Whitepaper: Why banks need to move if they want to own banking in the future.

The whitepaper exists in two versions: 

1/ as a Slideshare-PDF which you may view below and download or

2/ read below as an (admittedly very long) blog post

Please do share your feedback and questions!


1.       Executive Summary

Driven by the top Internet players the speed of change in the financial services market is rapidly increasing. To secure their business and generate further growth these Internet players are forced to attack additional markets and the financial services market is one of them.

They will conquer the financial services market by

  • utilizing their global customer base and advanced customer intelligence (data),
  • by connecting today separated services to an eco system using technology and delivering advanced user experience
  • and their ability to move fast.

Their entry point to the financial services market is the offering of payment services to their clients through the use of their mobile devices. Extending the functionality of wallets will challenge classical retail banking’s value proposition as these Internet companies can go far beyond classical value propositions.

Some traditional financial services companies already start to understand that the time for a change has come, as these developments will challenge their core business models in very few years. For the first time, this many large-scale companies are starting to invest in programs in large excess of €500m to become better in digital.

While huge investments are not a sufficient reaction to the challenges of the market, players that will not follow the trend will lose their current position in the next years.

Traditional bank’s service offering and channel mix needs to be further rethought and adapted, followed by a fast-paced execution to respond to today’s quickly emerging reality. Players who are not able to manifest their position in the digital channels soon will be challenged in their existence.

The strategic transition needs to be guided by a short-term tactical approach to seriously start earning money in digital. On top of the pure positive financial impact of such a tactical approach, achieving significant sales through a much stronger public website as well as data-driven up- and cross-selling measures will start a cultural shift within the bank. When executives and employees discover that suddenly the digital channels generate large amounts of money, a movement of change could be kicked off. That would be the basis to understand the urgency and the possibility to develop a guiding coalition – the start of any strong change process.


2.      Introduction

We are convinced that banks needs to even further raise their attention to their Digital Channels and some necessary adoptions of their business models to stay long term successful. We have rationalized our analysis and proposed actions by a large body of research and facts, which provide deep evidence and insights in recent market evolutions.

To provide a complete picture we showcase recent alterations and transformations in diverse industries, highlight the changing face of the insurance industry and subsequently dive into an analysis of the banking industry. We cover what the Internet big four (Google, Amazon, Apple, Facebook) are about to engender and why this is a threat to you, what your direct competition is doing and describe the latest wave of innovation that startups have brought to the table in the financial services industry.

We deliberately focused on aspects rooted in the ongoing digital revolution and leave out other large impacting factors to the financial services business, like the ones from the crisis of the banking industries and markets at large and the loss of consumer trust. While we think these are very important factors and actually need to be taken into account when developing a digital strategy, our focus in this paper is on the increasing pressure to act on the digitalization, especially in retail banking.

We hope this document gives you some interesting food for thought and serves as a starting point to build an evidential base to act upon. Of course we are very happy to discuss any aspect and especially solutions for your challenges ahead.



Stefan Dieffenbacher                                                                                Alexander Schmid


3.      External market environment: Non-Financial Services

In the last few years’ digital business models have disrupted a large number of industries. Do you remember what happened to the music industry, the record stores, bookstores, publishers, the photo industry, film rentals, the print industry, travel, mail order retail and many others? Within a few years their business was dramatically changed or even completely disappeared.

For the first time, the rate of change has also reached the “too big to fail companies”: more companies lost their Fortune 500 position between 2000 and 2012 compared to the time series 1950 till 2000.[1] One of the key reasons are ‘digital’ according to the Kauffmann Foundation.

Neither the size of their business (see publishing industry), local personal customer touch points in the field (see retail), long-lasting customer relationships and brand loyalty (see automotive industry) or well proven business models (see any industry) were enough to protect them. The well-known “the winner takes it all” mechanics of the Internet business models played an important role in this revolution.

