Danske Bank's Lars Sjögren proposes that a time of digital disruption is a time of opportunity
The financial services industry is facing a wave of digital innovation and disruption. New and often non-financial industry based contestants are entering the scene, while novel concepts such as digital wallets and block chain technology, are gradually finding their way into the Fintech vocabulary. While some players in the financial sector are pursuing a follower strategy and waiting to see what comes next, others have decided to be first in line, to be the change, and search for uncharted ways to unite technological breakthroughs with customer needs.
Danske Bank wants to be an example of the latter category. We find that these are extremely exciting times and things are moving very fast. The universal banking model is under attack - and there will be even more rapid changes taking place over the next five years. But with tomorrow's technologies on the rise, we see a number of unique possibilities to support our customers even better. Such opportunities span business matters ranging from their big financial decisions, throughout their financial value chain and daily banking needs.
In the corporate space, Danske Bank has concentrated its efforts on areas that are very close to the customers' every day - related to liquidity, payments and transactions - as there are typically substantial gains to be made in these areas.
What is particularly interesting is looking into how recurring processes may be handled more smoothly and in fewer steps, and how to add more intelligence to solutions already developed. Automation adds to efficiencies for the customer and is often a catalyst towards a larger degree of transparency, if more data sets are being combined in new and better ways. It is all about improving the customer experience and creating a better customer interface.
On top of this come more stringent regulatory requirements, such as Basel III, which have come to play a more prominent role for large corporates. They, too, represent an area which is possible to think and integrate into existing systems and processes, the result being flexible and less capital intensive customer solutions.
Partnerships drive innovation
Bright ideas for driving positive change very seldom emerge in isolation. On the contrary, most great ideas evolve when several minds join forces, pondering on a certain challenge that calls to be solved.
This is also the case for Danske Bank, for whom the customers play a substantial role in identifying areas of innovation potential. Our approach is that - generally speaking - we want product and services innovation to take place in close customer partnerships. This is to ensure that the solutions we come up with are spot on and respond to concrete customer needs. We learn a lot from having very open discussions with our customers, long before we realise what has innovation potential and what does not. They bring their ideas, pains and concerns to the table, and our addition is our very skilled employees, combined with solid infrastructure and business knowledge.
There is no distinct methodology to what happens next. This depends on the project and the individual customer. Sometimes the answer is co-creation, other times the customer is close to the process, but not directly involved. There are also examples of projects being initiated by Danske Bank on its own, based on trend analysis and perceived market potential.
One concrete example of co-creation could be the development of Post Trade Services, launched in 2014. This service package includes (among other things) back and middle office outsourcing, client clearing, custody services, and collateral management.
The customer had multiple manual processes at the time. After a series of talks, we mutually reached the conclusion that there would be substantial gains in automating a vast number of process steps, thereby optimising the customer's operation. The outcome is a building block model fit to the exact needs of this customer, including easy access to key figures for risk management purposes, as well as EMIR reporting regulatory compliance.
The Post Trade Services solution has been further developed to fit the needs of additional customers, who have decided to buy into either full scale or parts of the solution.
In 2015, Danske In-house Bank, saw the light of the day. Danske In-house Bank has been developed with a view to optimising the account structure of and control for corporates, whose subsidiaries have sales in currencies other than the base currency. Enabled by this solution, the subsidiaries now need only one base currency. Each time they either send or receive a payment in a certain currency, the transaction will automatically be converted via the parent company account at internal currency rates. The payment is executed as a local payment, provided that the parent company's account is linked to local clearing systems, and so an internal conversion and a local payment have been conducted in one process.
Digital on the customer agenda
You might ask yourself that if Fintech solutions entail considerable efficiencies and risk management gains for corporates, how is it that most of them are not in the driving seat to develop such solutions? Our experience shows that corporates are increasingly looking into their digital strategy and hiring digital competence, yet most of them do not have the same expertise as what is offered by their financial partner.
The core business of our customers is seldom to look into how the finance models may be optimised, or if day-to-day transactions could become remodeled to better support business financing and capital requirements. That is what we are here for. We have a genuine methodology understanding and know the risk picture inside out. We furthermore provide a stable systems framework and the ability to combine various sources of information, all of which may be combined to drive insights.
Another aspect is that of compliance, which has become steadily more pivotal, in that corporates are faced with additional capital and more complex public reporting requirements. Here the banks may play a key advisory and executing role. When the financial services provider helps out, in most cases this will be a great administrative relief for the corporate.
Tomorrow's banking partnership
Since new and less regulated players in fintech are finding their way into payments, banks in particular will play a different role in the future.
We have to do things differently because when the world changes, we must change too. That being said, some thought leaders argue that banking is moving towards becoming a commodity. In our view, this is a very simplistic picture. The way we see it, banking has a lot to do with trust. Trust between business partners, buyers and suppliers. Trust in you to settle your bills and receive payment in time, and above all, that all your financing needs are well looked after in good and in more challenging times. You have to think of and understand the full picture to offer that little extra which will make the difference.
We cannot rest on our laurels however, because only the most relevant financial services provider will survive in the long run. We should continue to refine our ability to think holistically, how we can further integrate new services and stay curious on what is next in line for disruption, what is a fad and what is here to stay. And to any corporate, our suggestion is, why not challenge your banking partner with the obstacles you are faced with, things that you believe could be done smarter?
Relationships stay in fashion
Danske Bank will continue to stay focused on finding new ways to engage. Because at the end of the day, our relevance comes down to the relationship between people and our ability to develop the most tailor-made customer services. But growing a relationship and earning the trust of customers also rests upon our ability to add more value. We should keep on contributing our competence, models or technology that will help our customers become better equipped in the long run.
Lars Sjögren is global head of transaction banking at Danske Bank
"When the world changes, we must change too"
"We want product and services innovation to take place in close customer partnerships"