It only seems like yesterday but it is just over a year since Bernd Leukert took on the role of technology head, data, and innovation at Deutsche Bank.
A lot has happened in the interim but possibly the most notable is the recently announced partnership with Google. That deal is not quite done although Leukert expects the contractual elements to have been through the corporate system in the next few weeks. I recently spoke with Leukert, the person on whose shoulders Deutsche Bank's future technology direction sits. First some background.
I've known Leukert for many years, principally when he was an executive board member at SAP. During that time, we enjoyed (sic) many verbal jousts, mostly on the topic of SAP HANA. All that is in the past as he is, in essence, both a buyer and seller of technology at a company that is modernizing with a view to making step changes and not incremental improvements. That's not an approach you usually associate with the banking industry which, as Leukert quickly discovered, is, at times, shackled by 'legs and regs' designed to protect stakeholders following the 2008 financial crisis.
We started our conversation with a softball about what attracted Leukert to the role. Knowing he'd been wrestling with humungous issues at SAP, you might think he'd opt for a soft landing elsewhere.
I saw a number of opportunities where they said, come and keep us running Bernd. Deutsche offered me a challenge where innovation is a priority. That was too tempting to pass up.
A much needed clean up
What did he find? In the run-up to his formerly taking the post, a leaked memo made clear that the bank was in dire need of a clean up to prepare for the next stage in its development. In that sense, Leukert's introduction was widely telegraphed to staff. Some of these changes are sweeping, especially the shift away from business unit level IT management back to IT as a center of excellence. I normally expect to see such change meet stiff resistance. After all, who wants to give up power?
Remember when we used to talk about SOA (Service Oriented Architecture)? This is the approach I am taking. IT has control of projects, moves towards a microservices architecture while acting as a service to the business and, I hope, out to the wider world in the future. This is easy for everyone to understand and so no, there has been ittle resistance.
But there was also a practical side to this change. While we did not address specifics, informed readers will be familiar with the long list of 'offences' over which Deutsche has been sanctioned.
There was always the potential for business managers who had control over the inputs to do bad things or things they shouldn't. We had to solve this problem and centralising with IT oversight using common standards is our preferred way.
Break it all or....?
That remains a work in progress and I wanted to know how Leukert approached the many problems and how that fits into the decision to partner with Google.
When you see many problems you can always say, 'let's throw it all out and start again' but that's not practical and even if it was the scope and cost are too high. But there are some questions we can ask. For instance, in Germany, Deutsche has a retail arm Postbank which has its own systems. I asked why? Another example. Deutsche is Europe's largest payment and processing banks helping customers for example in the US trading in Europe and China. But what are we going to do with that capability?
I met with the CEO of a business who allowed me to see his balance sheet. I asked him how he would hedge his currency risk while expanding into Britain and parts of Eastern Europe. In his industry we see low single digit margins so eliminating risks is important. We asked if we could provide a way to take away the currency risk so he can concentrate on delivering core services and managing the supply chain. He readily agreed. Customers don't necessarily know that we can create apps that help find the best returns but I truly believe there is a role for a technology partnership to bring new services to the market.
The Google connection
Yes, but where does Google fit into this picture? Early on, Leukert advised the Deutsche board that a partnership where the partner has a financial incentive would provide a safer and better outcome.
I did not want an old school time and materials contract. I wanted a partner who would have skin in the game and Google was prepared to do that. So for example, as the pandemic unfolded, they helped demonstrate the energy, passion and excitement Deutsche is putting into projects. For instance, we were able to show the German government that we can meet our obligations for the AGM in a virtual way with thousands of shareholders.
But this is not just for financial benefits directly. Google is helping us be agile, fast to market which you need anyway but which became critical in the pandemic. So as another example, everyone and especially small and mid-sized businesses needed access to credit and we both worked with the German government to help get an easy to use credit management solution to the market.
Given that Leukert used to rub shoulders with Rob Enslin, Google's president of cloud sales, and former SAP executive board member, you might be forgiven for thinking that the Deutsche-Google deal was a shoo-in. Not so.
Of course it is good when you're already familiar with Rob and Thomas (Kurian, CEO Google Cloud) but what you hear elsewhere is true; they are easy to do business with and that definitely makes a difference.
This is a characteristic I've heard elsewhere that goes something like this: Google is prepared to experiment with promising solution s to see what resonates. That means putting marketing dollars ahead of the more usual and rigorous capability testing. The logic is counterintuitive to the so-called best practice. Even so, Leukert is not afraid of the apparent risk, emphasizing that working for a bank is very different from software and that he cannot avoid the need to be operating 24x7x365:
As a bank you cannot fail. It's not an option. We both know that so resilience matters too.
A fintech in the making?
As we wound down our conversation, I got the sense that Leukert would like to see Deutsche Bank viewed as a fintech within the context of how we generally understand the term.
I would love for us to have that reputation but equally I invite fintechs to come to us and look at our platform. For example, we have worked with a fintech to help customers get interest on their currewnt accounts because right now it is not good with zero or negative interest rates. As the customer you don't have to go through the KYC process elsewhere because we take care of that for you. And you have the same guarantees and protections for your money up to 100,000 euros. That;'s creative value which plays direcdtly to putting the customer first.
Would I like to white label some of what we are doing? Sure, but we have to first prove everything on the inside as you always have to in a bank. So one way we are doing that is by working alongside regulators to make safe changes to processes.
Listening to Leukert, I was struck by the obvious enthusiasm for the role he has at Deutsche Bank. Example after example of how his approach has meant much faster decision taking and project roll out provide the proof points that a 150 year old bank can be nimble and differentiate when it has leadership that understands how to partner for the long haul. That is a characteristic of German companies we see over and over again and which, in turn, leads to step changes in business models that provide the kind of advantage with which competitors struggle.
The networked partner approach is a proven model and Google's long experience in this way of operating, at scale, looks set to bear more fruit as the relationship beds down.
The ambition of Deutsche Bank as a perceived fintech powerhouse sounds extravagent and in blue sky thinking territory. Given the progress to date, you have to ask the question - why not? If, as in the example of interest rate arbitrage, the bank can demonstrate a way of handling KYC in an efficient, compliant manner, you're building customer trust that acts as a magnet. Who knows what other processes can be streamlined?
The burning question remains - can Deutsche Bank truly make this approach successful and will others pursue a similar path? The very fact that a fintech market exists at all shows there is real value in fresh thinking. But then 'traditonal' banks continue to earn outsized profits so you have to wonder where the incentive lays. Looking at the queues of people snaking around the high street banks in my home town I see the answer. But do those same banks' leaders? I somehow doubt it. And, therein lies opportunity of the kind Leukert is promoting.
I'll check progress in a few months' time.