Dr' Susann von Gunten, Deutsche Postbank AG

1
Dr. Susann von Gunten, Deutsche Postbank AG
Outsourcing A New Opportunity?
Barcelona, January 27th, 2005
2
Agenda

• Brief introduction of Postbank
• Market and Competition
• Capabilities Size - Systems - Structure
• Visibility and Trust
• Outlook

3
At a glance

• One of Germany's biggest private customer banks
• 12 million customers
• Around 10,000 employees
• Over 9,000 branches of Deutsche Post with banking
  services
• One of the market leaders in direct banking 1.9
  million current accounts online,2.9 million
  accounts managed by telephone, 0.4 million online
  depots
• One of the few "real" multi-channel banks in
  Germany
• Test winner 2004 in the EURO magazine bank test
• Leading, fully integrated transaction bank in
  Germany
• Around 40,000 corporate customers
• Specialist for innovative solutions in payment
  transactions

Figures as per end of September 2004
4
StrategyPositioning

• "We intend to establish Postbank as leading
  retail and transaction bank in Germany. Our
  multi-channel strategy gives us extensive access
  to our customers, and our state-of-the-art IT
  platform is a good foundation for the expansion
  of our new Transaction Banking business. In
  Corporate Banking we rely on our core competence
  in payment transactions and use synergies within
  the Deutsche Post World Net Group."
• Prof. Dr. Wulf von Schimmelmann
• (Chairman of Postbank's Management Board)

5
StrategyStable Business Model with Low Risks

• Focused retail and transaction bank in Germany
• One of the biggest retail banks and the leading
  fully-integrated transaction bank in Continental
  Europe's biggest retail market
• Extensive access to customers and distribution
  channels
• One of Germany's largest retail banks with over
  12 million customers
• With over 9,000 branches the most closely-knit
  stationary distribution network of an individual
  institute in Germany
• Branches with long-term performance-related
  payment
• Also in a leading position in Germany with
  alternative channels of distribution such as
  telephone and online
• Transaction banking as second foothold thanks to
  modern IT platform and efficient processes
• Cost-leader in payment transactions in Germany
  based on various benchmark studies
• Technology lead over other market participants
  with newly launched SAP system
• Selective business transactions with corporate
  customers using the platform strengths and
  synergies with Deutsche Post World Net (Payment
  Solutions, Selective Commercial Finance)
• Conservative credit allocation policy with
  successful instruments for risk management

6
OrganisationHistorical Development (at the end
2004)

• 1909 Postal giro transfer system
• 1939 Postal savings bank service
• 1990 Separate legal entity (Postal Reform I)
• 1995 Transformation into German public company
  (Postal Reform II)
• 1997 Alliances with Deutsche Post, Wüstenrot and
  HDI
• 1999 Full subsidiary of Deutsche Post
  AG Postbanks CEO simultaneously on the main
  board of Deutsche Post for the Financial Services
  Division
• 2000 Integration of DSL Bank
• 2001 Group development Acquisition of PB
  Capital Corporation in New York (corporate
  customers, logistics financing) Foundation of
  Postbank Leasing GmbH, PB Factoring GmbH and
  Postbank P.O.S. Transact GmbH (card acceptance)
• 2002 Expansion Foundation of Postbank Financial
  Services GmbH (portfolio management)
  and Postbank Vermögensberatung AG (mobile sales)
  
• Start SAP for Banking
• IPO Launch Transaction Banking Acquisition of
  Deutsche Postbank, London Branch

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OrganisationCorporate Affiliation
8
Outsourcing is becoming more and more a major
business in Europes banking industry
Operations (BPO)
IT
Leads to a total market of appr. EUR 100 bln 2003
in Europe
Banking sector Benelux, France, Germany,
Italy, Portugal/Spain, Scandinavia, UK Market
size includes discrete high-volume business
activities (e.g., trade processing, check
processing, payroll processing) does not
include BPO deals covering full business
process (e.g., all activities for securities
transaction services) does not include
printing Outsourced services within service
category as of service category budget.
Assuming ICT and Operations represent 35 of
total cost base (typical share of 30-40) and
that the relative split between ICT and
Operations is 40 / 60.
9
In total 54 bln transactions in 2002 in Europe
with a large proportion of paper-based
transactions
Overview European payments market (2002)
Checks and paper based Electronic Cards Other

