Instead of 1600 banks so far, in 10-15 years only 150-300 banks will remain in Germany. This is a vehement thesis published by the management consultancy “Oliver Wyman”. The topic is addressed with the headline “Overbanked is over: In the future significantly fewer banking providers”. So far, the death of banks in Germany has proceeded slowly. But that will probably change. The reasons for this are digital technologies, aggressive new competitors from the banking and FinTech environment, more demanding customers and an unfavourable economic environment.
“Oliver Wyman” speeks about the problem that all management consultancies these days are addressing, which publish studies on the German banking market. Banks are not profitable. And the market in Germany is highly fragmented with 1600 banks and 27,000 branches. This is (our commentary on this) mainly due to the German banking system made up of three pillars, where, in addition to the normal private commercial banks, there are also the cooperative banks and the savings banks, which operate regionally as small independent institutions.
In times of crisis (lastly the financial crisis in 2008) this proved to be a big plus point, because these institutions are so small that they didn´t have the opportunity to participate in the international high risk game in any way. They concentrate their efforts only on the “normal boring” customer business at the base, and are therefore extremely unaffected by crises on the international financial market.
„Oliver Wyman“ says about this (translated):
German banks face increasing competition from a heterogeneous cluster of three groups: Foreign banks, FinTechs and (mainly) global technology companies. A conglomerate of attackers on traditional providers that accelerates the change of the German banking system by establishing new business models with better customer experiences. Banks in Germany have had a remarkably stable revenue pool of 115 billion euros per year with a large customer base over the past few years. New suppliers in the market want to participate. The cake will no longer be enough for everyone,”says Thomas Schnarr, banking expert at Oliver Wyman.
Added to this is the modularisation of banking as a basic pattern: financial services have traditionally been provided by integrated institutions throughout the entire value-added chain. Digitisation now enables a combination of partial services from different providers with the help of product bundlers (orchestrators). Customers cover their needs with orchestrators or platform vendors; their commitment to a single vendor is weak.
How to survive the great bank death
How to survive the banking crisis? This is again “Oliver Wyman” in the consultancy´s own words:
According to Oliver Wyman consultants, banks must develop two key skills to be successful: their cultural flexibility and their ability to innovate. This includes more empathy in bank-customer relations, continuous employee development and a sustainable transformation of employee roles,”says Alexander Peitsch, banking expert at Oliver Wyman. In addition, however, it is also important to create an innovation-friendly climate with active orchestration of a technology portfolio that also integrates supplier innovations.
If the German banks succeed in doing so, they will be able to use the strong foundation that remains in place to establish sustainable, successful business models. However, banks will have to open up new opportunities, grow beyond the traditional monolithic banking business and dare to break new ground in cooperation with other market players – both old and new,”Peitsch continues.
The dear people of Oliver Wyman may be right, or the crash in the banking industry may not be that bad. That’s exactly what we all don’t know until 10-15 years from now! But we are becoming increasingly suspicious. In particular, management consultancies that advise banks and insurance companies have been publishing more and more “analyses” about the dying of banks and the lack of profitability of banks for a year or two, such as this current study.
May be the ulterior motive (we simply advise: when small banks and savings banks read our study, they become anxious because they want to be among the survivors. They come to us, and get a beautiful expensive consulting mandate missed. For the sake of love and boredom, such studies will certainly not be carried out. But God, we don’t want to impose evil intentions on anyone!
Bankentürme in Frankfurt. Foto: Christian Wolf, www.c-w-design.de / Wikipedia (CC BY-SA 3.0 de)