Dr. Schlottmann, COVID-19 is creating new rules for society to play by, even in the banking sector. How do you see the future of, for example, digital currencies?

Generally speaking, the Corona crisis works like an accelerator for digitalization in business and society. Digital currencies are clearly benefiting from this development. The growing presence of digital ecosystems in particular is contributing to this movement, as can be seen with Facebook’s currency Libra. Banks will have to keep up with the trend and also develop their services and products so that they support digital currencies and assets in digital ecosystems. The transformation will be profound. The banking financial services brands that used to dominate the market with further erode as the shift towards new ecosystems progresses.

What other changes will be seen in the banking sector?

To name one example that will likely last beyond the shut-down phase and become part of the new normal: offering qualified consulting to bank customers. It is now more important than ever to offer qualified consulting – whether by video, or on-premise at a customer location or in consulting centers – that provides added value, which is something potential and existing customers alike value. Within that context, banks will need to continue focusing on offering consulting times that better suit their customers. Going forward, even human expertise will be massively supported by algorithms during consultations. Banks´ consultants will use AI and big data-supported technologies such as affinity analyses and PreVision to make customer product marketing even more effective or to generate transaction momentum in the securities business that adds value for customers.

That sounds like a precursor to a “Banking Alexa” ...

Yes, although we are referring to CoBot software and not simply to robotics solutions. Because the customer satisfaction that can be expected by combining human intelligence and AI is higher than the satisfaction resulting from pure robo-advising. For customers who are primarily concerned with cost, a “self-service” option using their mobile device or the web is also available. Although when offering a self-service model, banks do need to offer customers something the customer will perceive to be considerable added value compared to simple financial platforms or Internet brokers. Regardless of the channel or technology being used, one thing is clear: “Customer experience” must be the guiding star. With digital transformation, are your own offers strengthening customer loyalty – while also reaching new target groups? If you can answer “yes” to both, then you are on the right track.

So digitalization technologies, such as CoBots and Distributed Ledger Technology, are less of a threat to banks as an institution than previously predicted?

In fact, financial intermediation will remain a basic need for people, companies and other organizations. Banks will continue to exist – and will increasingly focus on the principles of the modern platform economy. This shift, by the way, will also have a lasting impact on the control functions banks and other market actors perform. In the future, even these functions will be industrialized, at least to some extent, and transferred to platforms. Particularly exciting in this context are open platforms, such as ORRP, that offer “app-like” components and increase users’ independence from individual providers.

Yet, new competitors from Silicon Valley or Pearl River Delta will have a definite competitive lead when it comes to platform construction.How can banks avoid becoming redundant by players like PayPal, ApplePay, AmazonPay and Klarna, leaving them as mere infrastructure providers?

Not every bank needs to be afraid of ending up “just” providing infrastructure. Some banks will make that their individual strategy. After all, telecommunications companies have remained successful despite companies such as Apple and Google, or perhaps because of these and other disruptors.

The fight against Fintechs and Big Techs for end customer business will be won by having a clear focus on customer segments and their needs, by having specially designed, suitable digital and non-digital offers. In doing so, banks can use their qualities of, for example, trustworthiness and reliability to their advantage. Big Techs are primarily interested in the broader mass market and maximum scalability. That leaves enough room for banks to make more specialized offers and thus to establish successful banking business models as they move forward.

However, digital technologies are just one aspect. How can the financial sector manage the concurrent challenges arising from digital transformation, a low-interest phase and a recession?

The regular analysis of the business models being used by a respective bank, and the analysis of the bank’s individual fields of business, provide objective findings that help strategically align the bank for the future, even in dynamic times. Risk management is particularly important, especially in times of uncertainty, and must be expanded beyond the existing models. Scenario analyses and stress tests answer bank management questions that are critical to survival, especially in the context of credit, counterparty and liquidity risks.

At the moment, banks need every single euro of income they can get. Which makes consistent preliminary and final calculation of each and every transaction more important than ever in ongoing operations.When it comes to the operational excellence that is required, standardization, automation and industrialization are essential. Furthermore, we are digitizing many processes that are still operated manually today. Many banks have started modernizing their IT landscapes or have at least started performing preliminary studies in preparation for the implementation of standard software solutions. In addition, more functions will need to be outsourced to “factories” in the future.

What exactly does that mean?

Factories in the financial services sector offer their customers the cost-efficient production of banking services. Take regulatory reporting, for example: common reporting forms are standardized in the same way tax return forms are. Why should every single credit institute have to produce all of those themselves every single reporting date in factory production? Instead of having them done by a specialized provider using standardized services and only performing the non-delegable end controls themselves?

More than 800 German credit institutes now use EGP, a platform-based regulatory reporting automation solution. Other German banks and service providers successfully use end-to-end reporting services for provider-sided report creation based on the BAIS standard solution for their regulatory reporting. Given the depth in the value chain, the level of automation and the specialization of industry companies or Big Techs, this is just the tip of the iceberg when you consider the totality of all banking processes – despite the existence of some credit factories. Meaning there is still a lot of opportunity to increase profitability.