ZEW Survey Among Financial Market Experts – Foreign Banks in Germany Score with Better Terms

Foreign banks have been able to extend their market share in Germany over the past years, especially due to the favourable terms they offer. But, their low reputation is a disadvantage on the German market. However, the low number of branch offices in comparison to their German competitors does not seem to have any negative consequences for them. These are the findings of a current survey among 229 financial market experts conducted by the Centre for European Economic Research (ZEW) in Mannheim, Germany.

According to the experts, foreign retail banks do have competitive advantages compared to the German banks, especially regarding cost efficiency and control. Since they do not have an extended network of branch offices, the burden of fixed costs for foreign banks is lower than the fixed costs of German banks. Therefore, they especially attract price-sensitive customers, whose number has increased significantly over the past years. According to the experts, the foreign banks therefore have clear advantages compared to their German counterparts concerning their pricing strategy. Also concerning profit orientation, customer and product strategy, and marketing, the experts observe slight advantages for foreign banks, especially because their product range has a simple structure and therefore these banks are able to achieve a high degree of standardisation. 

On the other hand, a clear competitive disadvantage for foreign retail banks is their low reputation. In the eyes of the experts, the domestic banks have clear advantages concerning this issue. The low number of branch offices and alternative sales channels for stationary sale seems to be neither an advantage nor a disadvantage for foreign banks. “Foreign banks have recognised the signs of the times much earlier than German banks, and attracted price-sensitive costumers especially by better terms and innovative sales channels”, says Matthias Köhler, expert at ZEW.

Even though foreign banks have been able to establish themselves successfully on the German retail banking market, only one third of the surveyed experts expect a further increase of foreign retail banks over the next two years. On the other hand, a majority of 44 per cent of the experts expects an unchanged amount of foreign retail banks. 22 per cent expect that the number of foreign retail banks in Germany will decrease. If a foreign retail bank will enter the German market in the next years, according to the experts it will do so by mergers and acquisitions. Opportunities will be plentiful, as the example of Postbank shows.

Contact

Matthias Köhler, E-mail: koehler@zew.de