D.he corona crisis relentlessly exposes the weak point of traditional banks: the digital transformation. Tech companies such as Google, Alibaba, Paypal or Apple are killing them for sales and market share in payment services.
These services are pushing their way between customers and banks, get information about customer behavior and continue to gain market power. Then there are fintechs, robo-advisors and platforms that penetrate deep into the core business of banks.
All these new competitors have one thing in common: they are miles ahead of traditional banks when it comes to the design of digital processes, access to data and their processing. You think coherently from the perspective of the needs of customers.
As soon as they trust that innovations will work and make their lives easier, they use them and stick to them. Examples of this are digital payment systems.
Not only banks and their customers could benefit from better use of data. Intelligent analysis of data could also be helpful in designing better risk management systems. This would also help the financial supervisory authority to get better insights into the activities and risks of financial institutions in real time. Fraud like Wirecard or P&R, but also money laundering offenses could have been discovered earlier or even prevented.
All of this shows that solid regulations that drive digital transformation, as well as clever supervision at the height of technological possibilities, can make the banking and financial sector more stable and competitive. Good politics are required here.
Unfortunately, Finance Minister Olaf Scholz and Economics Minister Peter Altmaier have so far been pursuing different plans. “Strategically”, they are primarily concerned with protecting or building up a supposed national champion. The federal government should have focused more on digital regulation long ago.
Guard rails for the digital
Because whether big or small, banks have to be profitable in and of themselves. They can only achieve this in competition if they rely on the digitization of their business area. Only in this way will banks, which are part of the critical infrastructure, continue to fulfill their serving function, process financial transactions and provide companies with liquidity so that they can also invest in ecological modernization.
The goal is a sustainable and digital financial center that opens up to new business models, protects its customers’ data and meets its responsibility for the real economy and the environment.
For this purpose, guard rails are needed for the digitization of the operating model, the outsourcing of digital services or the use of cloud architecture so that something finally happens here. In this regard, for example, the current proposal by the EU Commission for a regulation on cyber resilience in the financial sector is overdue.
Libra was startled
The European Union has already demonstrated how regulatory requirements for digital interfaces can advance the financial sector with the second Payment Services Directive (PSD2). With this directive, it has driven digitization and innovation in the industry, while banks have long resisted opening their interfaces. Sometimes they were now forced to enter into collaborations with fintechs.
One could get the impression that they had to be forced to their digital happiness. In the future, however, there is an opportunity for the industry here if it consistently relies on internal digital processes and interfaces to customers and external supervision.
But politics could and should also provide new impetus for digital payment, which continues to grow enormously. Facebook’s plan to introduce a digital currency with Libra has alarmed states and banks and rightly aroused criticism. With a digital currency, however, the question is not whether it will come, but when, in what form and by whom – through Facebook’s Libra, through China through a back door or as a digital euro through the European Central Bank? It should be clear here: the state has the monopoly on money, and it should stay there.
But this also means that politics does not stand in front of the queue like the rabbit, while technical innovations are putting this monopoly of money under increasing pressure. Finally, it would be important to have an electronic payment system for European banks that – in the spirit of European sovereignty – builds on its own infrastructure and technology, as the ECB has just suggested in the European Payment Initiative.
The federal government should be the driving force behind all of these issues, not an economically questionable merger of private banks. The question is not whether Frankfurt, Zurich, Paris or Amsterdam is the European financial center of the future.
The central question is how, in the age of digital payments, algorithms and big data, can we ensure that the European financial center remains competitive when markets and business models change due to crises, innovations or megatrends such as climate protection. Digitization creates an economic environment in which the actors must be prepared to constantly reinvent themselves. Politicians should not only make this possible with intelligent regulation, but actually demand it.
Robert Habeck is federal chairman of Bündnis 90 / Die Grünen. Danyal Bayaz is a member of the German Bundestag and head of the Economic Advisory Board of the Greens parliamentary group.