Can you say a little about your identity as a German bank?
Both today and historically Commerzbank has focused its efforts on servicing German corporates, with an emphasis on small and mid-sized companies. This has made us an integral part of the German financial services landscape.
Our participation in Germany’s key financial services infrastructures, including Deutsche Börse Group and its Eurex and Clearstream business lines is evidence of these roots. Our evolution at the heart of Germany’s financial sector has provided us with a deep resource of regulatory and operational expertise from which our domestic clients continue to benefit.
We offer a breadth of financial solutions to clients – from securities services, through cash management, to trade finance – and the range of capital markets products, including bond issuance, warrants, certificates and so on.
Providing this end-to-end and integrated product suite gives us the opportunity to build familiarity with and a deep understanding of our clients’ businesses that we feel is unrivalled. We feel that we know them better than anyone else and our solutions are more tailored and focused to their needs as a result.
Working in a client-centric way has become something of a truism in the industry in recent years. But there remains a significant difference between providers in terms of the longevity of their client relationships. Most of ours span more than five years; many span more than 25 years.
Our highly experienced and dedicated custody client services team located in Frankfurt provides clients with personal contacts for account and settlement management, plus multi-lingual support. Unlike some other custodians, we believe in being local and ensuring a focused service in our home market.
HOW FAR DO YOU SEE DIGITAL INNOVATION AS SUPPORTING THESE PRIORITIES?
An excellent example of how our client- centric model works in practice is our recent drive towards digitalising our business. We looked to enhance a range of digital tools and the client’s interaction with our web portal, which enhances client service and interaction, provides near real-time information for example around positions, settlement status, valuations, corporate actions and reporting.
This is an extension of the very high level of digitalised service already afforded in our retail/private client franchise. We see increasing demand from clients for the digitalisation of financial solutions.
In line with its 4.0 strategy, Commerzbank announced it will become an enterprise with 80% of its relevant processes digitalised by 2020. One of the pillars of the Commerzbank 4.0 transformation is the establishment of the “Digital Campus”, in which agile, dedicated teams drive forward digitalisation projects and work to automate and optimise relevant everyday processes.
Currently home to around 600 staff, the Campus is expected to host up to 1,000 employees by the end of the year and is tasked with digitalising 80% of relevant processes by 2020. This will achieve the sort of efficiency gains that clients have a right to expect from an effective digital architecture in their bank and their custody provider. Our main focus is on improving the existing customer experience.
These efforts are already bearing fruit, as the reports of our customers testify: innovation awards, leading rankings in custody surveys including, most recently, our win in the unweighted category in the Global Investor sub-custody awards this year (we also placed second in the weighted category).
How does this client-centric domestic focus play when servicing clients abroad?
Our focus on the German domestic market is made possible partly because of the central role played by Germany’s economy in the Eurozone. This influence in Europe is matched by the driving force of German companies as they expand beyond Europe.
In supporting their efforts to branch out into markets across the world, a key pillar of our approach is to partner with local custodians where we are not present, rather than establishing operations ourselves.
In our custody business, we may be present in 58 markets around the world, but we are there purely because that’s where our clients need us to be. We can offer customised multi-jurisdictional solutions tailored to a client’s needs and markets, with tailored operational coverage and support from our local specialists.
To see the benefits of our approach it is worth considering the alternative model, popular among most of our competitors, of building a local servicing presence in multiple countries around the world.
In practice, these banks will enter a new market through a couple of anchor mandates, which can sometimes lead to becoming unfocused, seeking commercial local success over client solutions and innovation ultimately in the interests of benefiting the client.
In our case, by contrast, if a client wants to go into a new market where we are not already present, we will not set up a local subsidiary from which to service them. Instead, we will select a local agent that can demonstrate the level of competence and cultural fit that best suits the client in question.
Finding the best and most suitable local custodians is more efficient than establishing our own infrastructure in a country. The time and money we save is better spent fitting the servicing solution provided by our chosen partner with the needs of our client. And because we already have such a close grasp of our client’s business, that shaping process works relatively quickly and smoothly.
We can procure the best services – from account structures to collateralisation – by imparting all that knowledge to the local custodian.
What are the benefits to clients of prioritising an integrated view of liquidity?
Clients may have securities holdings and activities around the world. Our job is to focus on the integration task, allowing the firm to, for example, manage its liquidity across all of these locations, with comprehensive and transparent reporting in every case.
Pooling all of that information into a single source allows them an immediate, fully transparent overview of their entire liquidity. This makes them better informed and, as a result, better placed to make decisions quickly and effectively in order to optimise their collateral obligations.
A margin requirement for a transaction in Europe, for example, can be met by perhaps optimising and mobilising assets in Hong Kong that the firm is long in. This saves the time and cost of going back into the market to find the required assets or liquidity to service the obligation in another time zone.
A single central oversight facility allows the firm to use a time difference – between Hong Kong and London, say – to transfer them for use in one market while the other is closed.
Bringing disparate information to bear in this way can help to facilitate major transactions, too. One recent example was a US client involved in a capital raising transaction in the Nordic markets, including the conversion of a tranche of non-tradable shares to a tranche of tradable shares.
In this case, some of the key and fundamental settlement aspects had been overlooked. We were able to present the knowledge that the lead manager and settlement agents could then apply. The result had a material impact on the speed, effectiveness and success at which the issue was placed.
Can you say something about why you haven’t pursued the traditional outsourcing model with the intensity of some of your competitors?
The cost-benefit of the widespread adoption of outsourcing in our industry is well documented. However, less time has been devoted to the possible drawbacks of handing-off client queries to these low-cost jurisdictions.
The conventional outsourcing approach will invariably see the client handed-off to another part of the bank or service provider – to a colleague or provider who is, in effect, a stranger with little or no understanding of the client’s wider business and history.
Inevitably, outsourcing in this way means creating distinct silos in an organisation between which fast, effective communication is harder to achieve. In this way, the drive for profit and low servicing costs has driven a silo-based model that may compromise the quality of the client service offering.
We have pursued outsourcing with less vigour by comparison with many of our competitors. Instead, we have focused on maintaining client servicing teams that are based in the same country as our core clients. The result is that, in a typical case, a member of that team handles a given client query through to its resolution in the same language and with the same cultural understanding, reaching into the wider bank for a solution and returning with the answer himself or herself.
This makes the process more responsive since the team member understands the client’s wider business and is in a position to shape the solution while it is being fashioned. It also makes it quicker since that team member can address additional questions that the process throws up without having to return to the client for guidance.
Both of these elements reduce the burden on the client and make it easier to interact in an efficient manner. In addition, quicker resolution carries with it material benefits for clients. If you need to decide whether to optimise and mobilse liquidity, for example, you typically don’t have three days to wait for the information on which the choice will be based.
Finally, a larger, deeper, and better-skilled relationship management team is best placed to serve up easy win solutions that the client may not have considered. For example, if a client is phoning multiple times a day with settlement enquiries, pretty soon we will suggest that we start sending out a full and comprehensive settlement report automatically at a time of the client’s choosing, which fit around their schedule.
I think it is worth bearing all this in mind and the potential impacts to client engagement and servicing when discussions about the pros and cons of outsourcing take place.
It may be the most salient trend in our sector in recent years: without exception, the large global firms have looked to shift core services into low cost jurisdictions, away from the markets in which most of their customers are based. Therefore, getting the balance right is the key to a successful business model and satisfied clients.