Digitisation and its impact on business processes in the banking sector

Table of contents

List of abbreviations

List of figures

1 Introduction

2 Theoretical foundations
2.1 The banking sector
2.1.1 Structure and organisation of the banking sector
2.1.2 Changes in customer needs / customer focus / customer behaviour due to structural change
2.2 Digitisation
2.2.1 Definition of digitisation
2.2.2 Digitisation of the financial sector / business processes with regard to customer focus

3 Process automation / Effects of digitalisation
3.1 Effects on the new technologies / business processes
3.2 Impact on the new business models in terms of customer focus
3.3 Importance of digitisation for the banking sector

4 Abstraction of results

5 Critical reflection and outlook

List of sources

List of abbreviations

Abbildung in dieser Leseprobe nicht enthalten

List of figures

Figure 1: Elements of the Banking System of the FRG

Figure 2: Online purchases by sector in %

Figure 3: Ecosystem of digital marketplaces

Figure 4: Paradigms of the Internet of Things

Figure 5: Non-bank providers

Figure 6: Fin-tech competitors in retail banking

Figure 7: Omnichannel approach

Figure 8: Banking 4.0 - Effects of digitisation

Figure 9: The banking IT of the future

Figure 10: Basic ideas for the innovation of business models in the banking sector

Figure 11: Basic ideas for the innovation of business models in the banking sector

Figure 12: Possible types of digital business models

Figure 13: Possible sustainable business models in cooperation with FinTech companies

Figure 14: Strategic evolution scenario:Sustainable and precarious positioning of local and supra-regional banks

Figure 15: Comment on the strategic evolution scenario

Figure 16: Strategic Disruption Scenario: Sustainable and precarious positioning of banks

Figure 17: Comment on the strategic disruption scenario

Figure 18: Importance of the challenges for banks

Figure 19: TOP 10 bank projects

Figure 20: Measures relating to customers and customer management

Figure 21: Customer involvement in the innovation process

Figure 22: Involving customers in the innovation process - Digital Media?

Figure 23: Aspects of significance for sales success

Figure 24: Importance of product and service categories

Figure 25: Importance of organisational challenges

Figure 26: Importance of the requirements for future bank employees

1 Introduction

The information age is increasingly replacing the industrial age - this has greatly increased the importance of information for a successful and sustainable competitive advantage. This brings with it very far-reaching and complex challenges for companies.¹

On the one hand, very large amounts of data will have to be processed and, on the other hand, the question arises as to how these data are to be processed - the focus here is on the issue of digitising work processes in operational banking business (corporate and retail banking) and their effects on the real banking workplace. International information - also known as global information channels - is causing the economic significance of material value creation to decline - the immaterial significance of value creation is thus steadily increasing. For only the right information, which must be made available at all times and geared to the company/bank, will pose a challenge that can result in the creation of value in the work process in the respective areas of the bank.² This means that the intangible value added is transferred in the form of a transfer of data into so-called business information, thus leading to additional earnings. This business information must be exploited in and from electronic media in such a way that customer contacts can arise from it, information about it can be created and, for example, added value can be created for the bank customer as a service or for sale.³

The Internet and digitalisation are unconditional electronic supports that are revolutionising the banking sector. So-called FinTechs, companies which, with technical innovations in the financial services sector, will fundamentally change banking transactions with customers - this is also happening with the demands on the workplaces of bank employees.⁴ The FinTech sector (Financial Technology) is extremely innovative and has accordingly built up a dynamic and fast-moving environment. Digitalisation and the Internet with its social and business media have a significant role to play in the working environment of banks. The FinTechs use these opportunities to reach bank customers through the new technical possibilities, to inform them, to offer them financial services, which are carried out completely contrary to what has been done up to now - furthermore, usability, efficiency, transparency or even automation is enormously increased.⁵ Digitalisation will open up new so-called fields of action, which will result in completely different retail customer advice and thus place new demands on retail banking. The transformation of the customer journeys (= customer-contact-distribution channels) across all new and digital distribution channels will provide customers with a completely new type of banking service.⁶

Thus, part of this work will be to depict this digitalised banking world with regard to its processes in terms of customer focus. How are the digital effects on the business processes of the changing banking models on customer service etc.?

