Recent trends in AI adoption by German banks

Interest in artificial intelligence (AI) has been steadily increasing across the banking sector in Germany. This is due to the fact that with the help of machine learning (ML), standardized and repetitive processes in particular can be automated to increase efficiency. Virtual assistants and smart language recognition solutions are other areas where AI is widely applied. Moreover, more and more banks have started to leverage AI in compliance (compliance management systems), where intelligent financial crime and fraud prevention is considered mission-critical.

AI-related partnerships

Against this backdrop, we currently observe a range of AI-related projects and partnerships taking place, such as:

Finanz Informatik and IBM – In October 2022, IBM and Finanz Informatik Solutions Plus (FI-SP), a 100% subsidiary of Finanz Informatik, announced that they had entered into a solution cooperation partnership. In order to do some exploratory work, a joint project team was formed to design a prototype for the "Isabel" voice assistant for customer communication. Isabel is now at the practical implementation stage. Moreover, FI-SP will leverage IBM Watson to develop cloud-native applications and integrate them into the banking application systems and architectures of savings banks and other customers.

Deutsche Bank and NVIDIA – In December 2022, Deutsche Bank announced a multi-year innovation partnership with NVIDIA. Together, the two companies will develop not only a range of applications in the area of customer experience, but NVIDIA will also help Deutsche Bank to leverage AI in various core back-end processes. Supported by NVIDIA’s AI, ML, and accelerated compute knowledge, the partnership is expected to enrich Deutsche Bank’s risk management capabilities. The bank will use NVIDIA’s software suite for AI development and deployment in both its on-premises and public cloud (Google Cloud) environments. Moreover, Deutsche Bank will use ML models to detect fraudulent financial transactions. In addition, the partnership will be supporting the bank’s cloud transformation journey, for example by using AI and ML to simplify and accelerate cloud migration decisions.

apoBank and ACTICO – As part of its migration to the Avaloq core banking system, apoBank has overhauled its compliance management system. The bank decided to use the ACTICO Compliance suite, an application that uses ML to offer a range of automated compliance functionalities for banks and financial services providers. At apoBank, this software solution covers the following areas: Know Your Customer (KYC), Know Your Transaction (KYT), Anti-Money Laundering (AML), Monitoring Securities Trading (detecting market abuse and insider trading), Monitoring Employee Transactions.

Building internal IT resources

With the increasing importance of IT, we observe a trend among banks to build their own IT expertise for digital transformation in order to be less dependent on service providers, which is even more relevant as IT professionals are scarce right now.

For instance, Deutsche Bank announced in June 2022 that it was going to establish a new technology center in Berlin with a focus on application development and competence development around AI. As mentioned above, its recently announced partnership with NVIDIA (Dec 2022) was another strategic step by Deutsche Bank to expand its internal AI center of excellence (CoE) and to trial and develop AI and ML services and professional skills. Commerzbank is also expanding its nearshore IT capabilities; approx. 1,600 FTEs are to be hired by 2024 to ensure long-term build-out of internal know-how for the development and operation of applications.

Beside these developments around innovative topics such as AI, it is worth noting that most German banks are currently also working on their strategies and/or the implementation of major IT transformation initiatives to modernize their IT infrastructures and application landscapes. That is why we believe that overall IT investment by banks in the German market will increase. As a consequence, we expect the market for software and IT-related services to grow by a moderate single-digit rate by the end of 2022 and by a similar rate in 2023.

Find out more in PAC’s most recent report Banking - InSight Analysis - Germany 2022 to gain a better understanding of the characteristics of the IT market (incl. IT market KPIs) and the software and IT services provider landscape in Germany.