Bitcoin here, ApplePay there – but cash is far from a thing of the past in Germany, says Michael Kemmer, General Manager of the Association of German Banks, in our Digital Insights interview. He also foresees a strong future for credit cards, because unlike smartphones, they never run out of battery.
Question: Mr. Kemmer, the Danish central bank is planning to stop printing new bank notes in 2017. How much longer will we keep paying with coins and bills in Germany?
Kemmer: I think we'll continue to do so for a long time. Germany is a country where people use cash and I don't see why we would decide to abandon it completely. That doesn't change the fact that non-cash payments also have many advantages for customers, retailers and banks.
I assume that people's payment habits will continue to differentiate in the future. But cash will be with us for a long time. The German Bundesbank thinks so too.
Question: Do credit cards still have a future – or will they be replaced by smartphones in five years?
Kemmer: I don't necessarily see them as mutually exclusive. I think the two complement each other well. Smartphones have experienced vertiginous development in recent years – in terms of technology, but also of market penetration. But even when smartphones are used for contactless payment at the gas station or supermarket, in all likelihood the payment will ultimately be processed on a checking account or credit card. It is the existing retail payment structure that will be used.
In this sense smartphones are just a change of format – a card in a different form. There are around 750,000 point-of-sale payment terminals in Germany. They all accept cards and they will still do so five years from now. And cards have the advantage of never running out of battery.
Question: ApplePay and GoogleWallet are not taking off that quickly, but the trend is certainly towards alternative financial flows that do not rely on banks. Why do you think you're well placed in this new competitive arena?
Kemmer: Because I don't believe that the trend is really away from banks. The examples you name are not full service providers with closed payment loops. Even ApplePay and Google Wallet rely on the payment transaction infrastructures of the banks. For example, ApplePay merely contains credit cards already issued by the banking system. And the German credit business has not been idle.
German banks and savings banks have developed a shared platform for simple, secure internet payment which will be launched at the end of 2015. Customers will be able to pay for their online purchases directly from their checking account using "paydirekt". Well over 50 million online-enabled checking accounts in Germany will be able to work with paydirekt upon the full market launch. We see a significant advantage here.
Also, as a German company, paydirekt is subject to German regulations and data protection laws.
Question: Banking on our computers, tablets and smartphones has become an everyday occurrence. What do you think the customer interface will look like five years from now?
Kemmer: Multifaceted. Customers will decide how they want to communicate with their bank. They key will be the seamless integration of the online and offline worlds. The form communication takes will depend on the moment and the content. For complex, long-term asset planning, for example, customers will still want very personal, face-to-face communication that fosters trust.
Question: Currently, the greatest amounts of money invested in Silicon Valley startups are going to firms in the financial tech field. Will this lead to new competition for the international banking system?
Kemmer: We're watching what's happening in Silicon Valley and also in other parts of the world in the FinTech field very carefully. There's a strong momentum there. What we can see so far, is that startups are for the most part focusing very strongly on individual links in the value chain, such as payment transactions.
FinTechs tend to be very agile and unconditionally customer-centered, while staying clear of regulated fields, because regulation isn't part of the startups' DNA. So banks won't become unnecessary, but instead there will be plenty of scope for cooperation.
Question: You often year young companies and politicians in Germany bemoan the fact that it is too hard for startups to access venture capital for rapid growth. To what extent to German banks need to reassess their lending system?
Kemmer: There are some other countries where risk capital and the risk culture are more developed, so it is easier to access venture capital there. In this regard we have some catching up to do in Germany and in Europe.
Banks already support and accompany startups in many ways today, but the classic bank loan is not well suited to financing innovative new companies. Banks lend money that belongs to their clients, so they need to be able to count on a high repayment and low failure rate. Classic debt capital financing is only suited to startups when they can reliably demonstrate income that can be used to pay interest and installments on the loan. So venture capital financing is not a typical bank activity.
Special innovation and growth projects, and startups, therefore need to find their own equity and venture capital support initially.
Question: Where do you see the biggest challenges in the digital security arena?
Kemmer: I see the biggest challenge as protecting users, because they have now become the main targets. Attackers use pretexts to try to trick users into sharing their personal information or entering into bad transactions. Personal information includes PINs and TANs, or personal access information for social networks.
Bad transactions are, for example, "test transfers" that the user is talked into authorizing over the phone, providing information that in reality will be used to transfer funds to the swindler's account. This type of attack is called social engineering. Denial of service attacks are a greater threat to network availability. Banks – and other operators of large networks – arm themselves against these attacks by cooperating among themselves and with specialized service providers.
Because our economy and society are increasingly dependent on computer-controlled processes and internet communication, we can expect to see an increase in these and other forms of attack. Banks are just one of many targets.
For your information:
Many startups offering solutions for the FinTech sector will be exhibiting in Hall 11 in the Scale11 area at CeBIT next year.