The financial industry is undergoing fundamental change in the digital age. Like trade and industry, the banking sector is now in the digital age in a disruption of the business models of the previous financial institutions. The effects of the financial crisis of 2007, the tightened financial regulations and also the somewhat uncertain European political financial situation are also significant in the change / upheaval of the financial sector. Currently, and as in the past, Germany is, so to speak, overbanked - this has led to many branches no longer being competitive and having to close them from an economic point of view - and now, exacerbated by record low interest rates, the still extensive branch networks of many banks and savings banks are becoming even more unprofitable. So it is high time for banks and savings banks to get back on the helm.⁷

Another part of this work will be the presentation of the changing banking world, which is forced by digitalisation to adapt its strategic banking models and to focus on customer centricity.

With the change of the "Customer Touchpoints", the presence in the area must also be rethought. If the needs of the most important target groups are now considered, a suitable digital range of products and services and on-site advice can be available at the same time. A suitable example on the Internet could be Amazon, for example - they carry out a consistent customer orientation on the net and thereby achieve a very strong market dominance - at the same time they build up branches in order to be very close to the customer. In this context, the so-called "Zurich model of customer-centric banking architecture" highlights three central points for a sustainable business model:⁸

1. consistent customer orientation: " alignment of all strategic, structural and cultural dimensions to the needs of the customer. “
2. business models capable of digitisation: " Supplement the instruments of the classic business model with factors relevant to success in the digital age; expand the network capability and virtuality of banks. “
3. transformation competence: " Systemic view of strategy, structure and culture are necessary conditions for promising further development. “

Thus, this thesis will concentrate on the effects of digitisation on strategic business processes in the banking sector against the background of the customer focus and critically examine the above mentioned facts.

Accordingly, the working title and objective of this thesis is: Digitisation and its impact on strategic business processes in the banking sector against the background of the customer focus.

The following chapter outlines the theoretical foundations of the traditional banking sector and the changing structures that require banks to rethink the models and techniques described. Subsequently, the topic of digitisation is clarified so that the effects of this on the financial sector can be understood in terms of customer focus.

In the third chapter, the effects of digitisation on the banking sector, e.g. with regard to newly required technologies, business processes, business models etc., are critically presented on the basis of selected studies and relevant literature.

In the fourth chapter, these effects are summarised in order to be critically reflected in the final chapter 5. This will be followed by a brief outlook on this topic.

2 Theoretical foundations

In this chapter, the banking sector in Germany is briefly presented in its structure and structure and the changes in customer needs and customer behaviour due to the structural changes in the changing digital banking world - this will then allow a better understanding of digitisation in this banking and financial sector with regard to customer focus in context.

2.1 The banking sector

In our economy there are so-called market participants - these are also called participants in the economic cycle. These market participants act in this cycle more or less freely, but in a cycle of dependency and mostly for their own benefit and advantage. Market participants with money surpluses - e.g. private households will temporarily invest them with the banks to earn interest income. They could also spend these surpluses on consumption, so that companies make profits from them, and these in turn invest them in other profitable projects, in order to achieve higher returns. This is called a market-based financial system in which market participants invest their surpluses directly in market participants. The banks play an important role in this respect, because the surpluses, whether they come from companies or private households, are mostly collected and managed by the banks in Germany and profitably spent on loans to these companies and private households. This is what is known as a bank-oriented financial system.⁹

2.1.1 Structure and organisation of the banking sector

The German banking system must be seen in a certain totality, i.e. institutions such as the Bundesbank and the commercial banks as well as banking supervision and banking associations must always be seen in context, since legal, economic and organisational interdependencies are at the heart of this system.¹⁰

The following figure shows the elements or institutions of the banking system of the Federal Republic of Germany and illustrates the interaction of these in the banking structure.

Abbildung in dieser Leseprobe nicht enthalten

Figure 1: Elements of the Banking System of the FRG¹¹

The banking system in Germany is based on two levels and is structured in the so-called "three-pillar structure¹²

- First level: Customer-oriented credit institutions with the aim of achieving maximum profit.
- Second level: European System of Central Banks = ESCB - this includes the Deutsche Bundesbank and its central administrations. The ESCB regulates at European level the supply of credit and the circulation of money for the economic cycle and its economic agents.

In this German banking system, a distinction must be made: Universal bank and special bank.

The universal banks are classically banks that offer all banking products / financial services and are available to all bank customers.¹³

The specialist banks - especially the real estate credit banks - are more important in this banking system than the universal banks mentioned above. The consumer credit banks operating alongside them have lost in importance. Discount broker banks and direct banks are in great demand because of the use of new media in digitalisation and young bank customers in particular make up the largest percentage of the clientele.

