Commerzbank: on the road to digital transformation

In September 2016, Commerzbank launched its digital strategy 'Commerzbank 4.0'. The German bank pledged €700m of investments in digitalisation and IT per year with the aim of digitalising 80% of relevant processes by the end of 2020 – effectively evolving into a digital enterprise.

Three years earlier it had launched Main Incubator (MI), initially part of the corporate bank, or Mittelstandsbank, to promote and invest in fintech start-ups. But when Michael Spitz took over the role of CEO of MI in late 2017, the bank turned it into a research and development (R&D) unit to support the bank’s transformation. “It’s not just playing around in a sandbox, but about how MI can be part of constructing change within the bank,” says Mr Spitz.

A visible presence

MI is now housed within the digital transformation and strategy division under Jörg Hessenmüller, member of the bank’s management board. “This move was vital because the implications of what we are doing for the whole bank are now more visible,” adds Mr Spitz.

Its prototyping desk has 12 labs experimenting with emerging technologies, including artificial intelligence, big data and blockchain. They design solutions on a minimum viable product (MVP) basis, either alone or in collaboration with clients or other banks. Mr Spitz emphasises that this hands-on experience provides the bank with critical insights. For example, Commerzbank has created more than 80 blockchain MVPs but found that the technology was not needed for about 20 solutions.

The next stage – taking solutions out of the lab and deploying them at scale – is the most challenging. “With emerging technologies, there is no silver bullet with a 100% success rate. Everyone is asking for a blockchain solution that lowers costs by 30%, is immediately deployable and fully scalable – it doesn’t exist yet,” says Mr Spitz.

However, Mr Spitz senses that a few are on the verge of a breakthrough because the discussion among industry players has moved onto collaboration. “Instead of a winner-takes-all approach, [the industry] is looking at how banks and clients can work together and use these emerging technologies to resolve industry-wide issues,” he says. “This is very powerful but it is still early days.”

Supporting fintechs

In addition to its R&D role, MI continues to invest in early stage fintech start-ups, mainly in the Dach region (Germany, Austria and Switzerland). “Our sweet spot is [investing between] €250,000 and €2m, whereas CommerzVentures [the venture capital arm of the bank] invests between €2m and €10m,” says Mr Spitz. Since 2013 MI has interacted with some 3000 start-ups, seriously considered more than 800 and, as of the end of 2018, invested in 15 and is in the final stages with two more.

Its investment committee includes board members from different business lines, such as private clients, trade finance and fixed income, currencies and commodities, as well as external experts. “If we make an investment, we look to integrate the solution into Commerzbank. Just making a €500,000 investment, or even 10 times that amount, won’t really change the bank; implementing these solutions is what will change our attitude and pave the way for success with Commerzbank 4.0 and the vision of becoming a digital enterprise,” says Mr Spitz. To date, the bank had integrated eight of the 15 fintech solutions, including German chatbot e-bot7, data analytics firm Retresco, and digital assistant gini.

MI takes a minority stake – a maximum of 25% – in each fintech and encourages other banks to invest. For example, in 2018 Commerzbank co-invested with Deutsche Bank in vermietet.de, a Berlin-based property management start-up. “That is a seismic change – what used to be a competitive space is now collaborative,” says Mr Spitz. “This reinforces the point that it is no longer the winner takes it all, but how a solution can help the financial services industry provide better client offerings.”

The client journey

Bringing Commerzbank’s clients along on the digital transformation journey is top of mind for Mr Spitz. In 2018, he went on the road and saw more than 270 corporate clients, small and medium-sized enterprises (SMEs) as well as large multinationals. “In addition to asking about their problems and priorities, we explained our approach to digitalisation and R&D, which took many by surprise,” he says.

Many of these SMEs and large corporates are technology companies such as Bosch, which registers a new patent every 35 minutes, according to Mr Spitz. “They can help us become more digital, engage in the circular economy and together we can develop new business models,” he says.

He reports that the conversation is no longer with the finance director or chief financial officer, but with production or IT. “It becomes a different conversation because they also work with an R&D mindset,” he says. “For example, car manufacturers are considering what a self-driving car will look like in five to 10 years and how people will pay for them – so we are helping them design cars from the payments perspective.”