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CEO blog: Make the most of opportunities by going digital

CEO Valentin Stalf talks about the future of banking and how we can make the most of the opportunities offered by digitalization.

5 min read

The financial sector is in the midst of a seismic shift. A lot has changed over the past 10 years—bank branches have been replaced by smartphones, data centers by the cloud, and hefty interest rates by a low-interest market that shows little sign of changing. The result is an environment that’s hugely beneficial to customers—with better, more intuitive products, lower costs, and massive opportunities. All this presents us with the unique chance to turn Germany—and Europe—into the frontrunners of the global financial sector.

Smartphone digital banking: A few short years ago, many of us couldn’t imagine making bank transactions from anywhere in the world with just a few taps. Yet today, digital banking is the norm for millions of customers. A smartphone now has more computing power than a bank branch terminal, enabling banks to communicate with customers more quickly and conveniently while boosting the security of accounts and transactions.

Compared to the rest of the world, however, Germany is only at the beginning of its digitization journey, lagging behind China, the US, and other European nations. 2020 was the first year that Germans spent more in digital form than in cash. In other words, Germany is catching up, but it remains far behind other digital pioneers. Sweden is currently the clear frontrunner— with 80% of all payments made digitally. In recent years, Estonia has also become one of Europe’s IT frontrunners, with its public administration turning fully digital.

The benefits of the cloud: Hosting enormous data centers used to be an important function of banks. Yet today, they’re essentially obsolete—and tend to raise costs. With the cloud, banks can operate at a much lower cost while improving service and offering greater opportunities for scalability—all while ensuring improved security. We can’t imagine life without it, and not just in the financial sector. The in-house data centers of the past no longer exist, and the transformation across sectors is real. In a heavily regulated environment like the financial sector, this represents a major challenge for regulators and companies alike.

Given this, we need stable planning and a simple regulatory framework with standards that are easy to comprehend—something that facilitates technological progress and doesn’t impede it. In recent years, the gulf between technological advancement and the applicable regulatory requirements has grown ever wider. The revision of the “Minimum Requirements for Risk Management” (MaRisk) by the German finance authority Bafin is the first step in the right direction, but further efforts are required. Here are some tangible examples:

  1. New regulations are first published in German and then translated later into English. In general, English publications should be the standard.
  2. The cloud brings security that banks themselves no longer need to provide. Often, audits are based around older technologies that pre-date the cloud. As a result, audit standards need to be adapted to take new technologies into account more quickly to avoid adding unnecessary outlay, while still minimizing risk.
  3. New cloud-based tools like Jira are not accepted as a replacement for the rules of procedure that have been set out in writing—or are only accepted begrudgingly. On a global level, these tools within the Confluence suite are used for managing complex development and production processes, including in highly regulated industries such as pharmaceuticals. With Germany’s position as a financial hub, it follows that there are benefits to be harnessed in employing these tools. 

Lastly, we can’t forget about the opportunities open to us—particularly for our customers, who stand to receive better services at much lower prices. If we forge ahead as pioneers in Germany and the EU while working in conjunction with regulators, we’ll be able to generate local advantages.

Paying for our money: Right now, instead of receiving interest on investments, we’re paying for banks to keep our money. When this began, it was a painful reality to accept—it didn’t make sense for our money to depreciate in value while sitting in our account. However, this is indeed the case—particularly for larger investments. As a result, the financial industry needs to rethink everything, from interest spreads and income to sustainable services that customers value—which in turn enable other methods of monetization. Today, an efficient cost structure and an international reach are prerequisites for sustainable retail banking. The only way to finance investment in company teams, cutting-edge technology, and up-to-the-minute products is through scaling business models. Nowadays, there are simply no banks prepared to develop a tech platform and app for a region of 500,000 people. The only way to successfully overcome these challenges in the long-term is by transcending borders.

This is the reality, but it’s not a vision of the future. We’ve come this far, and if we’re bold enough to take this step, others will. In turn, there are two major areas where politicians and the financial sector need to take action.

First, the financial markets in the European Union need to work in harmony, with existing standards implemented in a more consistent fashion. Within the EU, national requirements are highly fragmented, getting in the way of setting up a cross-border financial sector. Streamlining these rules and rolling them out across the European single market is critical if we want to strengthen the European Union from the inside, while maintaining a competitive edge on an international level.

Second, combating money laundering and terrorist financing needs to be the ultimate priority for the financial sector. All stakeholders in this space are forging ahead in this respect, thanks to extensive investment in additional staff and ultra-modern technology. At present, though, there are major differences between the methods used to identify and verify customers within the EU. Unified pan-European standards for identification and security are one way to combat fraud more decisively, and a European anti-money-laundering authority and central security authority could be central stakeholders in this effort.

Today, our customers’ world is a digital one. From our weekly shopping to booking a cab to taking out an insurance policy—our daily lives take place in the digital realm. The financial sector plays a key role in turning the world digital and has enormous opportunities within its reach—and it’s up to us to make the most of them!

By N26

The Mobile Bank

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