Foreword by the President“In 2018, Savings Banks invested heavily in their core product, the current account, and now provide new payment solutions and new digital services to retail and corporate customers.”
The Savings Banks Finance Group performed well in 2018, which was a challenging year. The Group’s institutions have promoted both the stability and the momentum of Germany’s economy, and they have contributed to an innovative European banking market, in particular in the field of payments. They have done so in an economic environment that is characterised by persistent ultra-low interest rates and growing competition from international platform providers.
In 2018, Savings Banks invested heavily in their core product, the current account, and now provide new payment solutions and new digital services to retail and corporate customers. Savings Banks as the market leader have introduced instant payments, payments from mobile phone to mobile phone, and mobile payments with debit cards on a broad scale to the German market. Their current account services are based on the Savings Banks’ own platform architecture. In addition, Savings Banks are investing in digital support for corporate clients, which also gives them easy access to smaller business clients outside the major urban areas.
Retail deposits have increased once again, and net sales of securities have grown significantly, which demonstrates that our customers continue to have confidence in Savings Banks when it comes to accumulating assets. In addition, 2018 was a year of dynamic lending growth, which reflects the strong economy, but is also due to the close business relationships with corporate clients. In 2018, our Group – including Landesbanken – accounted for approx. 40 percent of all loans to enterprises in Germany, with an emphasis on prudence rather than taking every available opportunity to provide finance.
In 2018, Germany’s Savings Banks generated a respectable operating result of EUR 9.3 billion. Non-personnel expenses increased slightly, from EUR 7.3 billion to EUR 7.4 billion. The Savings Banks’ net income after taxes decreased slightly to EUR 1.8 billion. With significant tax payments of EUR 2.7 billion, Savings Banks have considerably strengthened government budgets at local level.
In the past ten years, Landesbanken have reduced their risk-weighted assets by significantly more than half. As of December 2018, Landesbanken recorded a slight increase in risk-weighted assets for the first time in years. The tier-1 ratio decreased from 17.5 percent to 15.3 percent. Landesbausparkassen are clearly number one in the home savings and loan market, with a market share of approx. 37 percent of new business.
“Close customer relationships will remain the essence of our business model. In everyday digital life, these relationships will become even more individualised.”
In 2018, every member of the Savings Banks Finance Group – with responsibility for their own corporate decision-making – once again made positive contributions to a strong group of companies. It is not only the individual performance that counts here, but also the collective performance. We have increased our centralised investments in digitalising and standardising processes, thereby strengthening our market presence in digital services.
Our key challenge will be to continue to be the direct and most important partner in all financial matters for people in Germany. In 2019, this will be at the core of all the upcoming changes and of the Savings Banks Finance Group’s major technical investments.
SAVINGS BANKS: DIGITAL PARTNERS IN EVERYDAY LIFE AND IN BUSINESS
In co-operation with Savings Banks, regional associations and associated partners within the Savings Banks Finance Group, the DSGV has developed recommendations for measures that can help to implement “open banking” and new sales strategies for business clients.
International platform providers and “open banking” have revolutionised the banking landscape. The Savings Banks’ response is to upgrade digital media channels to a multi-banking platform of their own, centred around current accounts.
A key driver is a stipulation in the latest EU Payment Services Directive (PSD 2)1 which states that, if requested by a customer, third-party service providers must be granted access to the customer’s accounts. This development facilitates the development of digital ecosystems and reduces the entry barriers for start-ups and non-bank enterprises like FinTechs. By upgrading their digital media channels to a multi-banking platform of their own, Savings Banks are also able to provide their customers with the digital groundwork now required for all financial transactions. Such a platform meets the needs and expectations of these customers who are often travelling, who have little time and who prefer to use mobile communication and surf the Internet. At the same time, customers benefit from all the competitive advantages of Savings Banks: customers can rely on data security, the Savings Banks’ exceptional risk assessment expertise and their handling of regulatory requirements.
The Savings Banks’ sales strategy for small and medium-sized enterprises goes along the same lines. It specifically addresses the reality of businesses that wish to combine fast and easy access with the fastest possible processing of their requests. For this reason, Savings Banks have developed their own instruments and facilities designed to be available any time – whether in person or digitally – for all groups of corporate clients. Savings Banks and their associated companies within the Savings Banks Finance Group support small and medium-sized enterprises, not only as providers of finance but also as partners in the digitalisation process.
