The traditional distribution channel for retail banks is largely based on their stationary, physical 
branch networks. Germany has so many branches that it can be described as  over branched.  
Although the number of domestic branch offices declined during the 1990s to about 18%, 
Germany still had 2,695 banks with 43,834 branches in 2001. The banking density in Germany 
(number of inhabitants per bank branch) has increased to around 1,880 inhabitants (excluding 
Postbank, a unit within the German Postal Service) but is still lower than, for example, the 
number of bakeries per inhabitants. In 1992, there was one bank office for every 1,510 
inhabitants. This still makes Germany a country with one of the most closely meshed banking 
networks in the European Union. If the branches of Postbank are included, there are around 
1,450 inhabitants per bank office in Germany (AGB 2002). 
Innovation Enablers in the German Finance Sector 
Most financial services are based on intangible products and services. For this reason, it is 
important to customers that a bank signals trust, reliability and a positive image. Trust was a 
unique selling point of banks in the past. Since non banks such as the automotive industry or 
catalog companies have entered this market national and international competition has increased. 
On the other hand, globalizing markets are important for German banks to acquire new 
customers from abroad due to the saturated national market (Pilat, 2001). Another cost driver is 
the over capacity in the finance sector, which leads to declining prices and concentration 
pressure, resulting in M&As. Gaining profits by reducing the number of branches after a merger, 
together with the reduction of personnel, is one of the observable results today (Mihm, 1999, pp. 
1 2). Declining profit margins, especially in the retail banking sector, have made structural and 
organizational changes necessary, mainly based on new technology.  
International competition, together with declining margins, has increased the speed of 
implementing process innovations in the entire finance industry. Large financial institutions are 
at the forefront, followed by smaller public and private banks, due to IT intensive improvements. 
The finance sector is traditionally the largest customer of ICT products in Germany (Triplett et 
al., 2000).
E commerce driven banks have developed more innovative products instead of reorganizing 
internal operations through process innovations (Janz et al., 2001). To solve the remaining 
internal problems as described in the last section, joint selling initiatives offering standard 
products through existing distribution channels may help to concentrate on the core 
competencies of banks and enable them to improve their business processes. The targeted goal is 
the increased separation of existing value chains. Traditional bank models involve the integration 
of all product processing phases. This will lead to a more efficient distribution of processing 
phases inside business units with special core competencies to deploy products and services in a 
factory like style.
Innovation Inhibitors in the German Finance Sector 
Several inhibitors prevent the fast adoption of IT and e commerce inside financial institutions. 
Aside from the departmentalized structure of banks and the lack of project experiences among 
employees, the professional tradition together with relatively conservative behavior slow down 
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