Using remittances to boost revenues and gain customers

An insight from Germany’s leading retail bank, Deutsche Postbank, which has an 18-year history in the remittance market. Germany’s leading retail bank, Deutsche Postbank, has an 18 year history in the remittance market. Dr. Gérhard Derszteler, Managing Director for Accounts & Consumer Finance at Postbank, spoke to Mail and Express Review about how the symbiotic relationship between remittances and postal services is boosting customers and revenue streams.

Deutsche Postbank AG was formed in the demerger of the postal savings division of Deutsche Bundespost in 1990. It became a fully owned subsidiary of Deutsche Post in 1999, and was partially spun out on the Frankfurt Stock Exchange in 2004. Deutsche Post retained a controlling stake until February 2009, when nearly 22.9% of this was taken over by Deutsche Bank. Deutsche Bank is now the second largest shareholder of Postbank.

A retail bank with postal origins

Historically Deutsche Postbank was the financial arm of the German post office, Deutsche Post. Today it is a retail bank in its own right, but its roots are still firmly in the postal sector.

With 14m active domestic customers, approximately 21,000 employees and total assets of €237bn, Deutsche Postbank is one of Germany’s major financial services providers, and focuses on the retail banking business.

Dr Gérhard Derszteler, Managing Director for Accounts & Consumer Finance at Postbank, explained: “Our cooperation with Deutsche Post is at the forefront of our strategy as a bank”. The bank offers its products through several thousand Deutsche Post branches. The main advantage of this is having a large footprint.

Three years ago Deutsche Postbank also took over 850 branches from Deutsche Post. At these branches the bank offers all of its financial services as well as postal services. “It is a very tight relationship (between the two companies)”, Derszteler explained. “The postal services bring a huge traffic to our branches. Almost 85% of the people who come into our branches do not already have a relationship with Postbank – they come into our branches to do postal transactions and this gives us the opportunity to cross-sell our financial products and ask people if they are interested in financial products and remittances too.”

The role of remittances

Money transfer products, remittances, have emerged as a strategic tool in Postbank’s financial arsenal. Not only in their own right as means of revenue generation, but also in terms of being gateway products which can then lead customers to other financial and postal products.

Since 1991 Postbank has been working with Western Union in the area of remittances, whereby a person in one country can send money to a person in another country almost immediately. Traditionally it is a service used by migrant workers in one country who wish to send money home to their families in another.

While remittances are a relatively small area for Postbank in terms of transactions and revenue, “the point  is that it is a very interesting business” said Derszteler. This is one of the reasons why Postbank decided to partner with Western Union in the first place and why it continues to do so.

One issue adding to increasing competition in the European market is the European Payment Services Directive (PSD), due to be implemented in November 2009. The PSD lowers the barriers for entry to all types of money transfer businesses. It will increase competition because it will be much easier for non-bank organisations to enter the money transfer market. However, Postbank is not too concerned. “I expect to see that the market will become more crowded with new entrants into this market. If it becomes too crowded and confusing customers will have to use ‘overview’ to decide which service to use. In this case branding will become even more important. You look to the brand you know, you trust and you are happy to see. I believe our position with Western Union will help us here” Derszteler explained.

The importance of brand

The recognition factor is key in the remittance market according to Postbank. New migrants want to feel secure about sending money home with a brand they know from back home. Derszteler feels the Western Union strength as a brand is very important as the partner can build on an impressive advertising input. “Western Union is a well established company which means good products optimised over many years. They have good and reliable IT systems, which is very important to us. They have the densest network in the world: you can send money anywhere in the world in a fast and reliable way within minutes- no one can match that” said Derszteler, who added that this is unique. “All these factors imply a huge cost base for Western Union. Due to this  it can act as the qualitative leader in the industry, is able to charge decent prices and ask for a commission which is interesting for us.”

For Derszteler the partnership with Western Union has been successful for Postbank. The company, which now accounts for a large majority of the Western Union ‘touch points’ or agents in Germany, was the first partner for Western Union in the country in 1991. Then it was a purely paper based process. Since then technology has advanced significantly and Postbank went on to be the first European partner to have a fully integrated online connection with Western Union.

Migrants provide wider business opportunities

At Postbank remittances are not only a direct revenue generating stream, they are also used as a means of interacting with the migrant demographic, an interesting customer group for the company. Opening  conversations with this customer group on what other financial products it can perhaps offer is a strategy to get new customers into the bank and to keep them with the bank. “By offering remittance services we can interact with this customer group at a very early stage in their financial lives in Germany, with a view to then building this into a longer term relationship through other financial products like checking accounts, savings, or mortgages at a later stage.” Derszteler stressed that Postbank has to put a lot of effort into training its branch staff to cross sell financial products  and to ask customers if they are happy with their checking account, for example, or to show them the bank’s other products.

In 2007 Postbank launched an account to cash service with Western Union. “Most of the remittance transactions are initiated with cash. But if a customer has an account with us it is more convenient for him or her  to initiate the transaction directly from the account. The account to cash product is also very interesting because it can extend the financial life cycle of the migrant with us and keep him or her using our offered services.”

More recently, at the start of 2009, Postbank brought a Western Union gold card/loyalty scheme to its customers. The card stores all the sender details and information on the top five receivers, making it more convenient for customers. “It’s helping to increase stickiness with remittances at Postbank because customers gather points as they do transactions and they then get free or reduced rate transactions” Derszteler added.

Conclusions

In the current global economic downturn remittances are proving to be a stable and resilient revenue stream. The remittance business is such an emotional business that it is relatively unaffected by economic cycles. “Sending money back to their loved ones is one of the most important things on a migrant’s list of priorities so we don’t see a decline in the number of transactions. What we are seeing is a small drop in the amount of money that is being sent – but that has only dropped a few percentages. We have lower volumes but we have managed to raise the number of transactions, so overall the remittance business is relatively stable.”

Looking forward Derszteler believes that there is more growth to come from the remittances business. “We have not seen the maximum yet. As globalisation continues so the migrant flows will increase, and as a consequence of that the remittance market will grow. We probably won’t see double digit growth rates per year but it is not a shrinking business.” The challenge is to extend the remittance market beyond the traditional migrant demographic, and to find ways to grow usage amongst more ‘mainstream’ individuals and small corporations. “We’re thinking hard how we can reach these target groups, so that we can cast the remittance net even wider” Derszteler concluded.