As the financial storm of the past few years begins to calm, how are banks coping with the new competitive landscape and what do they need to do to stay ahead of their rivals? And more to the point, can they afford to invest in the innovation required to do so? The Banker spoke to Dan Marovitz, head of product management for global transaction banking at Deutsche Bank. Writer Charlie Corbett

Click here to view an edited video of the discussion

The participants

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Dan Marovitz, head of product management for global transaction banking, Deutsche Bank

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Charlie Corbett, Economics editor, The Banker

Can banks really afford to spend money on innovation at such a difficult time?

Innovation is a fundamental part of transaction banking... this is a technical business unlike other parts of banking.

The amount of revenue in trading businesses that's consumed by technology and operations is roughly half the amount of revenue that's consumed in transaction banking or commercial banking businesses. So it's a hugely technical, operationally intensive part of financial services and is fundamental to what we do. You actually don't need to look very hard in any organisation of size to find innovation. The people are there, as are the ideas.

Watch the video 

This is an edited version of the discussion from The Banker's Exclusive Masterclass Series. Click below to view more:

What is your view on the State-supported banks? How do you view them now strategically and do you think they have an unfair advantage?

The first thing I would say is we've seen lots of large clients across a vast array of the products that we sell come to us and say: "Look, historically we've done X-percentage of our business with Y-bank and we've done 20% with you. We want to increase the amount of wallet we give you from 20% to 40% and take it away from Y-bank." In most cases, Y-bank is one of the state-supported banks.

It's not because people are worried about the Y-bank going bust; what they're worried about is that its innovation and adaptability may have been compromised. With Deutsche Bank, we are one of the only large global players that has taken no money from any state under which we're regulated.

We didn't take money from sovereign wealth funds and we didn't do a substantial capital raise from our existing shareholders. That puts us in an interesting position, because when I go and sit down with a client, I can say with all sincerity: "If your business has you growing into Brazil or Vietnam, we can look into how we can support you there."

What are your clients demanding now and how has the relationship between banks generally and their clients changed as a result of the crisis?

Banks for the past 400 years have spent a lot of time thinking about the creditworthiness of their clients; I mean, obviously in the Medici period they weren't going to look at a Standard & Poor's report, but they were certainly thinking about creditworthiness.

That's obviously been a fundamental part of banking. 'Is this person creditworthy? Is he going to pay back? Is he going pay back on time and is he going pay back in full?' But we've had this interesting reversal where now clients are looking at the creditworthiness of the financial institutions that bank them.

The other thing I think that has changed is that corporates, particularly large multi-nationals, are doing a few things: for example, they're looking at their banking relationships holistically, so the treasurer, the CFO, the CEO, even the chairman level, want to see a list of everyone they bank with. They want to know who they have relationships with across the world.

This is a trust issue. You can't invest money and buy back trust. What other things can banks do to change the attitudes of clients towards them?

It's tough. I don't think there's any panacea, and as I said, we are in a strong position with Deutsche, in that we don't generally need to have those hard conversations with clients. But I think it is very difficult and that's why, frankly, for Deutsche Bank it is a unique opportunity to hit the accelerator.

We're not necessarily talking about a period of months or years. It may even take decades to repair the damage of the crisis.

But I think the other point that's also worth mentioning is that as turbulent as things have been, the core transaction banking payment systems around the world never failed. So regardless of which bank, regardless of which country, nobody was ever in a situation where they stuck their card into a cashpoint and couldn't get money out. As frozen and complex as liquidity was, payments still flowed and trade still got done.

The mobile payments issue: it's certainly something that is becoming hugely important in developing markets but in more developed markets do we really need it and is there much demand for it?

I think in the developing world it's probably a fairly obvious story. In the developed world I would say there are two issues that are interesting. One is in the business-to-business sector, something that people don't ordinarily think about in mobile payments. People think about it as a consumer play, and it is, but there is also an interesting business-to-business play.

There are lots of transactions that happen between businesses that are still driven by cash or cheque and there's a slowness of payment and risk of fraud and theft.

Making mobile payments is a way to take cash out of the equation and that could be very compelling.

So we're involved in a number of conversations with very big corporations about those kinds of scenarios. On the consumer side, I think it's just very simply convenience; people have their mobile phones with them at all times and not having to carry a credit card, not having to carry a debit card, knowing that your mobile phone can keep you in touch, keep you entertained and also help you pay for lunch - that works.

Looking ahead what are your biggest investment priorities?

We are going to expand our geographic footprint and that's always an expensive proposition. We are going to build new core platforms for the work that we do, which will accelerate our ability to enter new markets faster, it will also decrease our running cost for new markets and let us enter smaller markets more profitably.

Probably our biggest focus of investment, however, is in 'complexity' reduction. What do I mean by that? Well, business with large banks has historically not been an easy undertaking. That includes everything from the legal documentation that we give clients, to how we bundle things together on our electronic banking portals, to how we price multi-product buys.

All of those things are pieces that we're trying to intensely focus on from the client perspective. We are getting feedback on how we can do things to make their lives easier.

In terms of innovation, who are going to be the winners and who are going to be the losers in the future?

I think the winners will be those banks that have the guts to attack their legacy issues and extract the ability to spend on new developments by sharpening up how they manage their historical business.

That means getting rid of expensive, lumbering legacy systems, getting rid of redundant systems, having tough conversations internally and sometimes tough conversations with clients even, about turning off systems which are only used by a minority group. That's all a great way to free up money to spend. I think those institutions that are focused on this strategically from the top of the house will be able to free up enough funding for innovation and they'll be able to accelerate.

The issues

- how banks are trying to innovate

- state-supported banks' prognosis

- reassuring clients on bank safety

- the future for mobile payments

- future priorities for investment

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