A change of heart

By Matt Buttell, Deputy Editor

They say change is a wonderful thing. Though given the current state of the global economy, it is easy to see how that idiom could be forgot. Particularly over the last 12 months where the idea of change has become more and more synonymous with unpredictability than ever before. As we continue to operate in an economy littered with job losses and cutbacks, where the unknown is literally around the corner, it is obvious where the lines became blurred.

“You can risk failure if you have a management team where there's not enough fresh blood”
-Peter Schleidt, CIO Danske Bank

The process of change within the financial sector hasn’t always been so steeped in uncertainty though. If you look back over the last couple of decades, many of the changes that financial institutions have seen have been welcome ones – not to mention, in many cases, long-awaited. Leaps in the advancement of technology and the way this has helped shape our industry is one such development that comes to mind.

Today, with 20 years at Danske Bank behind him, CIO Peter Schleidt is no stranger to the changing face of technology. As with any financial institution, Danske Bank has changed irrevocably over the last two decades, but then, so has Schleidt. When he joined the firm, he was a fresh-faced university graduate and has stayed with the same company ever since, working up to his current role. “I think I have tried every possible job within IT,” he jokes. “And as my role has become more and more business orientated, I too have had job experience outside the confines of IT.”

While his eponymous title suggests he is solely in charge of the bank’s technology, Schleidt is actually involved with much more beyond the traditional confines of IT. “The job today is much more about bridging the gap between IT and business,” he explains. “I’m a manager who does deal with business development but also, within the management of the bank, I am the person who specifically knows how to handle the development of IT initiatives.” And it is through these IT initiatives that Schleidt has seen the most change. As he notes: “Our business vision at Danske Bank is ‘One Platform’. We are now operating in retail banking systems in all the Nordic countries and we have two banks in Ireland and one in Northern Ireland where we do retail. The interesting thing is these are all based on exactly the same platform: It’s the same products, the same processes, the same systems, the same way of organising the brand, the same creative processes. Everything is, as much as possible, exactly the same within our banking model.”

This is a vision that wouldn’t have been feasible several years ago, not least because of the technology involved. “One very big benefit of doing this is that there are a lot of cost synergies when we’re doing cross-border mergers this way,” adds Schleidt. “For other banks that do not have this strategy, it can be difficult to justify this, but for us, by having this approach, we can take out around 20% of the cost of the bank that we take on in a merger.” In other words, while in Northern Europe the average cost of IT is between 15 and 20% of the total cost of the bank, when Danske Bank go into a new market, buy a bank, integrate it, and run it on their existing systems, then they only have to look at a marginal cost to run that new bank.

Nordic countries have always been frontrunners on IT, and this is something that Schleidt is both aware of and keen to maintain. “The big thing we’re investing in at the moment is digital banking,” he explains, “and while you might say that this isn’t particularly special because everybody is talking about it at the moment, it is still a consistently important part of our set-up.” He highlights the importance of this issue with an anecdote from his own experience, saying that several weeks ago, in a supermarket in Denmark, a lady standing in front of him in the queue had tried to pay by cheque. The cashier merely looked at the cheque and asked, ‘What’s that? I’ve seen this before’. This wasn’t a joke by the cashier, but a clear illustration of how our banking systems are changing. In Finland, for example, cheques do not exist anymore. They have been abandoned for some years and there is a much more integral focus on the idea of, what Schleidt calls, ‘self-service’ banking. And while customers in Denmark may be using internet banking more and more, when a customer wants to take out a new mortgage loan or increase their overdraft facility, for example, 95% of these new banking agreements are still being made on paper.

In response to this issue, Schleidt and his team at Danske Bank are currently investing in a digital banking program that will turn these statistics around. Schleidt’s hope is that within three years 95% of these agreements will be being signed electronically. “It’s our ambition to fully automate the main processes of banking so that if a customer is out shopping for new furniture, for example, and they need more cash, they can send us an estimate from their mobile phone and we can make the automatic credit decision that will grant that customer the money. They then click on their phone and open up an electronic agreement, which they sign digitally, and in real time have the money in their account. It’s about making banking easier. That’s our goal.”

Ambition

With plans to roll this technology out across all operating countries by 2010, there is no sitting back for Schleidt and his team. After all, it is a big operation and rolling it out in such a short timeframe is challenging enough as it is, not to mention doing it in the shadow of such unruly market conditions. “We’re actually quite lucky because the really good thing about our executive board is they don’t see IT as a cost, they see it as an investment,” highlights Schleidt. “And that’s also how we treat new projects.” It seems then, at least for now, Danske Bank aren’t looking to scale down their development activities. “We’re actually planning some really big investments over the next two years, particular in relation to our digital banking model, so we can achieve those goals.”

One of the most interesting things in listening to Schleidt speak is his overwhelming amount of confidence about his own business processes and those of the bank generally. We ask him, then, if he foresees any danger in terms of the IT budget being cut in the near future? A fair question considering the cut backs many of our industry’s biggest institutions have witnessed in recent months. “Nope,” he simply responds, with extreme certainty. “What I’m saying is that it’s all about the net presence value. Our budgets for investment are not something that is fixed once a year. It’s something that is in our governance process and we regulate it throughout the year. It’s a running process. Every time we make a new iteration of our development plan and portfolio projects then, of course, budgets may go a up a little or down a little, but I’m confident that, as I understand the projects that we’re running and the value they have, we will see good progress in the development of the bank.”