The multi-banking platform and new sales approaches in corporate banking business are two additional building blocks on the digital agenda of the Savings Banks Finance Group to ensure that local Savings Banks remain the number-one bank for their customers in future.
1PSD 2 stands for the second Payment Services Directive of the European Union (EU). The Directive, which has been in force since January 2018, deals with payment services and payment service providers in the EU and the European Economic Area. PSD 2 governs the access of payment service providers to the payment accounts held by customers with account-keeping institutions. Access is granted to these providers only if the account holder has given his or her explicit consent.
DIGITAL TRANSFORMATION OF SAVINGS BANKS
In his interview, DSGV President Helmut Schleweis describes how Savings Banks meet the everyday financial needs of 50 million customers and three-quarters of Germany’s enterprises, whilst continuing to be their “financial home” in this digital environment.
We are making targeted investments in everyday services such as payment transactions. In this field, we want to provide our own products and services to cover the entire value chain. Savings Banks’ current account holders can use all state-of-the-art forms of payment. To ensure that customers are comfortable with this variety of options, we will increasingly bundle the various methods, ultimately leading to a single application for consumers and vendors. This will make it easy for customers to rely on Savings Banks in money matters.
Our business model is based on a profound understanding of our customers’ everyday lives – and also on our customers’ ability to make decisions for themselves. However, in a world that is characterised by data streams, the right to self-determination of personal information is no longer a given. A digital platform economy that is dominated by a small number of globally operating providers is increasingly edging its way between today’s providers and their customers. To counter this development, more large-scale European contenders will be needed. This will require greater investment in artificial intelligence and new forms of cooperation among European enterprises – including current competitors. We want to do both and, as a result, continue to improve services for our customers.
We will gradually upgrade the Savings Banks’ current accounts – of which there are roughly 40 million in the German market – to a digital financial platform, from which our customers can manage all of their bank accounts and, increasingly, other financial transactions. With our wide range of state-of-the-art payment services, we have prepared the ground to ensure the security of customer data.
In 2019, providing digital services for business and commercial clients will be an implementation priority. With our online branch for business clients, we are taking a major step towards our commercial customers. Business enterprises – in particular smaller businesses – only have time to deal with their financial matters during off-peak hours or between appointments. With specific solutions like our online loans, enhanced online account management, and high-quality advice by telephone provided by the BusinessCenter, we can save the enterprises both time and trouble.
To start with, our interests are often very similar to those of our customers: Just like our commercial clients, Savings Banks also need an infrastructure that fosters innovation – through state-of-the-art transport and data links. As innovation drivers in the field of payments, it is also our responsibility to prepare retailers and businesses for their customers’ new payment preferences. To this end, we offer the businesses targeted support, and we are also broadening our range of instant payment services. Instant payment has great potential, especially for large paying agents. The money reaches the recipient in just a few seconds. This allows the payer to work with this liquidity right up to the last second.
We are used to changing conditions – one of the first German Savings Banks was established in 1778. What has remained unchanged is the people’s desire to shape their own lives. Our role is to provide reliable and state-of-the-art support. For this reason, we strengthened share-based retirement provisions in 2018 and we helped 250,000 families to become home owners. Savings Banks provide finance for one in two start-ups in Germany. It is also a matter of course for our Group to help small and medium-sized enterprises to digitalise their own business models. Here, our institutions score particularly well with their sector expertise and their in-depth knowledge of their customers’ business processes. All this shows that a long-term partnership is the bedrock for successful joint innovation projects.
There can be no doubt that we will remain decentralised. Savings Banks, for which the responsible public bodies are predominantly the local governments, are the core of our Group. Their local market presence is our great strength. However, wherever close customer relationships are not the primary concern, we can use enormous economies of scale and improve the depth of our service. In the medium term, Savings Banks want and need a common central institution. We know that consolidating takes great effort – as the successful de-risking of the Landesbanken has demonstrated in the past ten years. However, this step is necessary to achieve stable growth and continue to operate successfully in the relevant business areas.
