Collaboration presents new opportunities for banks in the DACH region

Across Europe, the financial services ecosystem is becoming progressively more fragmented, with banks facing increased competition from new entrants to the market. Germany, Austria and Switzerland all have growing FinTech scenes, with investment in the sector hitting record highs.

However, DACH is a region still dominated by banks, with their history and reputation playing a big role in this. Austria, in particular, has shown less interest in banking products from FinTechs because of the high level of trust in banks.

Their Swiss and German counterparts are more open to accessing financial service products from non-banks. In Switzerland, financial products from tech companies appeal to Swiss bank customers, with more than one in three stating they would use a financial product from a non-bank provider.

The ecommerce opportunity for banks

In Austria, over half of individuals (51%) order goods or services online, cross border from other EU countries, compared with 22% in Germany. There is also a high number of ecommerce marketplace sellers operating in Austria (12% of enterprises) and Germany (9%). And again, Austria is one of the leading countries in the EU selling cross border with 8% to RoW and 13% in the EU, compared to Germany at 5% RoW and 8% EU.

With opportunities to seize this continuing growth in cross border ecommerce, banks cannot risk being left behind. Collaboration is the solution to delivering better business banking.

How does the DACH region compare to others, for cross border payments?

We spoke to 300 C-suite executives from banks across Europe as part of a study into how banks can overcome the challenges holding them back from delivering superior services to their SME and corporate customers.

Our research revealed that there is a huge opportunity for growth in the DACH region for banks, but only if they are willing to move away from correspondent banking networks, which are slow and expensive.

Only 68% of DACH respondents cited cross border payments as a core provision, compared to 90% of UK respondents.

When asked how they currently handle cross border payments, those in the DACH region were more likely to use direct clearing through central banks (70%) compared to the UK (60%) and Benelux (46%).

DACH respondents were also more likely to confirm that they use clearing through a corresponding banking network (61%) compared to the UK (57%) and Benelux (52%).

Just 4% of DACH banks are required to support international and/or domestic incoming payments for their business customers, compared to 40% of UK banks and 11% of Benelux banks.

DACH banks also support fewer customers in terms of outgoing international payments than other regions, at 6%, compared to a third of UK banks and 11% of Benelux banks.

However, more than half (51.3%) of banks in the DACH region are considering partnering with a service provider on services such as FX, trade finance, or payments within the next month, and this could be key to ensuring that DACH doesn’t fall behind other regions when it comes to global payments.

Challenges faced by the DACH region

Respondents in DACH regions shared slightly different concerns to their counterparts in other areas of Europe.

In the DACH region, lack of C-suite or board-level support was just as big a challenge as infrastructure in achieving business objectives, with 40% of banks selecting each of these options, compared to a considerable sway towards the latter in both the UK and Benelux.

Within the same question, lack of funding was less of a worry for DACH respondents (31%) compared to those in the UK (35%) and Benelux (37%). With the budgets available to make improvements that optimise infrastructure, opportunities are huge in these countries, but to take full advantage of this, banks must prioritise getting buy-in from C-suite.

When asked about the main external challenges posed, more DACH respondents cited working from home operations, at 38%. However, DACH respondents were less concerned with data security risk (30%) when compared with those in the UK (43%).

What are banks in the DACH region focusing on?

Key focuses over the coming year is another area we see disparity between regions. When questioned about their main IT priorities for the next 6-12 months, DACH banks placed less emphasis on prioritising customer experience compared to banks in the UK and Benelux, at 29% and 26% respectively.

They were, however, much more focused on compliance with new regulation, at 27%, compared to those in the UK (20%) and Benelux (14%).

A quarter (25%) of decision makers in the DACH region are also planning to prioritise improving AML processes, compared to 17% of UK respondents.

While there is recognition that front-end and user experience are important, it is back-end, especially with regards to regulation, that is more of a focus for DACH. There’s an opportunity for AML and compliance processes to be significantly improved if DACH banks are willing to partner with third parties that utilise more data-driven models.

Digitalisation, innovation and collaboration are key to the future of DACH banks

Banks in DACH have room to improve when it comes to digitalisation and innovation, however, importantly, the stats show that they are willing to take the leap and partner with third-parties, with over half intending to execute these plans in the immediate future.

As the FinTech sector in DACH countries grows, so does the need to collaborate. Partnering rather than competing with providers in this space will allow banks to take advantage of the appetite for cross border trade.

Opening up the ecosystem to FinTechs and taking inspiration from neobanks operating in the region will help future-proof incumbents in DACH against their more agile competitors.

To find out more, download our insight paper: ‘Bankgeschäfte besser tätigen: Zusammenarbeiten für den Erfolg‘, which is also available in English here.