investments in IT. E commerce integration failures in the past lead to expensive reorganization 
projects, e.g., at the Deutsche Bank or Dresdner Bank, two of the leading top five banks. 
IT spending was at a high level compared to other German firms over the last few years. As Prof. 
Clemens Jochum, CIO consumer banking at the Deutsche Bank AG told us, Deutsche Bank paid 
$3.04 billion in 1999 and $2.83 billion in 2000, respectively. For 2001 and 2002 Deutsche Bank 
decreased its overall IT budget. Significantly, 69% of the IT budget in 1999 was spent on 
baseline maintenance; in 2000 this was still over 61% despite an effort to reduce such costs. The 
banking business is therefore strongly technology driven.
After the Internet bubble burst, German banks are now looking more carefully for the return on 
investment in IT spending. The costly integration of new technology into an old environment has 
not yet shown significant efficiency or cost reduction results. Most IT projects developed into a 
value trap with high cash burn rates. Today, banks are focusing on small, applied projects using 
open standards. Also, more standardized products have been introduced into the corporate 
environment with minimal adaptation. The main objective and focus are on smoothing 
Most banks have had to reduce their IT budgets dramatically, accompanied by a consolidation of 
vendors and large numbers of layoffs. Many promising e commerce projects were not really 
successful. Micro payments were expected to become an enormous economic factor in the 
financial market. Smart cards and digital certificates are still important areas, but actual 
implementations are often premature. In traditional B2C areas, a chicken and egg question 
emerged in the market with regard to lower than expected numbers of customers and merchants' 
reluctance to invest, which has led to even lower numbers of smart card and micro payment 
users among the customer base.  
The German Bank Landscape 
Most German banks are so called universal banks, offering all kinds of financial products and 
services. This includes credit banks (or private banks), publicly owned savings banks and 
cooperative credit associations. The savings and loan banks are owned by municipalities or 
county governments or even federal states.  
Most banks follow multi channel distribution strategies in a more or less consistent way. The 
small savings and loan banks do not encourage customers to use the Internet consistently, such 
that branches remain exceptionally important. A lower risk communication and customer 
oriented channel synchronization are possible solutions for banks to decrease costs. In spite of 
online success, banks want price incentives in order to get out of the cost trap. 
Due to the creation of the European Single Market in financial services and financial market 
liberalization, the volume of mergers and acquisitions (M&As) in the German financial service 
sector has accelerated and a higher concentration level has resulted. Consequently, the number of 
banks has declined in Germany, while over 800 M&As were counted in the second half of the 
1990s. Despite these widespread M&A activities, Germany still has the lowest level of 
concentration in Europe (e Business, 2002).

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