“Banks are not in a crisis, they are experiencing a storm,” states “Wirtschaftswoche”, a leading German business magazine. And the Lünendonk report on banking’s future (Zukunft der Banken 2020) established that more than 80 percent of German banks believe that there are “deficiencies in IT support for business processes, customer relationship management, sales, and for advising customers.”
Just as iTunes and Amazon revolutionized the music and book industries, Internet services and start-ups are challenging traditional business models in financial services. For example, over two thirds of Ebay’s customers use the auction site’s online payment service, Paypal. And banks must also contend with recent arrivals from other high-tech players, such as Google Pay and Apple Wallet.
Experts believe banks need to invest in order to keep up with online competitors and the digital times we live in – despite shrinking profit margins, low interest rates, and the high costs of maintaining branch offices. As far as IT is concerned, analysts at PricewaterhouseCoopers believe that preference should be given to standardized software that can be easily modified to meet new challenges, over home-grown solutions.
Already there are bankers venturing into innovative IT. For example Fidor Bank, headquartered in Munich, plans to establish a bank for digital currencies, Credit Suisse is developing a social media network for high-net worth clients, Deutsche Telekom offers a low-cost encryption app for mobile phones, and high-speed traders are leveraging cutting-edge technology to make waves on Germany’s stock exchange.
Fidor, a Munich-based direct bank, is exploring uncharted territory. The company is collaborating with Payward/Kraken, the Californian Bitcoin exchange, to form the first bank for digital currencies. The goal is to create a regulated platform, operated within the scope of a banking license, to trade electronic assets. Fidor Bank will contribute its experience in financial markets, banking services, and effective governance, and is part of the regulated banking environment. The bank will also provide fidorOS, a payment and online community software, via its IT subsidiary FidorTecS. And Kraken will lend its technological expertise in digital currencies.
Mobile Encryption App
It is now possible to easily and inexpensively make mobile phone calls without the fear of eavesdropping. The mobile app from T-Systems reliably encrypts phone calls, contact information, and text messages on iOS and Android operating systems. This neutralizes one of the greatest, long-standing threats to mobile communication, man-in-the-middle attacks – where a third person taps into private conversations unnoticed to acquire sensitive information. The app creates strong defenses through two powerful algorithms that run simultaneously. The software requires a bandwidth of only 4.8 kbit/s, and is therefore viable even in regions with weak network coverage, regardless of provider or platform.
Banks’ value creation processes and business models will not just be mildly affected by digitization; they must be entirely re-engineered in line with the architecture of the digital age.Thomas F. Dapp, Economist, Deutsche Bank Research
The traditional trading floor is slowly fading into obscurity as high-frequency electronic trading gains traction. These agile brokers already account for 40 percent of stock market transactions in Germany, and approximately two thirds in the US. Their algorithms respond to fluctuations in prices in fractions of a second. Initially, glass fiber cables were used for these highspeed transactions, and now, through millimeter and microwaves, orders are transmitted at close to light speed. In North America, a number of traders transmit their data via laser technology to shave off additional nanoseconds. Some of these so-called ‘flash boys’ use high-performance computers, equipped with powerful Intel processors that are not officially on the market.
Social media for the affluent
Credit Suisse is responding to Google, Apple and Facebook encroaching into its traditional banking backyard by launching its own social media initiative. The institution, boasting 872 billion Swiss francs in total balance sheet assets, is working on a network reminiscent of Facebook for high net-worth clients. It is a platform where members can develop and exchange ideas, and make joint investments. Credit Suisse is also planning additional projects for the Asia-Pacific region. These include personalized newsfeeds, virtual investment portfolios and algorithms designed to attract positive attention on social networks.