolerance that will allow us to modify or discontinue products and services that are not successful in the market. We need employees and managers who can deal with this new environment so that we can maintain a strong position in the market.
Dr. Stollarz: A reasonable division of labour, based on the assignment of specific responsibilities within the Group, has always been a key to the Savings Banks Finance Group’s success. As an entrepreneurially-minded service provider for Savings Banks, Landesbanken and companies associated with the Savings Banks Finance Group, we will therefore continue to rely on the proven co-operation with our strategic partner DSGV and Finanz Informatik, the technical service provider, for the development of innovative solutions in line with the market.
Brockhoff: Jointly, we bear great responsibility to provide Sav-ings Banks with the best possible sup-port in coping with the challenges of digitalisation. The DSGV defines the business strategy, the DSV pursues the topics described by Mr. Stollarz, and Finanz Informatik provides OS-Plus, the central IT platform. In this context, the requirements of Savings Banks and their customers are in the focus of the common objective to es-tablish a digital financial platform for the Savings Banks Finance Group. This platform is even more focused on customers and, as a comprehensive solution in terms of “one single platform”, it also bundles all the data, services and information from the Finance Group and makes them available to customers in one place. This requires close and trusting co-opera-tion within an organisation like ours – in particular among managers. And in this respect – and I think I can speak for all three of us – together, we are making good progress.
We have already reached a stage that others have yet to reach
Savings Banks have introduced a whole range of innovative products to the financial market in the past two fiscal years. In this context, the guiding principle has always been that there had to be a proven direct benefit and added value for customers.
Sailing close to the wind – Growth in the Fjord regionSales strategy in practice
„Our comprehensive advisory approach has been very popular, and we will continue to increase awareness of our broad range of events. By and by, we will increasingly become an indispensable part of campus life.“
Tim Peters* studies psychology at the University of Kiel. For the 22-year-old, Studiale is an ideal branch to visit: located directly in front of the main lecture hall and the main cafeteria, open for business between 8:00 a.m. and 8:00 p.m. Marc Bornholdt, his customer relationship manager who is only seven years older than Tim Peters, studies business administration himself while he works. That is precisely why he knows what impresses students. Having a dialogue on an equal footing, for example: “Do you want to be addressed by your first name or your last name?” Digital tools for straightforward collaboration. “Shall we begin with a ‘Giro-Check’?” Above all, however, competent advice: “Shall we get started?”
In touch with our customers of tomorrow
Modern wood panelling, a lounge with comfortable cushions, and meeting rooms for one-on-one conversations: The Studiale branch wants to be a place where people enjoy spending time. The range of services is also tailored to the needs of students, including an in-house student loan that is only available from the Studiale branch. Advice is available and contracts can be concluded via digital media, which is popular among young customers. What they appreciate in particular is the mix of up-to-date communication and personalised advice.
All the information needed for a good start
His studies initially confronted Tim Peters with new challenges: finding a place to stay, taking out insurance cover and financing the course of studies. Since its opening in September 2017, the Studiale branch has been the place to go to obtain answers to questions about a wide variety of topics. Due to the co-operation with the municipal registration office, students can even register their place of residence directly in the Studiale branch; the welcome bonus from the city is transferred directly via the branch. “Mobil in Kiel” explains the least expensive means of transport, and the “Kiel. Sailing.City.” app helps students to discover the city. The range of activities is rounded off by presentations on topics such as securities or ways of financing university studies, and by entertainment events such as outdoor screens to watch the Soccer World Cup. The Studiale branch thus provides guidance for new students and a forum for organising student life. However, it also supports students after they graduate and provides them with important information at the start of their careers.
„The Studiale branch is the result of intensive project work. From the onset, we wanted to focus our services as consistently as possible on the target group – which also includes students. Experience has shown that this was exactly the right way to go.“
Digitally well advised
The Studiale branch is not the only innovation project of the Förde Savings Bank. Another exemplary project is the Digital Branch, which has been tested in a pilot project since October 2017. Customers can visit the digital branch – just like in an ordinary branch – to discuss their concerns with their customer relationship manager, seek advice and use services – but only digitally: they communicate by phone or by video chat. If more complex matters are involved – such as buying a home, conducting securities transactions, or concluding insurance contracts, experts can be asked to provide advice. The Digital Branch is used by customers who live far away from the business territory of the Förde Savings Bank in Germany or who found work abroad after completing their university studies. They receive all the services and advice despite the distance. However, digital advisory services are also used by customers who live within the business territory but want to save time and travel. The response has been very positive. For this reason, the Digital Branch will probably be officially launched at the end of 2018 and serve approx. 4,000 retail customers as a first step.