Over the last few months, the pace of digital disruption across various sectors has been further accelerating, as the following examples illustrate:

Transportation industry

  • Ueber ( is about to disrupt the global taxi market. EU regulations might save the industry in the EU for some more time, but regulations have never proved to be a good long-term protector from the real market[2] developments.
  • Airline companies such as Lufthansa need to pay Google to be listed in Google’s growing mobility offering and Google flights. Google has recently purchased the world’s leading travel software[3].

Car industry

  • Google is preparing to produce it’s own cars[4].
  • Google search rankings have become at least as relevant to brand perception (at least for the car manufacturers) as the marketing millions spent on brand campaigns.[5]
  • By the end of this year, a large number of leading automobile brands (i.e. Mercedes, Audi, BMW, Ferrari) will be powered by Google and Apple infotainment systems[6].
    According to market research, digital assistance and entertainment systems are driving the decision which car to buy by 48%. This will bring Google and Apple in the role of delivering a key differentiator for car manufacturers.
    Eventually, car manufactures will be reduced to building hardware, while Google and Apple will own the intelligent parts and the interface to the customer. A senior executive at a top five car brand mentioned to us during a recent pitch, that he is very concerned that “we might become a supplier to Google and the like in case we do not manage to get the ship moving”.
  • To address this threat Mercedes started a strategic program that tries to win back the customer relation. This program ( integrates car functionality with other more forward thinking aspects.



  • Alibaba, China’s Amazon has gone public. It was the largest IPO in history.[7][8] Alibaba does 3,5x the turnover of Amazon. Alibaba is expected to invest the money in different fields – it is currently operating 12 major portals (one of them in payments). Alibaba is likely to become the 5th super large digital company globally[9].

4.     External market environment: Insurance

The insurance industry today might be the least advanced with regards to the use of digital technologies for business generation and customer interaction. This unfavorable track record has many reasons incl. a lasting lack of investments in cleaning up IT backends. One of the most important ones however is insurance being a low involvement business. The interaction points with customers are very limited and therefore a customer centric culture was never established. 79% of the insurance industries executives say they are „not setting the baseline for digital“ or are „still learning“.[10]

This combined with a general lack of business agility, makes them a very welcome target for digital players. While they might not be interested in the core product ownership, insurance sales are an attractive and relatively easy to take target:

  • Google has pressed ahead and bought a large insurance comparison company in the UK. Google is by now not only the biggest provider in search results, but also in insurance sales business in the U.K.[11]. Google has achieved this dominant position within less than 12 months.
  • One of the most important factors to be able to offer competitive insurance products is data (for calculating risk profiles). Google and Apple[12] are entering the markets for health monitoring[13] and home surveillance[14] (among others). Combined with the already existing data on their side (positioning, personal preferences, etc.), this will enable them to easily generate more competitive offerings than any existing insurance company based on superior risk profiles. This, in turn, will allow selecting the lowest-risk customers based on unique information, thus further raising profitability.
  • As the current status of insurance companies for their digital offerings is not state of the art, large programs have been started. These shall address the existing gap but also address the threat through Amazon and Google e.g.
  • Allianz is planning to invest €400m in digital
  • Axa has just recently announced it will invest €800m in digital in the next years

5.      External market environment: banking

5.1.   Internet Players

Rumors about the big Internet four (Apple, Google, Facebook, Amazon) entering the financial services market have been circulating for a while. In the last twelve months these rumors have been heating up though. With the release of the iPhone 6 Apple now did the first and very powerful step into the financial services market[15]. Some other facts are also indicating that they are very serious about this strategy and probably won’t stop at the current level of cooperation with credit card companies and banks:

