For some time now, the German banking market has been quite attractive thanks to a large and
stable revenue pool of around €115 billion, the political stability and the good state of the
overall German economy – both for German banks, but also for banks and innovative service
providers from abroad. German banks have been able to limit cost growth, and their risk
costs continue to be very low. In comparison with other countries, however, the structurally
lower profitability of German banks stands out. Likewise, the deeply embedded three-pillar
structure of the banking market with private commercial banks, publicly owned banks and
cooperative banks is “typically German”.
• At the same time, the German banking system is on a steady (yet sometimes overlooked)
path of consolidation. Between 40 and 60 small banks disappear each year while in the public
and cooperative pillars more centralised structures are emerging; in short: the bank pillars
are becoming leaner. Overall, it shows the market is equally stable and changing. For three
reasons, we do not believe that this stays that way.
• A new “fourth pillar” of foreign banks and new competitors is emerging, which will further
fuel competition: the current distinctions between domestic and foreign banks, FinTechs,
market infrastructure providers and global technology companies are becoming increasingly
blurred. This “fourth pillar” disrupts traditional business models and changes the expectations
• The modularisation that has already transformed numerous other industries is also increasingly
gaining ground in the financial services sector: banks are no longer necessarily the undisputed
owner of the customer interface, product supplier and provider of the underlying platforms
in one. Rather, the industry is increasingly developing into an ecosystem in which banks may
only play one of these roles.
And finally, German banks cannot escape the big drivers of change of our time – such as innovative
technologies, changing customer demands, regulations and socio-economic trends. Depending
on how quickly these changes will occur, we differentiate between two scenarios for the German
banking market: an evolution scenario, in which changes occur more gradually and a disruption
scenario, in which changes occur more quickly and more radically. The main challenge for
German banks will be to find a sustainable business model for both evolution and disruption.