Germany’s largest lender, Deutsche Bank, is seeking buyouts and joint ventures to help its goal of becoming a major force in Europe’s rapidly consolidating payment processing industry.
“Digital payments is one of the areas where the highest strategic priority is for us,” Stefan Hoops, director of Deutsche corporate banking, told the Financial Times, adding that “non-organic growth is clearly an option. . . If an opportunity arises, we would clearly consider [it]”.
Deutsche has hired a number of external payments experts in recent months, including André Bajorat, founder of fintech Figo, as the new head of corporate banking strategy.
He also hired former senior executives from the collapsed payment processing group Wirecard, including Kilian Thalhammer, who co-founded the German specialist blog. “Payment and banking services” with M. Bajorat.
However, he decided not to acquire the technology and assets of Wirecard. Mr Hoops declined to comment on the move, but others familiar with the process told the Financial Times that the price was deemed too high and the transaction too complex.
Instead, the lender’s new payment processing company “Merchant Solutions” is weighing options for other targets and potential partners.
“One option could be a small payment processing business. . . struggling to meet more stringent regulatory requirements, ”said Mr. Hoops. A joint venture was also an option, he said, “for example with someone who is big [in other markets] but not the one present in Europe ”.
Last year, Deutsche Bank generated just € 100 million in annual fees from processing digital payments. Mr. Hoops has promised to double that number within three years, but even then the business would represent less than 4% of the corporate bank’s annual revenue.
The new push in payment processing is a reversal of Deutsche’s 2012 decision to pull out of the company that saw it sell Deutsche Card Services to US-based EVO Payments International.
At that time, she was making high returns from investment banking and was less interested in the unglamorous business of digital payments. Some in the bank were also concerned that the business was risky, dominated as it was in its early days by payments related to adult entertainment and gambling.
However, over the past decade the market “has completely changed,” Hoops said, noting that mobile payments have become ubiquitous and technology and controls have been greatly improved.
He added that there was “no good reason why European banks left this activity to other players,” noting that in the United States, the market is dominated by large lenders like JPMorgan.
In Europe, Deutsche hopes that the expansion of this industry will give it some competitive advantages.
As a payment processor, it could expand to settle credit and debit card transactions made by its roughly 19 million retail customers, bypassing cards like Visa and Mastercard and avoiding the fees they charge.
It could also add payment processing to its list of existing business lines, such as cash management and trade finance, to provide a more streamlined and efficient service.
Mr. Hoops would not be drawn to the time horizon of the bank’s push towards payments. “We won’t need a decade, but it won’t be over by Christmas.” Deutsche plans to unveil more details on this new strategy on its financial markets day in December.