  • The iPhone6 and iOS 8 marks Apple’s entry to offline payment services and give them the tremendous Itunes user base (800 Mio). This makes Apple in one step the largest payment provider worldwide. The worldwide entry into the payment market, bringing pressure to all locally operating payment competitors.
  • Additionally, Apple heavily invests into its (brick and mortar) instore technology iBeacon right now. This is another testament to their strategy to broadly enter the retail and “physical” / brick and mortar markets. Given Apples strength to build integrated eco systems the combination of these technologies with payment will give them ways to innovate with unparalleled integrated customer journeys.
  • By now all big four of the Internet (Apple, Google, Facebook, Amazon) have banking licenses in Europe. As the last entrant, Facebook got a banking license and is moving into banking[16]. While the reasons for these moves are manifold, they are now at least in a position to use the license in different ways. According to, Facebook might be planning a “very smart pivot” into the banking industry[17]
  • Apple and Microsoft alone have more cash at hand than the US government[18]. Apple is leading in particular with $160billion – to Apple. The market capitalization of Apple, Google, Facebook and Amazon is roughly equal to the complete DAX30. If one of the leading Internet players would like to acquire a bank or revolutionize banking, they have ample resources to do so.


5.2.  External environment payments

Payment will serve as the main entry point for the Internet big four into the financial markets. Their large customer base and dominance in the mobile market will enable them to easily get a lead other payment providers were not able to achieve. Google and Apple will fight for dominance in this market very soon (see above). Whoever wins this battle will own the customer’s wallet and very soon endanger the role of retail banking. This will be done through massively enhanced User Experience (ease of use) and a huge ecosystem.
Also don’t get fooled by the many failed attempts in the payment sectors in the past, where other payment providers were not able to change the financial market significantly. The distribution of iPhones and Android Devices, a “softly forced” entry for their clients and some additional goodies will very likely make them successful. The entries of the big four are therefore by no means comparable to what happened in the past. Chances are that their entry will be successful and revolutionize the market almost over night.

  • Mobile payments are expected to break through next year.
  • The market has grown by 480% in 2013.
  • Facebook is moving into mobile payments in Europe[19].


5.3.  Start-ups

While the Internet big four are attacking from one side, in parallel a large group of new startups are trying to revolutionize the financial services market. The diversity in offerings is very broad and actually some are getting more and more successful.

  • Startups have in the meantime pushed significantly into banking. While till 2008 hardly any start-up was to be found in that space, there are now hundreds globally, some even providing complete banking platforms. One of the most well-known persons in the banking these days might be Brett King. He himself founded – a great example to banks! They have managed to build a sustainable competitive advantage. Their functions might serve as inspiration to the green and blue bank.
  • In Germany alone, almost 100 start-ups are now in the Fintech space. A great overview comes from André Bajorat[20]. While their size is of course still not comparable to many traditional banks in terms of turnover, they are taking the lead in terms of interface to the customer: some of the advanced starts-ups have in the meantime more visitors on their mobile banking apps than traditional banks! Also, here the bank is losing its interface to the customer.


5.4.  Traditional banks

Evidence shows that traditional banks are neither keeping up with customer nor management expectations.[21] The agile competition from startups doesn’t come in as a favor either. According to Gartner, budgets are up only slightly.[22] This all leads to analyst’s predictions that suggest, that traditional banks will lose large parts of their customer base in the next years.

To address this, a wave of large investments to work on digital strategies and digitalization has been rolled off.

  • Deutsche Bank has almost finished its €1,2 billion re-platforming[23] and sees itself prepared to react much quicker to market evolutions.
  • Commerzbank is also investing around €1 billion to re-platform completely, as is Postbank.
  • In the meantime, non-banks have developed some of the most successful Banking Apps in Germany! The largest “competitor” has (to our knowledge) just about 200 employees. With these few people, they manage to outperform what all the large banks in Germany do.
  • Consumer behavior is increasingly shifting towards digital and away from traditional banking models. Even in conservative US, consumers and millennials more particularly don’t mind or even want to move to a branchless bank.
  • A majority of the population wants to get advice based on big data[24].
  • Studies show, that customers are not willing to wait for the transformation of their banks. More than 66% of todays banking customers will be “self-directed in less than 5 years[25]. McKinsey has recently released a report, which predicted that by 2025, traditional U.S. banks would have lost 30% revenue share to non-banks and startups[26]. The same studies suggest an about
    25% potential cost-saving effect by digitalization.