Three pillar structure:¹⁴

Private commercial banks

Banks organised under private law have been established here - these are e.g. large banks such as Deutsche Bank AG, regional banks and the so-called private bankers.

Public law credit institutions

These are banks organised under public law which act in accordance with public commercial law - these are, for example, the savings banks. In this system, the Landesbanken are a kind of central bank for the public savings banks - these act, for example, according to the principle of public mandate (not only profit-oriented and socially responsible), thus also subject to business restrictions, and also according to the regional principle (to provide the region with credit - entrepreneurs and, for example, young building investors, etc.).

Cooperative banks

Here, banks operate in a cooperative principle - organised according to the Cooperatives Act and are in the idea of an economic association with the idea of self-help as a business basis. This includes e.g. the Volksbanks, the Raiffeisenbanks or the West German cooperative central bank (WGZ-Bank) - but also the German cooperative central bank (DZ-Bank).

These three pillars have grown historically in Germany - first there were the private bankers, who offered small needs in money transactions also for the less wealthy customers. Then came the savings banks and Landesbanken, which were and still are active on a regional, structural and social level. When industrialisation and later global trade dominated economic activity, the joint-stock banks came up to provide companies with their own and larger sources of finance. In this system there are many hybrid forms which cannot be assigned in this way.¹⁵

When the Federal Financial Supervisory Authority (Bundesanstalt für Finanzdienstleistungen = BaFin) was set up in 2002, an all-round financial supervisory authority was established in Germany, which has a state and sole banking supervision mandate covering the entire financial market - i.e. the insurance sector, the banking sector and the securities sector. Thus, BaFin also has these three pillars of the industry as an internal structural division: 1st pillar banking supervision, 2nd pillar insurance supervision and 3rd pillar securities supervision.¹⁶

In addition to BaFin, the Deutsche Bundesbank is also entrusted with banking supervision. In addition to BaFin, the competent supreme state authorities (§3 BörsG) are also responsible for stock exchange supervision. The main objective of banking supervision is to ensure that the financial sector as a whole functions in accordance with the law - this is where the abuses in the financial system are to be counteracted and where a certain degree of security is created for the banks, the companies and the private customers so that proper financial management can be carried out for the economy as a whole.¹⁷

2.1.2 Changes in customer needs / customer focus / customer behaviour due to structural change

This part of the work is intended to illustrate how the banking world and the entire market world is changing, not only in Germany. This refers to technology and the resulting changes in customer behaviour, because these two factors are changing customer needs, consumer behaviour and, accordingly, the shopping and service (banking, finance, etc.) habits of customers, people and market participants.

Stationary trade is a direct communication between buyer and seller - Internet trade, on the other hand, is a completely new type of trade and therefore poses a particular challenge for trading participants. Smartphones and their sensory techniques recognise the complex context of the user - the situation in which a customer finds himself and may recognise the importance, urgency and special nature of the purchase and, in doing so, the attractiveness of making a specific purchase offer, in order to then arrive at a possible purchase request by the customer.

The companies can use these connections as a consumer database to build up a customer relationship and to react individually, so that the customer continues to receive tailor-made offers and feels wooed.

In the Middle Ages, marketplaces were the focal point of urban life - places where supply and demand meet through selling and buying - buyers and sellers offering and buying goods and services. These markets are always subject to enormous change, due to new legal possibilities, new trade routes (e.g. mail order companies) and also new technologies (digitalisation, Ebay etc.).¹⁸

Internet technology is probably the most decisive factor of change in this market - a disruptive change will take place here that will make local markets almost completely forgotten in the real world (Ebay, Amazon, etc.). Even the stationary traders will not only sell locally, but will create online shops on the net and serve the customers there - thus operating in a multi-channel mode, i.e. using not only one distribution channel, but all available ones that make sense for them.¹⁹

B2C = Business to Consumer market is very popular in Germany - Ebay and Amazon are by far the biggest players in this market. Certain product groups are extremely preferred online: books, CD/DVD, clothing and electrical appliances, these account for more than 50% of sales. Other product groups are currently still niche products such as car parts, wine and spirits - here only 10% of customers order these niche products. - See the following figure.