HYBRID ROAD TO THE FUTURE
1Payment Services Directive 2
Traditionally, Savings Banks are places where customers go to get advice and deal with their money
matters. But for some time now, this picture has only been a partial reflection of reality. Today,
a great deal of banking business is carried out digitally. This may go unnoticed by customers when
they buy something via an app without being aware of the underlying banking processes. In this day
and age, banks are not a person or a facility, but more often than not, a website or a background
process. On the other hand, there are still many cases where customers expect personal advice at a
Savings Bank. For larger, non-routine transactions, such as housing loans, customers still expect a
meeting in person with a customer relationship manager. In this regard, Savings Banks continue to
perform their traditional role – with one important difference: Today, customers expect Savings
Banks to meet them on an equal footing because, thanks to the Internet, customers have virtually
the same level of information as their banks. This means that the interaction has changed and
Savings Banks need to perform their role as service providers and partners much more strongly
than in the past.
Already making good progress
If Savings Banks successfully implement the hybrid model combining the analogue with the digital world, they will have a great opportunity to establish themselves in the market as digital partners. Savings Banks are already making good progress, specifically with regard to the implementation of digital services. In this context, Professor Dirk Neuhaus – who is professor for banking information systems at the University of the Savings Banks Finance Group – sees two important areas of action: “Firstly, the range of digital services available within the Savings Banks’ own ecosystem will need to be further expanded so that Savings Banks can offer customers added value from the Savings Banks world. And secondly, we still see considerable potential in digital services for corporate banking business. With a portal of their own, Savings Banks could achieve market leadership and virtually set the standards.” According to Prof. Neuhaus, not only people but also machines, operating equipment and vehicles should be seen and served as customers. Many of them already have open interfaces to retrieve runtime, production or transaction data. This real-time information will need to be directly combined with the Savings Banks’ financial products.
»In retail banking business, acceptance of digital services is currently growing as they are easy to process, available on mobile devices and affordable. The criteria which need to be met in corporate banking business are, above all, quality, coverage of operational functions, security, personalised support and availability at all times.
Advantage: Regional presence
In addition to digital potential, Savings Banks have another major advantage: their regional presence. For Prof. Neuhaus, this is a key competitve advantage: “Savings Banks know their local customers well – both private and business clients – and have a strong, direct relationship with them.” It is precisely this customer relationship that needs to be transferred to the digital world, along with the sense of security that Savings Banks have fostered and the analogue platform in the form of the local branch. Dr Christian Kastner, Managing Director of the Finanz Informatik subsidiary Star Finanz, is convinced: “In the future, our analogue platform will continue to be the great asset that it is today. After all, we will not give up our nationwide presence; instead, we will offer our customers an analogue/digital mix.” On the road to the digital future, Savings Banks will rely heavily on the security that has been associated with their business for decades. This means that the future ecosystem will create added value for customers, but always under the umbrella of security. The big, secure Savings Bank building of former times will be complemented by an equally large and secure digital platform. Analysing the data streams that are generated on this platform, also due to the opportunities provided by PSD 21, will enable Savings Banks to offer new, relevant services to customers. According to Marco Schöning, head of sales at Star Finanz, it is essential to consider the topic of security in all areas of data analytics from the onset: “I am convinced that the development of data-based services can also work hand-in-hand with data protection. Savings Banks just have to find the right way to implement their projects in this field.”
1Payment Services Directive 2
»I am firmly convinced that Savings Banks will be successful in the long term if they can transfer what they have already built up to the digital world – i.e. security, customer relationships and the analogue platform.
Three key future challenges
According to Prof. Neuhaus, getting to know customers better by using data analytics and transferring available information into new needs-based solutions will be one of the key challenges for the Savings Banks’ hybrid business model in the years to come. A second challenge will be the integration of the institutions into the customers’ value-adding structures and innovation processes. This applies in particular when upgrading corporate banking business with digital services for networking with machinery and equipment. And the third challenge will be to steadily broaden the range of standardised financial products and services in order to make life as easy as possible for customers – whether in the analogue or the digital Savings Banks world.
»Savings Banks are still in the early stages of exploiting the potential provided by data analytics. The objective is to develop inter-disciplinary services for customers and thereby to provide the desired added value.
