What the competition can learn

“None of my team lives here,” admits a Santander banker, even from Düsseldorf. Several top bankers have opened a shared apartment at the Mönchengladbach commuter location: In the evenings, there is still brainstorming at the kitchen table, and at the weekend it goes to the family.

The question of location is part of the Santander concept. You sit far away from the sinfully expensive banking metropolis on the Main – glamor factor zero, but cheap. Everything here is trimmed for profitability – and size is not a value in itself. Are smaller banks finer banks? Institutes like Hamburg Commercial Bank, IKB or Santander seem to be doing just that. But the example of the Spaniards shows that radical trimming for returns is not entirely without risk.

Profitable shrinking

Not much is known about the bank from Mönchengladbach, they preferred to stay under the radar for a long time. That is now changing: for the first time, Santander is relying on a large brand campaign, placing posters and TV spots. And the Handelsblatt got an on-site appointment at the headquarters two years after the first request. Most recently, the Spanish parent company’s takeover of the core business of the insolvent Wirecard, which was laden with many problems, caused a sensation. But the German subsidiary has nothing to do with the payment business.

Santander is big. With 3.9 million customers, the house is the second largest foreign bank in Germany after ING. A good 3,000 employees are responsible for total assets of 50 billion euros.

But Santander is shrinking. While other banks were still vying for new customers with a lot of money, Mönchengladbach was getting serious – and had been sorting out for years. In 2014 the bank still had 6.3 million customers. Between 2018 and 2020 alone, the number of accounts fell by 20 percent to 4.8 million. This is intentional: “We are consistently geared towards profitable customers,” explains product manager Erol Cen.

In plain language: Santander has swept a quarter of its customers within seven years. But the bank is apparently separating from the right customers and saving faster than its earnings break down. The result is a profit that has been stable for years.

In 2020, the income was just under 1.8 billion euros and the profit was 394 million euros. Santander has generated roughly that much for years. The lending business in particular is booming: at the end of 2020, there were almost 23 billion euros in customer deposits compared to 29 billion euros in receivables.

Important auto finance

The roots of the German Santander are in car financing. And this is still the most important line of business today. Maik Kynast directs him. For the trained car mechanic and banker, the car loan is “the shining light among installment loans. After a home, the car is the second most expensive purchase in life. ”

Santander has set up its own banks for several car companies: Hyundai Capital Bank and PSA Bank are part of the company. For Volvo and other manufacturers, Santander acts as a “captive”, a preferred banking partner. “Santander is a constant,” says a large car dealer. While the manufacturers are regularly reorganizing their sales network – most recently Fiat has been giving up its dealers in a row – Santander has remained in the market for decades. It pays off: around 230 million euros of the banking result, well over 50 percent, come from this area.

But Santander cannot rest on its success. Because the most important source of income is under pressure. New players such as the e-car builders Tesla, Lynk and Polestar rely on their own sales networks without external financing banks. And the love of young Germans for cars is cooling, fewer and fewer are getting a driver’s license.

“In view of e-mobility and the trend away from one’s own car, business is becoming more difficult,” says Volker Brühl, Managing Director of the Center for Financial Studies at Frankfurt’s Goethe University.

The first attempt to counteract this – an increased entry into car sharing financing – was a flop for Santander. For many Germans, sharing one’s own car is still unthinkable. And whether the second future project will work – its own digital car portal – remains to be seen. That is why Santander has set a goal: to decrease the importance of the mobility business.

Digital change

The private customer business is expected to grow. So far it has contributed around 25 percent to the result. Santander has a million deposit accounts, of which only 484,000 are current accounts. The average customer has deposits of 25,000 euros and 1.5 Santander products. That should be more.

“The new management has set a clear growth target for the retail business in 2019. The number of products that a customer uses and the profitability per customer should increase, ”says the head of the division, Boris Kämmner.

