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Innovation and transformation processes
Philipp, Kai, against all odds in the current environment, 2022 was a good year for you. What makes you so successful?
PS: Of course, we also felt the effects of the crisis year 2022 and, like everyone else, struggled with the sharp rise in interest rates and the resulting unprecedented challenges. However, it was a really good year in terms of transformation and digitalization because we took important steps forward both in the further development of our existing operating and business model and regarding the establishment of new business models. Thirdly, in a very intense strategy process, we defined a new corporate purpose from which we will derive all our future steps.
KK: Especially in times of continuously changing and unpredictable external influences, the routine and experience of our bank as well as the commitment of our employees – also to support change – are key success factors. A 160-year-old bank is subject to constant change. To keep up with the current pace, crucial innovations and change processes were initiated by the board of management already five years ago. These transformation experiences have become important anchor points for our staff in recent months.
What role do new digital products and services play in all this?
PS: Well, it would be alarming if they weren’t at the heart of our considerations. Digital solutions are a key component of our strategy in two respects. First and foremost they benefit our customers, who rightfully demand that simple issues they experience as “annoying” should ideally be solvable with as few as three clicks – i.e. without a lot of fuss, hundreds of process steps, thirty pages of paperwork and a forwarding chain through multiple departments. Of course, this also takes a great burden off our employees. Moreover, digital solutions play a big role not only for our front end, but also for our back end. They are indispensable when it comes to serving our customers at the necessary speed and to addressing the dramatic shortage of skilled workers.
Process optimization and customer orientation
Do you have any recent examples?
PS: For instance, we have automated the majority of our processes for construction financing. Except for a few manual steps, a robot is used for the entire process chain from processing incoming applications to dispatching the final contracts. This allows us to not only serve our customers faster, but also to save capacities in the back office. Another example is the use of artificial intelligence in our customer service center, which allows us to immediately route incoming calls to the right contact person with an accuracy of 90%. There is no need for annoying transfers, callbacks and the like and customer requests can be dealt with immediately on the first call. This makes us a lot more accessible and our customers hardly ever have to spend time on hold.
KK: As Philipp’s examples illustrate, our focus is on internal process optimization and employee empowerment as well as on customer centricity. Two years ago, we launched the first loan application route for corporate customers, which we had developed in collaboration with local software engineers. It allows entrepreneurs to get a truly personalized loan offer in seven minutes by uploading no more than three documents. Even for new customers, our product can immediately calculate interest rates on a daily basis taking into account the financing requirements and the objects to be financed as well as the company’s credit rating. After the initial pilot phase, we are now offering this solution to other banks and fintech companies, as well. The upcoming release will feature a new automated guarantee insurance offering by R+V: a real added value, according to our test customers.
Collaboration with Atruvia and third-party providers
Sounds exciting. In which cases do standard solutions suffice for the implementation of such initiatives, and what are the cases where you as Volksbank Mittelhessen have to draw on specialized solutions to meet certain requirements?
PS: Of course, we primarily rely on the solutions provided by our central IT service provider, Atruvia. They offer a versatile, high quality portfolio and are already connected to our core banking system, which makes things a lot easier. Only when a certain need cannot (yet) be covered, we draw on third-party providers or develop solutions in collaboration with external developers. This was also the approach in the three projects we just mentioned as examples.
KK: In addition to the aforementioned application examples, we have, among other things, improved our internal communications through a completely new social intranet. We programmed and further developed it in collaboration with a local partner over the past three years, as our requirements in terms of depth of use, data sovereignty and security were not met by popular providers on the market. As a bank, you can’t just rely on out-of-the-box solutions, even when they are widely used. The newly developed software improves the speed and focus of communication within the bank. Many separate areas, such as internal job postings or the communication of the bank’s strategy, can be consolidated and also accessed on mobile devices.
What does this mean in terms of your collaboration with the central IT service provider of the Genossenschaftliche FinanzGruppe, Atruvia, and third-party providers?
PS: In principle, our “hierarchical dual strategy” does not really affect our cooperation with Atruvia. But of course, it doesn’t hurt when innovative third-party solutions set a higher benchmark. Ten years ago, many players were still auguring that fintech companies and digital services providers would push the established players out of the market. In our view, though, the relationship has actually become fairly symbiotic. What we mean by this is that third-party providers are happy to collaborate with us because they have realized that central IT service providers won’t become obsolete. And they know that we like to work with third-party providers whenever we need customized and user-friendly solutions quickly.
