At €354 million ($474 million), the deal’s size is not particularly earth shattering in financial institutions mergers and acquisitions, but it's what it says about BNPP’s strategy and the potential for future deals of this kind in the sector that is more significant.
Banks are in the thick of grappling with their own digital transformation – pushing more and more banking services onto digital platforms and largely mobile devices – and deals such as this can help accelerate that change.
BBVA, which is arguably more advanced than any other large global bank in its digital transformation, gained fresh momentum in February when it bought Simple, an online-banking platform in the US, for $117 million.
For BNPP, it too has been making progress in its digital transformation, having launched Hello bank! – described as the first 100% digital, mobile bank in Europe – in Belgium, Germany, France and Italy last year.
DAB Bank’s acquisition does deliver a fresh boost to BNPP’s digital banking ambitions - it nearly doubles the number of brokerage clients in Germany to 1.4 million and pushes assets under management in the country to €58 billion – but it also throws a spotlight on other digital banking platforms that have emerged in recent years and might now be targets.
Take Moven and GoBank in the US, Germany’s Fidor and Finland’s Holvi, to name only a few. These digital-only businesses have grown rapidly and for any large bank they could now look an attractive fit as part of their own digital transformation strategy.
However, while there is potential for this to happen, most large banks, and particularly those in Europe, first need to do a deeper dive into what is required to make a digital transformation of their business successful.
The promise of higher revenues and substantially lower cost-base from making this digital shift in processes and services is no doubt alluring, but most European banks are making a hash of transforming their business.
Indeed, across Europe, Tunde Olanrewaju, principal in McKinsey’s London office, says retail banks have digitized only 20% to 40% of their processes, and 90% of European banks invest less than 0.5% of their total spending on digital.
“As a result, most have relatively shallow digital offerings focused on enabling basic customer transactions,” says Olanrewaju.
“Neither customers nor digital upstarts are likely to wait for retail banks to catch up. Once a credible digital-banking proposition exists, customer adoption will be breathtakingly fast and digital laggards will be left exposed.”
He adds: “It’s fair to say that getting digital banking right is a do-or-die challenge.”
So why are most European banks making so little headway here?
The main reason is that bank CEOs and their boards see this digital transformation too narrowly and often just as “stand-alone front-end features such as mobile apps or online product-comparison charts”, says Olanrewaju.
There are probably two main reasons why this is. The first is a lack of understanding of digital technology and its impact on banking at board level and industry-wide; and second, a lack of desire at this time of tentative global economic recovery to commit to the huge investment needed to make it work.
In seeing it this way, however, these banks are, says Francisco González, CEO and chairman of BBVA, failing [consciously or otherwise] to see and understand what is required, which can mean taking the wrong approach.
“Many banks look only at the rooftop – the products and services that customers can see," he says. "The problem is if you only build the rooftop, and don’t change the structure underneath, the whole building becomes very unstable."
The IT failures of Royal Bank of Scotland last summer evidence this.
So what’s needed? At the highest level, a wholesale shift in bank executives’ understanding of what the digital revolution means for their bank and the banking industry at large, and a firm commitment from them to invest substantially in the areas that matter.
Acquisitions of digital banks or online banking platforms can help accelerate a bank’s digital transformation, but accelerating without knowing the direction of travel or having the engine to support the speed will surely end in a crash.
BBVA, in particular, and BNPP seem to have a better grasp of the digital future of retail banking than their global peers.
“The good news is that there is plenty of upside awaiting those European banks willing to embrace it,” says Olanrewaju. “The bad news is that change is coming whether or not banks are ready.”