1Application Programming Interface
With their existing customer relationships, their customer data and their special customer confidence, Savings Banks are predestined to provide a platform of their own. The current account is the anchor point of the digital ecosystem, so its benefit for customers is considerably enhanced. Here, Savings Banks convey a unique sense of security because, on the one hand, they can build on competitive advantages such as their customers’ confidence in data security, the Savings Banks’ risk assessment expertise and their handling of regulatory requirements. On the other hand, Savings Banks also have the technical prerequisites, due to their multi-banking capability already established in the online branch and their improved data processing capability. The digital media channels will be upgraded to a platform.
Precisely aligned with user behaviour
This proven expertise in security and technology has led to features such as Personal Financial Management, which includes comparisons of income and expenses, a categorisation of account transactions and an intelligent search for transactions. In the current fiscal year, there are plans to add a liquidity preview, which will be based on a self-learning algorithm. How much money is left in my various accounts and will this last until the end of the month? Savings Banks answer this question for customers. With Personal Financial Management, Savings Banks optimally respond to the typical user behaviour of website quick checks. All in all, it enables customers to deal with their finances more actively and more independently, whether they are at home or travelling, whether they use an app or – in future – a voice command.
Reflecting real life
To ensure that the customers’ real lives will be reflected on the platform, the multi-banking capability will also need further enhancement. Many customers also hold accounts with other banks. In addition, they pay instalments to commercial sellers using their customer account and they are investors, insurance policy holders, tenants or landlords. The objective is to give customers a full overview of all sources of income and expenses. A customer’s full personal financial status, with a list of the transactions, will therefore be a core element of the Savings Banks’ platform – the central presentation of all payment information. The other development stages planned for the future will also be based on this approach.
In addition, it will be possible to integrate services from third-party providers, such as booking portals and car-sharing companies, as well as service providers like insurance companies that are associated with the Savings Banks Finance Group. The range of services available on the platform can even be regionalised for customers, e.g. by linking specific bookings with value-added offers – such as vouchers provided by local retailers.
However, the financial platform is not just another colourful online construction kit, but is the result of upgrading the digital media channels into a personalised central point of contact for all users. This way, users are informed by their Savings Bank about all their financial matters around the clock – in keeping with the motto: “When it comes to money – Savings Banks”.
Users will be enthusiastic about this information, which will make their everyday financial lives much easier.
OPERATING SUCCESSFULLY IN CORPORATE BANKING BUSINESS
BusinessCenter “Swabian style”: growth through efficiencySALES STRATEGY FOR BUSINESS CLIENTS
It is a lovely spring morning and sunbeams stray into the former open-plan office, which now accommodates the BusinessCenter team at the head office of the Kreissparkasse Ludwigsburg. However, the ten employees currently facing each other in groups of two, have no time to admire mother nature. According to the clock, it is 9:35 a.m. This means that rush-hour is about to begin in the centre, which was established in January 2018 and has since provided all-round support, primarily for more than 4,000 smaller business and commercial clients with an annual turnover of less than half a million euros. These clients want their daily banking transactions to be handled quickly and their bank to be within easy reach, ideally without time limitations. For this purpose, a total of 15 specialised service agents and customer relationship managers are available from Monday to Friday from 8:00 a.m. to 6:00 p.m. For investment or insurance queries, they are supported by specialists in these fields. In addition, the centre can be reached by email around the clock.
»We treat all customers equally as a matter of principle and we try to resolve customer queries directly and as quickly as possible.
Simple, fast, professional …
“Yes, these payments have already been credited to your account. Thank you very much for your call. Good-bye.“ In keeping with the BusinessCenter’s motto “simple, fast, professional”, service agent Jennifer Lorenz has just answered another query from a commercial client. This is precisely the purpose of this facility, which aims to offer immediate and appropriate solutions over the phone for virtually all current account queries for as many customers as possible, with more than 4,000 incoming calls per month. On the screen of the window displaying the names of all the employees in the telephone system, the name of this service agent is highlighted in blue. This means that she is already taking her next call. If the call involves a loan inquiry, her colleague Timo Reiner is available as the BusinessCenter expert to give the customer immediate and comprehensive advice.