Abbildung in dieser Leseprobe nicht enthalten

Figure 2: Online purchases by sector in %²⁰

The so-called ecosystem of digitised marketplaces consists of the following market participants: buyers, sellers, logistics partners, a communication and interaction platform and a trust centre. Thus, the distribution on the digital marketplace is as follows:

- Communication and interaction platform: Systems and applications for smooth communication between customer and salesperson. Online portals - mobile applications for smartphones Phone - video conferencing - digital written communication (e-mail, etc.).
- The so-called trust centre is a kind of security interface - suppliers and consumers find a basis of trust here - a clear identification of the participants is also shown here - secure payment of goods / services also takes place in this interface. Thus the trust centre is a link between customer and seller, which guarantees the security of the correct processing of the purchase contract and payment.²¹

Abbildung in dieser Leseprobe nicht enthalten

Figure 3: Ecosystem of digital marketplaces²²

And this is precisely where the basis of trust between customers and technology lies, which is naturally also transferred in the banking business.²³

Up to now, investment advice at banks and savings banks has mainly taken place within the framework of personal consultations. This traditional banking advice at the branch is fundamentally costly. For customers with low investment volumes, this is hardly possible profitably due to the increased legal requirements and the associated expense of providing advice. This is true even if the customer is offered complex products with higher bank margins.²⁴ On the other hand, some customers are turning away from traditional consulting services in a bank branch on their own initiative. The benefits of personal advice are questioned by these customers; in particular, bank advice does not gain the trust of customers, as the opinion prevails, not without good reason, that bank advisors are not objective towards their customers and generally provide their own advantageous advice. Furthermore, there is the constant dissatisfaction of the so-called ROPO customers (=Research Online Purchase Offline customers), who do not accept banking processes of this kind. These Internet customers expect a permanent design of the banking processes and this across all sales channels. These Internet customers (ROPO customers) want to be able to use these sales channels at any time - they also want to be able to leave them at any time and in turn want to be able to resume online service via other channels, which they select themselves. Naturally, the data collected should be retrievable and processable on the channels they have selected themselves.²⁵

Most customers expect the advisory system to provide support at this level of advice - and it should also be possible to check the appropriateness and suitability of an individual portfolio, including capitalised earnings values and risk assessments, by means of an automated online service. There is another requirement in the background: The online products must be easy to understand and very transparent. In this context, it is not just a question of explaining various complex topics, but rather of reducing complexity.²⁶

What should be offered in practice and what technology should be used in the future to meet these customer requirements - this is precisely the situation which is opening up due to the changed technology - digitisation and thus changing the business processes of the banking and financial sector (Chapter 2) and which will have an impact on other banking activities in a way yet to be described (Chapter 3).

The seamless interaction of the channels has already been an important requirement in recent years. In the future, it will become even more important with the increasing importance of mobile solutions. First of all, permanent and consistent data availability across all sales channels is a first basic requirement to meet these customer requirements. In the future, personal consultation will also be maintained - but this can be supported by technical possibilities. Tablet and video applications are ideal for this purpose, which are particularly suitable for standard consulting. Personal consultations with higher margins for the banks could be more interesting for them than consultations with lower margins. As a result, not all products will be equally suitable for a detailed consultation. For example, 61% of the experts surveyed think that banks and savings banks will in future increasingly offer advice on low-margin products by telephone, video etc. - correspondingly in person via technology - this will release them from the need for on-site advice, which will save time for both sides. The products which are high-margin and require very individual advice will continue to be offered to the banks in a personal on-site consultation.²⁷

2.2 Digitisation

Digitisation as such cannot be defined conceptually in an impeccable and generally valid way, but can be put into a general and specific view.

2.2.1 Definition Digitisation

Digitisation in itself has two fundamental meanings: One view is the transformation and representation or implementation of information and communication in digital form, as we find it everywhere today, the other view refers to the digital redesign of instruments, devices and applications in the digital field. This digital transformation and redesign is called the digital information age we are currently in - replacing the industrial age of the 20th century. In the 20th century, information technology has provided automation and optimisation in many areas of life and has been used, for example, as a support in private households (kitchen appliances, for example), as modernisation in the workplace with computer technology, computer programs for faster work, office programs for optimal work processes, etc. Here, information technology as an optimisation technology was in the foreground.²⁸

