Why German Banks Are Waiting By The Phone

As rivalry grows, "telebanking" could bolster the bottom line

Busy professionals the world over have a tough time coping with personal chores. In Germany, with its draconian shop-closing laws and antediluvian banking customs, it's a nightmare. But Peter Engelhardt, a Berlin tax official, and his wife, Ingrid, are using technology to avoid long lines at teller windows and carve out more quality time. Since opening an electronic banking account six months ago with Berliner Sparkasse, a regional savings institution, they've been using their home computer on weekends to manage their money. Says Engelhardt: "It's fast and comfortable."

German banks are betting hundreds of millions of marks that the Engelhardts are the wave of the future. From the giant Deutsche Bank, which set up its Bank 24 last fall, to regionals such as Berliner, banks are trying to catch up with lenders in North America, Asia, and Britain that let customers do business by phone, fax, or PC (table). London-based consulting firm Datamonitor figures that by 2000, more than 25% of Germany's 49 million bank customers could be using such telebanking services--up from only 2.5% today.

ET TU, WHO? As in other countries, the lure of electronic banking is simple. With 52,000 branches nationwide, electronic banking costs less than face-to-face service. A branch service representative earns $15 to $20 an hour, depending on experience. But a telebanker doing a comparable job earns $10 to $12, gets less vacation, and isn't eligible for the typical bonus of an extra month's pay that branch staffers collect at yearend. As E-banking spreads, those benefits may be on their way out. "I'm absolutely sure that in 2000 we will have 30% fewer bank branches in Germany," says Bernt Weber, managing director of Commerzbank's comdirect bank.

Indeed, the Germans are wasting no time or expense getting telebanking under way. To drum up interest in Bank 24, Deutsche laid out $12 million for a TV ad blitz at the end of last year. The ads, with the Who singing "I'm free" in the background, garnered 30,000 customers--and caused such an avalanche of calls that Bank 24's switchboard was overwhelmed. Bank 24 has even launched a World Wide Web site that quickly totted up 160,000 hits from as far away as New Zealand. It plans to spend heavily on promotion again this year in its campaign to capture 500,000 clients by the decade's end. "We want to position ourselves as market leader," says Deutsche executive board member Georg Krupp.

For all the hoopla, though, phone banking isn't profitable yet. But Germany's five biggest banks are gearing up for a monster slugfest. Dresdner Bank, for example, is committed to pushing telebanking services, with add-ons such as discount brokerage as a new part of its regular retail menu. Commerzbank, meanwhile, is promoting the heck out of comdirect. A separate unit like Deutsche's Bank24, comdirect plans to invest about $70 million over five years to attract 250,000 accounts--the number it says it needs to break even. Comdirect's Weber argues the stand-alone method attracts better clients--young, urban males with above-average incomes.

COMMISSION BUSTER. Another Munich lender, Bayerische Hypotheken- und Wechselbank, pioneered the strategy. It set up a discount-brokerage subsidiary called Direkt Anlage Bank in 1994 that garnered 10,000 clients in a few weeks. It also sowed panic among rivals by cutting standard equity commissions in half and reducing loads on mutual funds. Its policy is now widely imitated: comdirect charges as little as 1.2% on a $33,700 share purchase--a tenth of the standard rate. Bank 24, meanwhile, gives fee rebates on some mutual fund sales and, along with other direct banks, opened its door to selected foreign mutual funds from the likes of Franklin Templeton, Pioneer, and Fidelity Investments.

The onrush of foreign managers and competition from domestic discounters will put new pressures on profit margins even as the banks try to save money by going electronic. But as the European Union's single market for goods and services spreads to finance, competition was inevitable. There's nothing German consumers love more than a bargain. Now, their banks will have to persuade several million more people like the Engelhardts to pick up the phone or start pecking away on their computer keyboards.

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