Without sounding too simplistic, the trick is to keep things moving. You can’t afford to stand still in this business. For Danske Bank, there continues to be a lot happening with technology and the way the bank is expanding. Schleidt any of one of these can lead to potential risks – and therefore there has to be ways that the available technology can be used to better manage risk. “I actually think the Basel II regulation is helping with that a little bit,” he goes on to say. “In my mind it’s too bad that this crisis is coming along now. If this had happened in a few years time, when everybody will be ready with the Basil II initiatives, then we would have been better off.” Of course, you could also turn it around and argue that it’s at fault of the financial institutions for having been too slow to adopt Basel II regulations, and as Schleidt points out, with politicians constantly making announcements about our current financial systems, there’s always a chance that there will be more regulations to come further down the line. “I hope that when regulators look into it they find out that Basel II actually covers at least a big part of the issues that are needed,” says Schleidt, stressing that too much regulation could itself be detrimental to the industry. “But time will tell.”

Time goes by

It is the way technology is being used to develop business models that is ultimately the key for Schleidt. The digital banking program that he has already discussed is very much a program that, along with other initiatives, has been driven up by the IT organization of the bank. “When we talk about business development, we have various business areas involved to ensure we are in alignment in our priorities,” notes Schleidt, “and behind the scenes we’re talking about how our service oriented architecture (SOA) should evolve so we can develop things and see what new technologies we need to bring on board.

“On one side we’re being very proactive toward what business development we should do within the bank and then we’re also trying to make sure that we drive the IT side of our development in the right direction.” After 20 years at Danske Bank, Schleidt is in good stead as he looks to the future. “Of course its always good to have a lot of domain knowledge,” he notes, “but on the other hand we do try to take in a lot of new candidates directly from universities, and business and IT people from outside the walls of the bank.” He believes it is important the bank’s environment allows fresh ideas to be cultivated, challenging the senior management team. “You can risk failure if you have a management team where there’s not enough fresh blood,” he notes. “I think we’re aware of that and trying to deal with that in our own way.”

As IT becomes more capable of bringing in new innovation and new ways of looking at systems within the management field, Danske Bank continues to change. Schleidt notes that during the short term, with the financial crisis, Danske Bank’s focus is going to be about making sure that they are getting all the benefits out of the current project portfolio that they have in place. One thing is certain, change for our banking systems is coming, and thankfully, despite all the indecision and negativity, there are still places where ‘change’ is being touted as a positive thing. And Danske Bank, at least, remains one financial institution that isn’t afraid of the changing landscape of our economy. “There’s no doubt that IT is becoming more and more important,” concludes Schleidt, “I don’t know whether it’s the brain or the heart of the bank, but there is a certainty that if the IT doesn’t work, then the bank doesn’t work.”

Merger ahead

Peter Schleidt explains the challenges involved in the integration process
“There are a number of challenges that are presented because mergers require such a big project; for instance, when we took the National Irish Bank, our employees went home for Easter vacation and when they came back again everything was changed. They had new PCs, they had to sign in with new usernames and passwords and every single system that they signed into was new. There were a lot of new products that they did not have before. Everything was been changed over the course of that long weekend.
When doing such big changes all at once, it has to be carefully planned and it can take a lot of development because, even though we are using the same systems, they of course have to be adapted to specific markets. Furthermore, the payment infrastructure of a new country sometimes requires us to operate in a new language, so, for example, when we went into Finland we were not capable of speaking Finnish to our customers straight away; we are now. 
There are some things that remain different from market to market, and that cannot be helped. In Ireland, the ISA savings account operates very differently to how accounts operate in Denmark, so we of course need to develop those differences into our platforms so we can fully support these new markets.
Currently we’re not in the process of any mergers because of the markets, so what we’re actually doing is looking to further develop our platform to be more cost effective and also more competitive towards the customers. So the organic growth is actually part of the business situation that we foresee and we’ll have for the next few years.”

Although the Group’s banking activities can be traced further back, the Danske Bank Group came into being, in legal terms, when it began to establish subsidiaries in the twentieth century and presented its first consolidated annual accounts in 1980.

Some key dates in the history of Danske Bank:
1975 – The Group saw little scope for further expansion in Denmark. But the expanding export markets provided opportunities internationally and the Group developed a new strategy, opening of Danske Bank International in Luxembourg in 1976.
1990 – Three banks, Handelsbanken, Provinsbanken and Den Danske Bank, merged under the name of Den Danske Bank as a result of the liberalisation of Danish banking legislation. The integration of the three banks’ IT systems gave the Group a technological lead.
1997-2005 – The Group had been doing business with companies in Northern Europe for many years, so it established branches in Oslo, Stockholm and Helsinki. Its international operations were further expanded in 2005 with the acquisition of National Irish Bank in the Republic of Ireland and Northern Bank in Northern Ireland.
2007 – The Group strengthened its position in the northern European markets again with the purchase of Sampo Bank. The purchase included Sampo Pankki in Finland as well as Sampo bankas in Lithuania.