6.     Analysis

Like in all industries, experience with doing business over the digital channels is still growing. The current offering of banks at large is restricted to product marketing and transactions. Any more advanced features, ranging from product sales, digital advice, exploitation of data, self-advice models, financial planning or digital service models, mobile payments and even mobile in general have only been exploited to a limited degree. While banking was an early industry on the Internet, little has been done to go beyond. And while banking might not be the last in line, the move towards real digital banking has yet to come.

At large, the branch crisis is far from being over. Traditional banks have not yet solved the problem how to move sales from branches to digital channels in spite of the fact that consumers spend almost
400 minutes online vs. 1 minute per year in direct contact with their bank advisor.[27]

Until now, even if this remains a large problem, banks were protected by the fact that their direct competition (other banks) struggled with the same issues. They basically shared roughly the same cost structures, branch networks, sales approaches, ability to change and level of development in the digital channels. Therefore, smaller shifts of market shares happened but large disruptions didn’t materialize.

This will change dramatically within the next 5 years. The Internet big four will and have to enter the financial services market. They have everything needed to revolutionize the market in an unseen speed.

They have:

  • the capital,
  • the customer base,
  • the customer intelligence / data,
  • the devices,
  • an ecosystem to generate add-on value
  • the technology
  • the experience how to enter/win markets
  • the banking licenses
  • the agility needed
  • and the need to do it.

Their strategy to win the market will start with offering payment services through their mobile devices. This will give them an overwhelming market share in record time. They are able to force their customers to become users of their payment service by embedding it as a required service to their app stores and phones. Once they have the user base, almost automatically payment clients like retailers will be forced to offer this service by client demand.

The whole role out will be embedded in their existing eco-systems and guided by the highly advanced customer intelligence they have. They will also add a very advanced user experience and some not yet seen or at least not spread features. The barrier for clients to use these services will be minimal, especially compared to opening a new account with a bank.

Over time, wallets will be extended with more and more functionality. This will happen step wise to not endanger the adoption of the roll out. This offering will soon challenge traditional transactional banking.

Google and Apple are much better positioned to achieve this, than the ill-fated attempts e.g. some mobile providers and startups did in the past. The main reason is of course their distribution, which outnumbers any mobile provider by far and the ownership of the app stores / software infrastructure (with some advantages to Apple on this topic).

Traditional banks are right now not prepared to face this competition. They have no offering to their clients that will protect them (value to the customer). Right now banks have become a necessary evil to customers that they have to have. Current surveys already show a huge tendency especially with younger people, that they would be willing to live without a bank if they could. The declined level of trust coming from the banking crisis accelerates this even further.


The current strategy of banks, cooperating with Apple and others will turn out to be a dramatic failure in the long term. If banks loose the touch with their customers and leave customer interaction to the Internet companies, they will suffer dramatically in the long term. Not only is the margin larger the closer you are at the end customer, banks will become pure product providers strategically very dependent, with very comparable and exchangeable products in the long term. The pressure from the small number of international players like google and Apple on the banks will be tremendous. This will move banks into a comparable situation that publisher like Springer (“we are completely dependent on google”[28]) are right now.

If banks want to stay relevant they need to increase the relevance for their clients immediately.

The above analysis could be challenged, attempting to explain why Google and others will not be able to enter the banking and insurance market. We deem these reasons have no substance and offer the following insights and evidence:

