Danske Bank – A winner in digitalization
How Danske Bank, a Danish bank from 1871, embraced disruption and managed to become a leader in digital innovation.
In 2012 Danske Bank, one of the largest banks in Scandinavia, was struggling. The financial crisis had hit the bank hard, but more so its scandalous 2012 marketing campaign New Normal which was supposed to engage customers post the financial crisis. Instead it was perceived as extremely arrogant and resulted in customer flight that hurt the business. Since then Danske Bank’s image is back at the top of the sector and its share price has increased from 92DKK in December 2012 to a current price around 230DKK (a 155% increase). This has partly been accomplished through Danske Bank’s leadership within digitalization. Disrupting its own industry to now appear as winner of the digitalization trend is quite impressive for a conservative bank from 1871. The question is how they did that?
Instead of waiting for their traditional business to be disrupted by natural born online companies such as Google, Apple and Amazon, Danske Bank decided to disrupt its industry itself. The overall strategy of the bank involves embracing the digital transformation. In 2012 Danske Bank had 612 retail branches, but in 2015 it had 300. The bank has managed to move its customers to its online e-banking platform where 2.2 million of its 3.2 customers now use its E-banking platform to access their account, pension, trade stocks and pay their bills.
Yet, it is Danske Bank’s organization that really has equipped the bank to be an innovator instead of a respondent. Often big established companies fail to see new innovations or simply can’t respond. While they are typically good at incremental innovations where they slowly improve each component of its product or service, they have challenges rethinking the overall architecture of the product where the components are organized differently but the product or the service remains the same. They tend to possess a mentality focused on gradual improvement of each component – not architectural innovations.
Danske Bank has managed to overcome this organizational challenge. The banks most successful innovation has been MobilePay which is now a subsidiary but developed in a special unit within the bank. The app makes it possible to transfer money to your friend, pay in shops or donate money just as easy as sending a text – only for free. Since its start in 2013, MobilePay now have 3.2 million users out of 5.7 million Danish people. It is the third most used app after Facebook and messenger in Denmark, and it is downloaded on 9/10 smart phones. It has even become so successful that Danske Bank’s largest competitors Nordea Bank and JyskeBank has decided to quit their own attempts to make a similar service to join MobilePay and let their customers use the platform.
After the success of MobilePay, Danske Bank established a new special unit called Mobile-Life in 2014. The unit is independent, placed in another building and does not follow the same governance as the main banking unit. It employs 160 people where 50% has a traditional banking background from Danske Bank and the rest comes from various backgrounds. The idea is to focus on the customers’ needs only and through start-up mentality launch new innovations to create a whole ecosystem. The ideas are launched quickly instead of tested them over a long period. Mobile-Life has so far developed Sunday which matches potential buyers’ financial situation with potential homes and fasten the process of mortgage approvals. Another is June that will make investing in stocks easier for people with little investment knowledge.
Mobilepay, Sunday and June are all examples of architectural innovations that rethink the whole process of for example payment, buying a home or investing. Thus, Danske Bank has managed to incorporate start-up mentality into its classic old banking business. And with Dansk Banks large investing power behind it, MobilePay and Mobile-Life are equipped to disrupt the banking industry and place Danske Bank on par with internet giants when they enter the Scandinavian banking business. For example, Apple Pay is predicted to experience difficulties when enrolled in Scandinavia where MobilePay is the clear favorite. So far Danske Bank seems to be a winner in the digital transformation.
Sources:
http://danskebank.com/en-uk/About-us/Our-business/Pages/our-markets.aspx
https://hbr.org/2012/12/when-an-ad-campaign-goes-wrong
http://www.business.dk/finans/her-er-danske-banks-hemmelige-mobilplaner
http://www.business.dk/arbejdsmarked/disruption-i-danske-bank-en-app-aendrede-spillereglerne
http://www.business.dk/finans/mobilepay-skal-rette-op-paa-danske-banks-image
http://cxomagasinet.dk/03-2015/danske-bank-tager-kampen-op-mod-globale-giganter
Great article and thanks for the insights!
I am curious, you are mentioning the current market control of MobilePay in Scandinavia and the trouble Apple Pay will have there. As the incumbent, MobilePay indeed has more customers but to me it seems like switching costs on payment mechanism are fairly low (unlike switching an actual bank, or using a new chat system with a user base). Do you think the early entrance is such as significant advantage? I’m wondering if Apple can’t just bulldoze everyone to victory.
Very interesting! Danske Bank is really innovating! I have not really seen a traditional bank entering in mobile payment so successfully. It is also exciting to see that the Mobile-Life is extending other banking services to mobile.
Out of curiosity, I have two questions:
– How easy is for the merchant to set up mobile payment option?
– Has the bank attracted new customers? If so, how different they are from existing clients, and have they develop new products for them?
Very positive article in Danske Bank’s direction. A strong case is made for Danske Bank, it’s mobile payment platform and associated innovation center
Taking a skeptical view, it seems like Danske Bank is copying what successful startups have done outside of Denmark. Paypal was founded in 1998, providing free and secure payments online. Fast forwarding 14 years to 2012 I don’t think Danske Bank would have succeeded had it not been in a fragmented market such as Denmark. At a quick glance, innovation in the context of Danske Bank seems to be a ‘fast follower’ approach.
It’s indeed impressive how Danske Bank managed to create a e-banking platform with wide acceptance, and even expanded into real estate with mobile mortgages.
What is their monetization strategy? You mention that mobile transactions are free. Do merchants pay? Do they charge a fee for peer-to-peer transactions backed by credit cards? (similarly to Venmo) How do prices and conditions for the mortgages compare to the competition?