Requirements and limits for connecting third-party solutions
Sounds like you’re getting the best of both worlds. What is necessary for an approach like yours to succeed, for example in technical and organizational terms?
PS: First of all, the quality and stability of the third-party solution is a crucial factor. We are a large institution with around 340,000 customers. Therefore, the solutions we deploy must work reliably. Moreover, it has to be ensured that the third-party providers we collaborate with can provide fast and substantial support. From a technical point of view, the biggest challenge is integrating the solution with our system. Often, a so-called “middleware” is required for transferring data between the core banking system and the third-party solution. This middleware “bridge” cannot be provided by the third-party suppliers themselves, which is why we have to develop it in-house. Thus, you can only get the “best of both worlds”, if you have a powerful and well-staffed IT infrastructure yourself. Last, but not least, using third-party solutions also means getting used to new user interfaces. So we have to train our staff to ensure they can use the software in their daily routines with low error rates. The larger and the more heterogeneous the group of users within the institution, the more demanding this is in terms of skills management and culture.
KK: This requires a high degree of willingness to change among employees as well as perseverance and assertiveness on the part of the teams and enablers who are implementing the new solutions. Quite often, numerous hurdles have to be overcome even before the pilot phase: codes have to be adjusted, interfaces must be checked, tests need to be run, various departments and teams as well as Atruvia subsidiaries or other service providers must be involved, approvals have to be granted, regulatory affairs must be taken into account and security checks need to be performed. This can mean a lot of time pressure, even before the first MVP is running smoothly. To deal with this, the top and middle managers need to trust the project teams and leads – which they do at our institution. Moreover, they need to develop a common language to ensure that everyone is on the same page.
What are the limits of this approach in your eyes?
PS: Clearly, the limits are reached when the required effort exceeds the benefit. You have to abandon the idea of a perfect system that offers everything you could possibly wish for. Otherwise, you get bogged down in too much complexity and an IT landscape that no longer serves the customers and the company. Another important aspect to consider is what you need: a mere interim solution or technology, or rather something intended for the long term. If we believe that Atruvia will roll out a similar solution in the foreseeable future, we obviously do not want to commit too much to a third-party solution that we won’t use for a very long time, anyway. A rough benchmark for an interim solution is a period of about two years.
KK: Trying to navigate between parallel IT environments can become a challenging balancing act, especially when taking into account requirements pertaining to capital, human resources and non-auditable revenue streams. In terms of capital, the most important factors are the available development budget and its targeted profitability. The revenue stream of a business model calculation or a lean canvas should show how quickly a new product or a new process generates profits, contributes to cutting costs, adds real value for the customers, or improves customer retention. The human resources factor refers to bottlenecks in specific process steps. We often need key people to provide their skills and expertise or make decisions for many projects at the same time. Hiring new staff isn’t always the solution, as they may not yet possess the required knowledge. If the schedule allows for it, we sometimes involve external consultants to fill this gap. Nevertheless, it is important to invest in an upcoming generation in-house and to focus on filling key roles in order to share knowledge and make it available.
Insights from the “subsidiary dual strategy” for IT solutions
What do you regard as suitable use cases?
PS: They are those solutions that have a noticeable effect. If we can save the customer fifteen minutes of time, if the advisor can dedicate herself to what’s really important, and if we don’t have to fill vacancies that no one applies for, then it’s worthwhile for us, and then we do invest the integration and training effort.
What insights have you gained that would have helped you earlier?
KK: On the one hand, as already mentioned, taking the customer or user perspective is one of the important factors that should be considered in any development. Expert assessments are good. Additionally asking the customers is better. This is not a new insight, but in implementation, remember to make the time for it.
PS: On the other hand, the fit of new projects to the company’s purpose and strategy should always be checked. The earlier projects are assessed in this regard, the better it can be decided what will really make a difference after the initial quick wins.
What advice would you like to give us and the readers of this interview?
PS: Central IT service providers are important for a stable core (banking) system. Given the current pace of change and innovation, we believe it is essential to work with third-party providers not as an alternative, but as a complement in cases where solutions are not yet sufficient for customer needs and requirements in terms of speed and efficiency. The in-house ability to develop “middleware” is a basic prerequisite for this.
KK: Courage to innovate, perseverance in implementation, and confidence that you will always achieve more by working together. This also applies to any cooperation between FinTechs, banks and primary IT service providers, which should always be on an equal footing.