Solving Incumbent Banks' Predicament Business Model Innovation Achieving Future Market Relevance in Financing German SMEs

Abstract

Incumbent banks have gotten into a predicament. Increasing regulation, an oppressive macroeconomic environment and nondigital, and cost-intensive processes force financial institutions strategically to withdraw their offers on the German market of smaller and medium-sized businesses (SMEs). The paradox is that banks can only cover a certain area of the lending sector, in which margins are low and risk-adjusted prices cannot be applied due to strong competition. From the customers’ perspective, banks do not meet their financial demands as required. Consequently, they are impelled to approach further lenders. Innovative, fully-digital and lean natives as challenger banks, Fintechs and web-based market places intensify their efforts to serve German businesses with financing by using their enormous technological, financial and strategic potential. This work proposes answers to the questions whether the current business models of German banks are obsolete and Fintechs and other financial service providers can offer more suitable lending solutions to firms. A multiple-case study approach using rich data from in-depth interviews with experts combines recent data from published work and company news and so reveals future financing needs of the heterogenic German SME market. The outcome furnishes the basis for holistic, well-grounded advice on adapting the banks’ business model to the changing market and overcomes relevant customer problems. By applying results of this paper in practice, incumbent institutions can reinvent their business models by manifesting themselves as innovation leaders to stay relevant, protect their core market and even increase their yield.

Date of Award	2019
Original language	English
Supervisor	Simon Thomas (Supervisor) & Thomas Peisl (Supervisor)