For Kreissparkasse Ludwigsburg, the centre is an important link between the digital and the personal world as part of its omni-channel strategy. In keeping with Swabian cleverness, the responsible managers have consistently developed the centre’s orientation, above and beyond the original sales strategies. “As well as progressively expanding the centre to include all commercial clients together with doctors and other health care professionals, we added commercial clients in October 2018 and, most recently, corporate clients in February 2019, so the centre is now the number-one service point of contact for all of the district Savings Banks’ business clients”, explained Stephan Kessler. For organisational purposes, the BusinessCenter reports to the head of the Commercial Client Centre. “Questions received from corporate clients about payment terms, account transactions and bank cards are also fully answered by the BusinessCenter. This relieves the relationship managers of standard queries for these customer segments, giving them more time to provide personal support to their clients locally.
»During peak hours at the centre, it goes without saying that we support the service agents and that, as customer relationship managers, we also take incoming calls.
Earnings have increased
The centralised handling of all queries has shown that a large number of queries across all customer segments are about very simple transactions such as credit transfers, which can be resolved by telephone at the centre and also online. “This is one of our primary objectives, i.e. to filter out service issues from incoming calls, to draw attention to online access options and to lighten the workload for customer relationship managers in our branches”, sums up Ralf Leonberger, head of the BusinessCenter. In addition, the BusinessCenter service agents are themselves active in “outbound sales” to their clients, with a view to effectively increasing revenues. “This includes selling savings and loan agreements or insurance policies”, says Leonberger. The approach works well, as demonstrated by the fact that the district Savings Banks’ earnings generated in the first year after implementation increased by 5 percent, although the number of staff had decreased slightly.
»Across all customer segments, our objective is to find complete solutions to resolve at least 50 percent of the incoming calls immediately.
»On the road to the bank of the future, we believe that the BusinessCenter is the spearhead of digitalisation in corporate banking business.
Brief profile of Kreissparkasse Ludwigsburg
With total assets of approx. EUR 10.55 billion, Kreissparkasse Ludwigsburg is not only the market leader in its service area, but also one of the biggest district Savings Banks in Germany. Close customer relationships are the institution’s most important goal. This is guaranteed, inter alia, by a network of approx. 100 branches across the country. With more than 1,500 employees, including 98 apprentices, Kreissparkasse Ludwigsburg is also an important employer and one of the region’s largest training organisations.
“We want to continue consolidating our position as a strategic partner for small and medium-sized enterprises.”
Until the beginning of this year, we were very curious to see how our customers would accept this new service. After all, our clients are demanding and include very different enterprises and individuals. I will not deny that some of our clients dislike having to take a detour to get into touch with their customer relationship manager. However, my board colleagues and I have not received any complaints from customers about the interaction between the very dedicated team at the BusinessCenter and the customer relationship managers. On the contrary, time and again, customers have praised us for the great service. My conclusion is that we have taken the right step. Good preparation was important – and it was also important that we took our time and did not route all customer segments via the BusinessCentre from day one. And it was important that, from the outset, the BusinessCenter was organised as a centre of expertise, staffed with employees with sound commercial know-how.
The BusinessCenter stands for efficiency – all the indicators of the Corporate Client Centre point towards growth. We have made investments there – in people, in sophisticated product solutions, in a team for new clients and in a new approach to customers. During meetings with clients, for instance, we put an even stronger focus on future developments. In co-operation with customers, we simulate scenarios about their future business strategies. As a sparring partner, we discuss the opportunities and risks associated with business models and how the strategies can be implemented in financial terms. We are successful with increasing numbers of customers. Our employees have been trained for this; the technology is available and the scope of the discussions with clients will gradually be broadened along these lines. This way, we can continue to consolidate our position as a strategic partner for small and medium-sized enterprises.
Leaving aside the regulatory madness, economic risks and the low-interest-rate world, what concerns me most is the question of how we can more effectively bring our extensive product expertise to customers, for instance in our Wealth Management and in our subsidiary for international business. On the one hand, customers are positively surprised time and again about all the things we are able to do – because initially they do not expect a regional institution to have such a comprehensive range of services. This means we will have to work harder on how we are perceived in public and what expertise we are expected to have. On the other hand, we are working very hard on interlinking our specialists with customer relationship managers, so that our customers perceive us as a team. Both aspects are key prerequisites in coping with the challenge of continuing to increase our commission income.
The BusinessCenter not only helps customers to get quick and easy access to professional services, it also enables the relationship managers of bigger clients to spend more time providing personal advice to their clients, to be even better prepared for appointments and to coordinate the customer team even more effectively. The BusinessCenter therefore paves the way for a quantum leap in providing support to larger clients.