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DZ Bank seeks ambitious expansion as a payment powerhouse

Major financial institution DZ Bank pursues dominance in payment processing by creating its personalized payment platform, unveiling the inner workings of a billion-euro venture.

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DZ Bank aims to establish itself as a dominant player in the payment sector
DZ Bank aims to establish itself as a dominant player in the payment sector

DZ Bank seeks ambitious expansion as a payment powerhouse

In a significant move for the banking industry, DZ Bank, a significant financial institution listed in the EU-wide stress test results, has successfully completed the migration of its payment platform, marking the end of a five-year project that took over 100,000 workdays and involved around 500 employees.

The migration, initially scheduled for 2023, was moved a year later to better prepare for future changes. The standard solution in the banking world would have been to outsource payment processes entirely, but DZ Bank decided to bring payment processing in-house.

The decision to develop its own payment platform was prompted by the merger of WGZ Bank, the central bank of Volksbanken and Raiffeisenbanken in the Rhineland and Westphalia, with DZ Bank in 2016. The need for a unified payment solution was evident, and DZ Bank stepped up to the challenge.

The transition was seamless for most customers, who did not notice the change as they expect seamless payment processing. The number of SEPA transactions increased from 7.5 to 10 billion per year between 2018 and the start of the platform, a testament to its smooth operation.

The project was complex, with regulatory changes such as the introduction of the European payment systems T2/T2S, the unified European data exchange (ISO 20022), and changes to the SEPA standards needing to be integrated. Board members were involved in decisions about functions like providing margin spans for the new payment platform, as these decisions had business-political implications.

Without a specific cost-effectiveness analysis for DZ Bank, one can infer that the bank considered initial and ongoing expenses of software development, hardware, compliance, and cybersecurity for in-house platforms, as well as costs of outsourcing including licensing, transaction fees, customization limits, and integration challenges. Risk considerations such as operational resilience, regulatory compliance, and technology roadmap alignment were also crucial factors.

Jan Stüve, IT strategist at the consulting firm Capco, advised DZ Bank on the setup of the payment platform and described the project as very complex. However, the bank's decision to bring payment processing in-house seems to have paid off, as the platform is now complete and ready to withstand development pressure created by the market and regulation and remain profitable in the long term.

DZ Bank now wants to monetize its new payment platform and appear more frequently on the market as a payment service provider. Lukas Homrich, a freelance journalist and member of the dreimaldrei journalists' office, who writes about economic and financial topics and particularly enjoys philosophizing about business models, will likely keep a close eye on DZ Bank's future moves in this area.

If something had gone wrong during the transition, millions of people would have felt it in their daily transactions. But with the migration completed without major disruption, DZ Bank has demonstrated its commitment to delivering a robust and reliable payment solution to its customers. Running two payment systems would have been expensive and inefficient for the merger partners, making the decision to invest in an in-house solution a strategic one.

As the banking industry continues to evolve, we can expect to see more banks making similar decisions, balancing the need for customization, control, and integration with the benefits of outsourcing, scalability, quicker market deployment, and access to specialized innovative solutions. The focus will be on cost-effective, scalable, interoperable, resilient platforms capable of integrating with central bank digital currencies and new payment infrastructures.

In the coming years, the success of DZ Bank's payment platform will be shown as it withstands development pressure created by the market and regulation and remains profitable in the long term.

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