Germany, Austria and Switzerland, often grouped together as the DACH region, all have bustling fintech scenes. That’s bad news for German banks as they are already losing nearly 3% of their retail revenue, due to fintechs each year. According to experts banks must fight this by regaining control of the customer interface either through in-house developments, cooperation, investments or takeovers.

When it comes to the uptake of online banking services, the German and Austrian markets show moderate enthusiasm, being slightly more developed than the EU average. In 2018, the two countries ranked 15th and 16th, respectively, in online banking penetration among the 28 member states.

Don’t let these figures fool you, though. In absolute terms, these numbers represent a huge market: circa 49 million online banking customers in Germany and an additional five million in Austria. In Switzerland, 66% of individuals, or about 5.5 million people banked online in 2017, according to the latest Eurostat data.

Cash is still strong

In Austria, a huge part of the population still feel strongly about using cash and staying loyal to their main bank. For example, 63% only use their primary banks to access money services. A mere 2% of Austrian customers with a current account have their main account with an online bank (Direktbanken in German), according to the country’s central bank.

A recent survey by local incumbent Erste Bank shows that about 80% of Austrians admittedly don’t care for banking offers from fintechs. More than 80% wouldn’t be interested in banking with Amazon, either, with 87% having reservations about Google and 95% about Facebook, too. What Austrians care a great deal about, the survey concluded, are data protection, personal relations and trust.

These sentiments are in stark contrast with another report that found that 37% of Swiss and 51% of German participants are open to purchasing financial products from established technology companies.

Quick access is the key

Just like Austria, Germany’s banking system is largely cash-driven, with only 59% of interactions carried out through online or mobile channels. Desktop and laptop still account for the majority of digital banking interactions but if predictions are to be trusted, not for long.  Smartphones make up over a third (35% and 34%) of all digital transactions among senior millennials aged 27-37 and young millennials aged 18-27, far above other age groups.

Similarly, millennials are leading the way in using digital banking services in Switzerland. Some 80% of customers aged 18-45 tend to use everyday banking services online. For 27.3%, quick access to online banking is the deciding factor when selecting a bank. Overall, 43% prefer mobile banking to desktop banking, with the German-speaking Swiss (58%) being more committed to traditional digital banking methods than the French-speaking Swiss (43%).

Bustling fintech scene

Germany, Austria and Switzerland all have bustling fintech scenes. The number of startups in Germany, for instance, stands at around 700, having increased by 33% each year on average over the past decade. Not to mention that Berlin is one of Europe’s key fintech hubs. Small wonder that there are quite a few German neobanks and digital-only challengers among European MVPs, including N26, Fidor and solarisBank.

That’s not exactly great news for German banks. In fact, they are already losing an estimated €1.5 billion, or nearly 3% of their retail revenue, due to fintechs each year, with neobanks accounting for about €20-30 million of their lost income, according to a study by Clairfield International. It also doesn’t help that local banks are struggling with an earnings problem caused by low interest rates, declining commissions and stagnating trading results. By 2022, this loss of revenue is expected to reach €2 billion a year.

User experience is still often poor

Banks must fight this by regaining control of the customer interface either through in-house developments, cooperation, investments or takeovers, Clairfield International recommends. At the same time, key digital-only players in Germany managed to bag significant amounts of fresh capital in 2018 to feed their future growth: N26 raised $160 million from Allianz and Tencent, while solarisBank attracted €56.6 million from investors including ING Amro, Visa and BBVA.

User experience is one field where banks had better invest generously if they want to keep up with challengers. Especially in Switzerland, where institutions rank high in digital offerings, but they do rather poorly when it comes to user experience ratings, Deloitte says. Although traditional products are digitised to a high degree in Switzerland, open banking functionalities are still in their infancy. Beyond banking services, like buying parking tickets or registering a company, are far behind leading banks elsewhere in Europe, such as in Scandinavia.

Digital-native challengers and skyrocketing customer expectations have put their largest markets and profit drivers at risk. Join us in dreamy Vienna and hear real heavyweights of incumbents, challenger banks and fintechs talk competition, collaboration and everything in between on 25 June at Tribe.Space.

BEYOND BANKING: WHAT TRADITIONAL BANKS AND NEOBANKS CAN LEARN FROM EACH OTHER

BEYOND BANKING: WHAT TRADITIONAL BANKS AND NEOBANKS CAN LEARN FROM EACH OTHER

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