„In the Studiale branch, students encoun-ter specialised customer relationship managers who deal with matters relat-ing to university studies every day. In addition, we have unique products such as our own exclusive student loan. What’s more, the Studiale branch has an ideal location, right next to the main lecture hall.“
Focus on strategic objectives
With projects like these, the Förde Savings Bank has been successfully pursuing its strategic sales development objectives. The projects have helped to achieve several objectives at the same time: acquiring new custom-ers, providing more intensive support to existing customers, and improving customer satisfaction. Services such as the Digital Branch or the Savings Banks app help to drive forward digitalisation. This captures the spirit of the times and simplifies workflows. To continue to increase the number of appointments and the quality of the advice customers receive, the Förde Savings Bank is also developing its Direct Customer Service into a multi-channel service. In addition, the Förde Savings Bank will continue to expand its retail banking segment by customising its communication and support. The integration of more securities expertise into the advisory services helps to create a new investment culture. In this context, the Savings Bank targets young customers, in particular, to build up trust and to continue to provide them with attractive services later, during their professional lives.
On course for growth
“With the realignment of our retail banking business, we are pursuing a clear growth strategy, focusing on retail customers, as well as the youth market and young adults. Cost savings alone will not improve the Savings Bank’s market positioning”, says Götz Bormann, Chairman of the Board of the Förde Savings Bank in explaining the strategy. With these innovative approaches, our Savings Bank is sailing close to the wind and is moving towards new horizons. Banking novices like Tim Peters are happy to jump on board.
Brief profile of the Förde Savings Bank
The Förde Savings Bank is headquartered in Kiel. The three head offices are located in Eckernförde, Kiel and Plön. At 83 locations, it serves 250,000 customers and is the biggest Savings Bank in Schleswig-Holstein, with a balance sheet total of EUR 7.3 billion. It plays an important role in the region, for both private customers and business enterprises. The Förde Savings Bank has a work-force of approx. 1,270 employees, including approx. 100 apprentices. This makes the Savings Bank one of the biggest employers in Schleswig-Holstein.
On the podium: The Förde Savings Bank is the “Best Bank”
On behalf of the German business newspaper “Handelsblatt”, a satisfaction survey was conducted among 30,000 bank customers. In the Kiel region, the Förde Savings Bank came out on top!
Adding to the box
The SSBB – enshrined in European financial legislation
The DSGV presented its concept of the “Small and Simple Banking Box” to the general public for the first time in November 2017 and called for a radical change in the approach to European banking regulation. The solution to the “too-big-to-fail” problem would otherwise lead to the creation of a “too-small-to-comply” problem. Along with other measures, the reduction of reporting obligations and the waiver of a disclosure obligation were designed to give due account to the strengths and the diversity of the European banking market.
In March 2017, the DSGV co-organised the G20 conference “G20 and Locally Focused Banks”, with the objective of exploring the key G20 financial topics from the perspective of locally focused banks, and to highlight the importance of these banks for the stability of the financial markets. The high-level conference has helped to ensure that the SSBB proposal was included in the EU Commission’s drafts for a reform of banking regulation with regard to the Capital Requirements Regulation II (CRR II) and the Capital Requirements Directive V (CRD V).
„The debate on proportionality in banking regulation has arrived at EU level. However, we have not yet seen a major breakthrough.“
In May 2018, the EU Economic and Financial Affairs Council (ECOFIN) decided to considerably extend the group of banks qualifying for an SSBB, which is a step in the direction called for by the DSGV. The approach adopted by the ECOFIN Council now provides for simplified regulatory rules for institutions with a balance sheet total of up to EUR 5 billion. This means that over 300 Savings Banks in Germany would qualify for the SSBB. The EU Commission had previously proposed a limit of only EUR 1.5 billion for the balance sheet total, which the DSGV had criticised as being far too low, because far fewer than half of the Savings Banks would have been below this threshold.
Due to the steady emphasis on the idea that the principle of proportionality should be applied to the very different sizes of banks in the EU, the idea has arrived in European financial regulation. This became apparent to the DSGV during regular talks with members of the European Parliament and with representatives of the EU Commission, the European Banking Authority (EBA) and the European Central Bank (ECB).
Incorporation of the SSBB into the coalition agreement concluded between the
CDU/CSU and the SPD
The coalition agreement concluded in early February 2018 contains a clear commitment by the governing parties to proportional and reasonable regulation of financial institutions. In future, a distinction will be made between banks with low-risk business models such as Savings Banks on the one hand, and systemically important large banks on the other hand. In addition, regulatory practice as a whole will come under scrutiny, and both supervision and regulation will be guided by the principle of double proportionality.
Support by German banking regulators
for the SSBB
In the year under review, the Federal Ministry of Finance (BMF), the Federal Financial Services Supervisory Authority (BaFin), and Deutsche Bundesbank increasingly joined the DSGV in its call for more proportionality and the model of an SSBB. This is demonstrated by statements made in the recent past with regard to the establishment of such an SSBB by senior representatives of these institutions, such as former Federal Minister of Finance Dr Wolfgang Schäuble, BaFin President Felix Hufeld, and Dr Andreas Dombret, former Executive Board Member of Deutsche Bundesbank. It is also reflected in the efforts made to free credit institutions from administrative burdens at national level. Discussions to this effect are already underway.