• 1) No of TX ( total Europe)
• 2) Finland and Sweden
• Estimates
• Only checks

Quelle EZB 2003, BIS 2003, Analyse Booz Allen
Hamilton
10
In total 1,1 bln accounts in 2002 in Europe with
an equal distribution between savings and current
accounts
Overview European account market (2002)
Europe
Skandinavia1)
UK
50
50
52
33
62 Mio. 6 share within EU
67
48

236 Mio. 22 share within EU
Germany
1.076 Mio.
62
38
France
229 Mio. 21 share within EU
Italy
55
60
45
40
Savings accounts Current accounts
88 Mio. 8 share within EU
150 Mio. 14 share within EU
1) Finland and Sweden
Quelle EZB 2003, BIS 2003, Analyse Booz Allen
Hamilton
11
but universal banks avoid this market
Universal banks avoid the outsourcing business

• Focus on core competencies
• Avoidance of delusion of key rations (esp. CIR)
• Uncompetitive cost structure

Unique opportunity for Postal Banks to gain
market share
Banks have unique competitive advantages over Non
Banks in Outsourcing

• Avoidance of VAT is likely
• Holistic knowledge about banking processes
• Good understanding of quality and products

12
how? Postal Banks need to explore the two
pillars of outsourcing!
Capabilities
Visibility and Trust
13
Postal Banks have the capabilities already or can
develop them
Size
Systems
Structure
Historical weakness of Postal Banks
Classical strength of Postal Banks
In general strength of Postal Banks
14
Postal organizations have in general a large
market share in transactions and have a full
regional coverage

• We are in general one of the largestplayers in
  Payments Savings and current accounts
• Excellent starting point for active rolein
  consolidation
• Fully integrated service provider
• Strong unique selling proposition to the market

Size
Value creation opportunities from market
consolidation
15
Excellent starting point for active role in
consolidation - Example Deutsche Postbank
Market Shares Domestic Payments Supply
Side (No. of domestic transactions 15.8bn in
2002)
Others
Others 7
Co-operative Banks
WestLB3)
22
100 Banks
TAI2) (18)
1,450 Cooperative Banks
Savings Banks
520 Savings Banks(37 in total)
WGZ-Bank2) 4
Universal Banks
Postbank
Deutsche Postbank is largest single payments
processor with a market share of 16 including -
Deutsche Bank - Dresdner Bank
Bay. LB/Spk.
HVB
Other Landesbanken/DZV Deka1)
10
Commerzbank 4
HVB Bay. LB/Savings banks
(1) Mostly non paper-based transactions for
corporate customers or interbank payments,
clearing for savings banks (2) Non paper-based
transactions for corporate customers/ interbank
payments, clearing for co-operative
banks (3) WestLB including 46 savings
banks Source Booz Allen Hamilton analysis,
Deutsche Bundesbank, DSGV, BVR
16
Transaction Banking Outlook Roll-out of new
business segment in Q2 2004

Scale

• 16 market share- only fully integrated
  transaction bank
• No. 2 payment processor- Payment Services based
  on efficient handling of high volume of in-house
  business

• Stepwise insourcing of external transaction
  processors (followingDreBa and Deutsche Bank
  insourcing)
• factory approach

Distinctive low-cost, low-risk platform driven
business model

• Scope
• Integrated payment services as current focus
• Account management services as further expansion
  opportunity
• European expansion possible

• Channels
• Dedicated business development team to attract
  new partners

17
Postbank is the only fully integrated service
providerin the German market
-age of covered value chain
Booking
Dispo-sition
Investi-gation
Process-ing
Archiving
Clearing
Order Capture
Insourcer

• 100

• ?

• ?

• ?

• ?

• ?

• ?

• ?

Private sector banks

• 20 25

Cooperative Banks

• ?
• (Partly)

• ?

• ?

• ?

• 50

Savings Banks

• ?

• ?

• 50

• ?

• ?

