DZ Bank aims to establish dominance in the payment sector
DZ Bank, one of Germany's largest cooperative banks, has successfully completed the development of its own payment platform, marking a significant milestone in the bank's digital transformation journey. The project, which took approximately five years and involved over 500 employees, was accomplished in two years through a series of 12 steps.
The journey began in 2016 with the merger of WGZ Bank, the central bank of Volksbanken and Raiffeisen banks in the Rhineland and Westphalia, with DZ Bank. Jan Sttüve, IT strategist at the consulting firm Capco, accompanied DZ Bank in building the payment platform.
The development and migration of the in-house payment platform were complex due to the integration of regulatory innovations such as the European payment systems T2/T2S, the uniform European data exchange (ISO 20022), and changes to the SEPA standards. Despite these challenges, DZ Bank managed to implement the Instant-Payments Regulation, a feat that three-quarters of European banks could not achieve by January 9.
One potential issue that arose during the migration was the risk of disrupting the entire payment traffic in Europe. According to Matthias Ehringer, responsible for payments and accounts at DZ Bank, a problem during the migration of the SEPA-ZV could have caused a standstill in Europe's payment traffic. However, the migration was completed without major disruption by the end of 2024, with up to a third of all payment traffic in Germany running via the new platform.
The successful completion of the project positions DZ Bank strategically well, as it prepares to monetize its new payment platform. The bank plans to appear on the market as a payment service provider, offering services like clearings and new functions like Request-to-Pay. The public did not perceive the migration to the payment platform, indicating a smooth transition for customers.
The development of the in-house payment platform offers several benefits for DZ Bank. These include cost savings by avoiding fees paid to external payment processors and card networks, greater control over the payment experience, integration opportunities with other banking products, data insights for improved customer segmentation and risk management, and competitive differentiation through innovative payment options.
However, the project also presented potential challenges. These include high upfront investment in technology, infrastructure, compliance, and security, complex regulatory compliance in the payments space, customer adoption hurdles, operational risks related to security breaches, fraud, system outages, and ongoing maintenance, and the need for scale and network effects.
As the bank moves forward with its new payment platform, it will continue to navigate these benefits and challenges, aiming to provide its customers with a seamless and innovative payment experience while ensuring compliance with regulatory requirements.
In the realm of other business ventures, DZ Bank also intends to leverage its new payment platform as a revenue stream, acting as a payment service provider and offering services like clearings and innovative options such as Request-to-Pay.
Strategically, the integration of technology in the bank's finance sector presents various benefits, including cost savings, improved customer segmentation, and a competitive advantage in offering unique payment solutions, all while maintaining compliance with the intricate regulations in the technology-driven finance industry.
