Transformation: How German Banks Are Keeping Pace with the Speed of Digitalization
Digitalization is far from a new topic. However, in recent months, the speed of digital transformation has significantly accelerated – driven primarily by artificial intelligence. This increases the pressure on financial institutions to catch up as quickly as possible, boost productivity, and strengthen their capacity for innovation. Many organizations are therefore focusing on large-scale AI projects, while smaller, equally important and long-overdue digitalization steps are being neglected. Because before new technologies can reach their full potential, the foundations must be in place.
Losing Focus Amid the AI Hype
The pressure to digitalize is weighing heavily on banks around the world – and German institutions are often lagging far behind. In its "Digital Banking Maturity Study 2024," Deloitte compared nearly 350 banks across more than 40 countries. Apart from a small group of German institutions that rely on agile IT, German banks are trailing their neighbors. Investments in digital futures have been lacking for years – meaning a solid foundation is already missing.
This doesn’t seem to stop decision-makers from trying to skip a step and prioritize AI. In many minds, modernization has recently become synonymous with artificial intelligence – and given its possibilities, that's no surprise. Whether it's optimized business processes, reliable decision-making, or support in customer experience – AI is here to revolutionize the financial sector. But AI is just one part of the equation.
Digitalization Pressure on Banks
The real challenges don’t begin with questions of data quality, transparency, or ethical guidelines – although those are essential for AI implementation. They go deeper and stem from the failure to digitalize fundamental processes and structures. Lack of strategy, outdated systems, and competitive lag are the main drivers behind the increasing pressure to digitalize.
Challenge 1: Lack of Strategy
It’s a familiar picture across many industries: when it comes to digitalization, a clear, long-term plan is often missing. Instead, we see many small projects with little to no integration. Without an overarching strategy, the true value remains untapped. What’s left are isolated solutions that deliver minimal added value. The organization itself remains fragmented and continues operating on outdated IT infrastructure.
The root cause: Many institutions still lack a consistent digital strategy that integrates technological innovation, organizational change, and new business models. Instead, they see digitalization as a purely operational task. Individual apps, ad-hoc process automation, or new online services may be introduced – but these measures fall flat if they aren’t embedded in a larger architecture that eliminates media discontinuities and enables both scalability and sustainable development.
Challenge 2: Intense Competition
While traditional banks are still grappling with internal structures, fintechs and big tech companies are already setting new standards. Embedded finance, platform economy, and decentralized finance (DeFi) are shifting the power dynamics in the financial sector. Customers no longer compare digital services to those of the bank next door, but to the seamless user experiences offered by Apple or Google.
User expectations are also changing rapidly. The new standard includes intuitive usability, instant availability, transparency, and personalized offers. Those who fail to keep up risk losing direct access to their customers.
Challenge 3: Legal and Regulatory Complexity
At the same time, legal frameworks are increasing the pressure to act. Requirements such as GDPR, PSD2 (Payment Services Directive 2), or the EU AI Act are raising the bar for data security, transparency, and compliance. While digitalization offers opportunities for structured data and smart control, banks often struggle to implement these in a compliant and efficient way. Instead, compliance obligations create high workloads and rising costs. The goal of “modernization” continues to be postponed.
Laying the Foundation: Digitalizing Cash Management
To determine where digitalization efforts should start, it's helpful to recall the core function of the financial system: organizing the flow of money at the heart of every commercial transaction. This is precisely where banks can find a solid foundation, even in times of digital disruption – in cash management. Digitalizing this area can improve efficiency, reduce risks, and free up resources to pave the way for innovation.
Here, strategy must come first. It's critical that institutions don’t treat this topic in isolation but instead integrate it into their overall digitalization architecture. This includes, among other things:
- Developing a roadmap: Cash processes shouldn't just be optimized in isolated areas but embedded into a comprehensive digital strategy. This avoids interface problems and creates synergies.
- Analyzing processes: Understanding the current state reveals where action is needed. Critical workflows can be identified, and inefficiencies highlighted. This analysis drives the next steps.
- Using data as a control instrument: Cash flow and inventory data are valuable control variables. Evaluating them enables forward-looking planning, better liquidity management, and lower operational risks.
- Considering compliance and security: New regulatory requirements – for example in payment transactions or data protection – are easier to meet when processes are designed with them in mind from the start, incorporating digital and automated compliance.
- Involving employees: Projects only succeed when employees can accompany them in a hands-on way from the beginning.
Software Support for Modern Cash Management
When it comes to implementation, tools must align with the strategic direction. Practice-oriented solutions show what this can look like. For example, the centralized platform ALVARA ICC enables real-time monitoring and control of cash flows and inventories. The Bundesbank, banks, cash-in-transit companies, and retailers are connected in a closed system, reducing media discontinuities and sources of error.
One key area of ICC use for banks and savings banks is the safebag procedure for customer deposits. Safebags are digitally recorded at the counter along with customer data, and a receipt is generated. When handed over to the cash-in-transit company, there’s no need for repeated – sometimes manual – data entries, accelerating the entire process. Counting results from the cash center flow directly back into ICC and are instantly available to staff.
In addition to cash deposits, ICC supports the ordering of coins and banknotes for ATMs and teller counters. Smart ordering suggestions and automated recurring orders enable flexible demand planning – while manual special orders remain possible. Direct integration with cash-in-transit providers ensures that orders are processed efficiently, quickly, and without errors. This ensures a reliable cash supply while reducing internal coordination efforts.
For maximum security and control, ICC includes an integrated Track & Trace function. It enables the tracking of activities performed by cash-in-transit companies and strengthens outsourcing management. Especially in times of increased cash volumes – for example, during card terminal outages – ICC provides a robust foundation for ensuring reliable, efficient, and compliant cash supply and handling.
What’s essential for success: banks must not treat these tools as isolated solutions but integrate them into the broader digital architecture. Only when strategy and technology work together can digitalization in cash management unleash its full potential – as a stable foundation for the bank’s digital future.
Building a Digital Foundation
In light of the new opportunities that artificial intelligence offers, digitalization is more urgent than ever. But rushing ahead is pointless if the foundation for digital cash management is missing. The top priority must be a digital strategy that examines the current state, defines the target state, and keeps compliance, security, and employees in mind. Once that’s established, proven solutions can begin to unlock added value – through process digitalization and security, mobile-controlled workflows, automation, and monitoring. Those who lay the groundwork today will quickly open up the opportunity to use AI in a targeted way and achieve real efficiency gains.