IOS/Kleindienst/ Securicor
External Service Providers

• 25

• 5

• 5

• 10

• 7

• 3

• 45

Total expenditure per process step in of value
chain
? Insourcer offers service to market
100 1.4bn /total costs German payment
services
Source Booz Allen Hamilton analysis, Postbank
18
Initial focus on payment and account services
outsourcing of non-core activities

• High operational productivity
• Stable and reliable infrastructure
• Critical market share

• Payment Services

2004
Active insourcing

• Best practice in account services
• Multi-client infrastructure
• Critical market share

• Account Services

2006

• Slightly below critical market share

• Credit Services

To be defined
2004 2006

• Sub critical scale
• No multi-client capable system
• No Postbank core competency

2000/2001
Outsourced todwpbank
2000/2001
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Strong unique selling point to the market
Decision Criteria for Payments Outsourcer
Comments
Postbank(1)

• Best practice productivity
• Additional synergies through offering of whole
  value chain
• Scale leverage through critical volume

Reduce costs

• Proven large scale implementation and migration
  skills

Minimize investment/large project risk
Operate with high quality

• Fulfilment of quality requirements of Germanys
  leading universal banks
• Proven track-record for large scale payments
  since 1909

• Further customers to profit from high functional
  requirements of existing customers (Deutsche Bank
  and Dresdner Bank)
• Best integrated and flexible back-end platform

Enhance functionality (real-time-processing,
online-archive, etc)/new product offerings
Secure relationship with clients own customers

• Non-bank insourcers not competitive for
  outsourcing banks

(1) Assuming target system architecture is in
place
Source Booz Allen Hamilton analysis
20
Postal Banks have the capabilities already or can
develop them
Size
Systems
Structure
Historical weakness of Postal Banks
Classical strength of Postal Banks
In general strength of Postal Banks
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The missing systems can be bought now
Systems

• Historically Postal Banks do not cover the
  complexity of competitors
• Systems lack the capability of multi client
  support

• ... But Standard Software is paving the way
• SAP in core banking ( and the cooperation with
  Accenture will further help)
• IBM in technology
• Technological leadership and cost optimization
  ensure IT advantage
• Leveraging the state-of-the art IT platform

Best practice technology platform
22
Standard Software enables Deutsche Postbank with
a cost efficient and flexible IT platform
German Market analysis
Standardisation
Economies of scale
Capability
Multi-clientmodern systems
Multi-clientold legacy systems
High
Automatisation
Proprietarymodern systems
Proprietaryold legacy systems
Universal banks
Low
Low
High
Flexibility
23
Postal Banks have in general a large market share
in transactions and full regional coverage

• We are in general fully centralized
• Large Back-Offices with full process ownership
• Only one way communication between branches and
  back offices
• Industrialized production to increaseefficiency

Size and geographical reach
Structure

• We have full regional coverage

Unique factory approach
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Structure - Consolidation in back office
operations center (OPCs)
Location concept Deutsche Postbank (1/2)
Postal Bank
Traditional Retail Bank
500retail outlets
many retail outlets

• Competitive
• advantages
• of Postal Banks
• No processingin retail outlets
• Centralisedoperations inonly few OPCs
• High degreeof speciali-sation

BO
BO
BO
BO
BO
Head Office
BO
OPC
OPC
OPC
BO
BO
BO
Head Office
Sales
Back Office (BO)/Operations Center (OPC)
25
Postal Organizations cover the full country with
a competitive logistic solution
Location concept Deutsche Postbank (2/2)
Deutsche Postbank Operational Structure
Hamburg

• Full centralization in 5 back office centers
  across Germany
• Full Back-up Capability for pairs of two
• High standardization of all processes
• High efficiency through continuous improvement
  and constant benchmarking

Berlin
Dortmund
Frankfurt
München
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Industrialized production increases efficiency
Without Dresdner Bankand Deutsche Bank
gt 120
113
110
120
107
(38)
103
110
Economiesof scale
100
95
75
90
81
Automation,standardization
74
80
(70)
70
69
35
60
2000
2001
2002
2003
2004
2001
2002
Target
2003/
Index volume
2004
Index personnel

• Higher volumes of processed transactions by fewer
  personnel
• Significant productivity gains

• Source Postbank

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how? Postal Banks need to explore the two
pillars of outsourcing!
Capabilities
Visibility and Trust
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Trust and visibility a first deal helps
Focus on a first deal

• Trust is a difficult
• issue to overcome
• Postal banks are often not seen as banks
• Postal banks are not a natural outsourcing
  partner
• Postal banks are not seen as efficient

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What can you do ?
Make sure your efficiency is in line with your
structural advantage cost efficiency is key
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• Thank you for your attention