Since the beginning of the 21st century, a new generation of digitisation has been launched, developing disruptive technologies and building innovative business models that lead to automation in the work area and to further flexibilisation and individualisation in the digital domain. In the process, the private sector as well as the work area will be decisively changed. Mobility of data and information is possible almost worldwide through digitisation and the accessibility of data, people, customers etc. is almost unlimited and time-unlimited. This heralds the fourth industrial revolution - also known as Industry 4.0.²⁹

In the literature, digitisation is used in two levels - one level is that it refers to the transfer of information from analogue to digital storage, the other level describes the process of change/impact brought about by the introduction of digital technologies and application systems.³⁰

On the one hand, the different media are seen, which store analogue contents in digital media, so that their contents are no longer bound to their medium and are therefore more freely available and applicable. On the other level we see the changes/impacts of work/action that will inevitably follow this digital change.³¹

Furthermore, the literature also sees an extended definition of digitisation in the possibility of all-time availability and accessibility of data - and thus the elimination of temporal and local retrieval restrictions. In this area, the Internet has been a major driving force behind the constant changes in industry, finance and society in recent years.³²

In the first stage of development on the Internet, documents were initially networked (Web 0.0 "Connected Documents") - after about 15 years, Web 1.0 was connected for companies ("Connected Companies"). The technical basis was the WEB server, the browser and the common program languages Java and XML. During these years, the basis was created for many people to reach, communicate and network in the business world via the Internet. Thus the physical world was and is connected to the digital world in the "Internet of things". This has created the connection of business models via "business services" ("Connected Business Models"). Accordingly, communication here takes place not only among humans, but also between machines and from human to machine.³³

These developments in application possibilities have led to new technologies for information processing, Internet-based networking of services and business models in all conceivable areas - and there has also been a rethink in the banking sector about how to use these application and communication technologies to reach private customers (because today's and tomorrow's private customer will hardly ever visit a branch for advice) and to make them aware of banking products, communicate with them and ultimately conclude the contract with the private customer.³⁴

Experts speak of three paradigms of the "Internet of Things", which are outlined in the following figure with the common goals: Internet access and evaluation of data with Internet technologies.³⁵

Abbildung in dieser Leseprobe nicht enthalten

Figure 4: Paradigms of the Internet of Things³⁶

[...]

---

¹ Cf. Lender, pp. 58-61

² Cf. Von Schorlemer, pp. 30-35

³ Ebenda, cf. Gruber/Bouché, p. 31 ff.

⁴ Stuckenborg et al., pp. 257-268

⁵ Ebenda

⁶ Ebenda

⁷ See Brühl 2017, pp. 19-23

⁸ See Brühl 2017, pp. 19-23

⁹ Cf. Hellenkamp 2015, p. 16ff., Cf. Tolkmitt 2007, p. 3ff., Cf. German Bundestag 2009, p. 2ff.

¹⁰ Ebenda

¹¹ See Hellenkamp 2015, p. 15

¹² See Hellenkamp 2015, p. 15

¹³ Ebenda

¹⁴ Ebenda

¹⁵ Ebenda

¹⁶ Ebenda

¹⁷ Ebenda

¹⁸ Cf. BITKOM. 2014, cf. Ard-Zdf-onlinestudie.de 2014, Cf. Sellin, H. 2014.

¹⁹ See Ebenda, Employers' Association of the Private Banking Industry AGV Banken 2015

²⁰ Linnhoff-Popien/Zaddach/Grahl 2015, p. 21,

²¹ Ebenda, see Bitcom 2014

²² Linnhoff-Popien/Zaddach/Grahl 2015, p. 22.

²³ Ebenda

²⁴ Cf. Ernst & Young. 2012, cf. Quirin Bank 2014, cf. Früchtl, C., Penzel, H-G., Weber, S., & Zellner, G. 2013.

²⁵ Ebenda

²⁶ Ebenda, cf. study Bankenverband 2017, cf. study Fraunhofer Institut 2018

²⁷ Ebenda, see study Marsh & McLennan Companies 2018

²⁸ Cf. Economic Dictionary 2017

²⁹ Cf. Economic Dictionary 2017

³⁰ Cf. study Fraunhofer Institute IAO 2016

³¹ Ebenda

³² Cf. Smolinski et al. 2017, p. 34ff.

³³ Ebenda

³⁴ Cf. Meyer/Krakow 2018, p. 49f.

³⁵ Ebenda

³⁶ Ebenda