  • They don’t have a branch networkè to gain a large market share a branch network is not necessary anymore (especially in international open markets). This trend is even more applicable to younger generations. And as seen in the past, even older parts of the population were surprisingly quick to adapt to new technologies – the age structure of the iPad user base tells stories on this. A strategy based on older generations relying on branches is therefore short-sighted but may help on the short term, as the main share of capital is of course with older generations. However, such strategy will miss any future perspective.
  • They don’t have experience in bankingè neither did they in all the other markets they’ve taken till today. One fundamental logical flaw with this argument is that banking will remain the way it is and therefore “todays banking experience” is needed. The opposite is true. New concepts will be created and they are not only better structured for adaptation but also from an operations stance.
    The ability of banks to adopt is still very limited compared to the more digital players. Therefore, the classical banking experience is only partially needed for the new kind of banking. They are much better prepared. And of course, they could always buy the banking know-how they need, given their cash reserves and market capitalization.
  • They will not be able to offer (advanced) banking productsè Wallet is one thing, but financial products is another: that may be true for the time being. And very probable their entry will be a staged approach. While they of course would have the financial power to buy a bank to get all the financial products expertise and products they want, the more probable approach is that they won’t take that part soon away from the banks. They will partner at the beginning but their demand for future growth will force them to extend their offering. PayPal has evidenced such an approach just on a much smaller scale and with limited financial resources.
    And even if they would limit themselves to the pure sales part, this would basically carve out all customer relations from banks, leaving a pure product house – which is no favorable vision. Whoever owns the customer owns the power and the margin: just consider amazon and its relations with publishers.
  • They are not interested in doing any of the aboveè Actually they already started (see the slowly starting Google Wallet, Apple’s payment offering; the fact that all four large players have banking licenses in Europe, the fact that Google just started to take a grab on the insurance market and so on!). And of course this is a very profitable market for them because it is much easier to grab than most others. Further, they are perfectly prepared to offer financial services: Google, Amazon and Apple have more registered and current credit cards than any other company in the world.


7.      Takeaways

Today of course no one knows how this will end and actually at least right now, banks do actually have a good chance to protect and keep their business (not business model though). But the threat is very real and current. Banks will have to address this need today, if they want to keep to own the banking business. The later counter measures will be taken, the less probable it is that they will be successful.

To secure your business we recommend you to follow through on these action items:

  1. Take the threat seriously:
    The major mistake executives in other industries that were basically killed by the digital players, made was that they thought they were safe. Even the reasons for thinking they were safe in the different industries were similar. In the end they were all overrun and lost their business. There is not a single reason why banks would be any exception from this.
  2. Focus on your digital strategy:
    The key reason why the big four took industry after industry is their focus on executing digital strategies. This is not about new or more beautiful web pages. What is needed is a digital strategy that includes the rethinking of a bank’s business models. How can you become more relevant to your customers? What do you do about data? What is your basic service offering and reason to be? Your new competition will start with these questions!
  3. Stay up to date:
    Obviously, things are moving faster than ever before. The only way to stay on top is to adapt your approaches and strategy. This has to become an ongoing task. Do you have a think tank that constantly monitors developments and challenges your approaches? If not, why not? If yes, are these digital experts? Who is developing your strategies? Someone coming from the old business or digital experts? Did you know all the key facts from this paper? Are you regularly checking your premises around your strategies?
  4. Engage in a cultural shift:
    Banking hasn’t changed as much since the medieval ages as it has changed in the last decades with the digitalization of the transactions. The current change towards Internet with banks in effect becoming E-Commerce players will turn out to be much faster. Steps must be taken to change the deep-rooted culture of the organization. That can best be achieved by ensuring a significant proportion of the business comes through the digital channels. Particular attention will need to be focused on including, rather than excluding the existing branch network in addition.
  5. Actnow:
    While a Digital Strategy is key to survival, your bank will need to secure your today and tomorrow already now. Define the right tactical steps to enable your long-term strategy. Are you doing enough to get your customers using your digital offerings? Are you already selling as much through your digital channels as your best competitor does?
  6. Work on your agility:
    Even the best strategy is worthless if you are not able to implement it fast enough. Speed has become one of the most important factors for survival.
    It starts of course with the agility of your business and IT organization. But it does not stop there: This also means your whole organization needs to be able to adapt, generate products and react to market changes much faster than today.
    Are your processes lean? Is your ability to change management well enough developed? How often can you release an update version of your web pages / banking (Amazon releases some hundred times a day).

If you follow these five recommendations, we think you are well prepared for the challenges ahead. Of course we are happy to discuss more details and how to achieve your goals.











[10]EY Global Insurance Digital Survey 2013











[21] Gartner report 2014: From IT Strategy to Digital Business Strategy






[27] DL internal data stemming from 5 of the leading banks in Europe.


Über den Autor
Stefan Dieffenbacher

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