On the one hand, Santander is saying goodbye to unprofitable customers – such as those with only one savings contract. On the other hand, the profitable loan customers should become house bank customers. There are 3.2 million credit accounts. “Our goal is to turn customers we have addressed in other ways, for example in car financing, into house bank customers,” explains Kämmner.

The transformation is not easy. Credit cards act as an entry-level offer: Santander relies on Visa, the Girocard is expiring. In addition, customers should be lured by the branch network. Santander believes in personal advice: there are 195 branches. 850 salespeople work on site, 100 on the phone and online. And online banking and apps are being expanded for digitally savvy customers.

But not everyone always gets smart about the digital initiatives. The launch of Openbank – an in-house competitor from Madrid – caused many people in Germany to shake their heads. The Spanish mother simply translated her online site into German and is attracting customers in this country. That creates confusion. “I just don’t understand the concept of Openbank,” says a German Santander banker.

Santander is seen as a strictly hierarchical group – but one that also gives its national companies freedom. “Santander Germany operates independently. This applies above all to the refinancing and the growth strategy, ”explains CEO Vito Volpe. You set “your own priorities and goals, and have done so very successfully for years”.

“We generate our capital ourselves,” adds CFO Andreas Glaser. Private customers benefited from the German refinancing: “We will be one of the last banks to charge their customers minus interest.”

Risk appetite in online business

Santander has identified the commercial credit business as a further growth area, headed by 38-year-old Tobias Niederau. Santander has traditionally been strong in retail lending, or retail financing. There are loans for furniture and kitchens, bicycles, electronics. The bank finances for Saturn and Media Markt, for furniture Boss, Porta and Segmüller. Installment loans are available for a purchase of goods for as little as 99 euros.

However, Santander expects the greatest growth from e-commerce. “We want to have processed a loan application in 15 minutes,” said Niederau. He is particularly proud of a new product that has been available in its current form for two years: Santander purchase on account. It is used for online orders, for example for fashion, pet food and sporting goods.

The offer is known under the fashionable term “Buy now, pay later”: Young customers buy a product, but only have to pay later when the goods are there. The purchase on account is already available for five euro purchases – who overdoes, pays hefty dunning fees. “Klarna is the top dog here,” says Niederau, referring to the Swedish payment service provider. “We are the challenger. But we’re shaking up the market. I see potential for double-digit growth rates. “

So far, the classic installment loan has made up 70 percent of the credit volume, the digital purchase on account currently comes to a significantly lower 30 percent. However, business here has increased tenfold in the past two years.

But as high-growth as “Buy now, pay later” is, the business is also problematic. Caritas Frankfurt’s debt counseling service complains that the Santander Consumer Bank appears as a creditor in many personal bankruptcies because it “often gives loans for installment purchases”. Santander is also “well known to the Hamburg consumer center, there are many complaints”.

Niederau counters: “Our goal is to earn money and win customers. It doesn’t help us if a customer slips into a level of debt that they can no longer get out of. ”

Also because of the criticism of the consumer advocates, it is “still unclear” for Bernd Richter from the financial technology specialist FIS whether the growth strategy in the installment loan business will work. “There is a risk of over-indebtedness and personal bankruptcy.”

Is Santander buying?

What does the future of Santander in Germany look like? Economist Brühl praises the low expense ratio and the high return on equity: “Both are significantly better than those of most German banks.”

But now the mother in Madrid has to be careful: “The Spaniards have successfully shrunk the German daughter. If strong growth targets are set again, the pig cycle will start all over again, ”says Brühl. “Increasing the number of customers would only be possible if you offer competitive prices.” But then you either give up profit or take worse risks on the balance sheet.

One way out of this dilemma would be acquisitions. According to insiders, these are anything but impossible with the Spaniards – especially in Germany. CEO Volpe emphasizes that the current focus is “clearly on organic growth”. However, Santander deliberately holds “different company investments in Germany”, for example in the vehicle business. And: “We have grown a lot through acquisitions in the past, that’s no secret.”

Collaboration: Elisabeth Atzler

More: Santander is committed to the dual strategy