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Digital impact shapes bankers of the future

Interview - June 1, 2016

One of Italy’s leading banks, Banca Mediolanum keeps growing and gaining capital on its strengths of highly trained human capital and innovative new products, such as its Family Bankers, who have been created as the bankers of the future with the know-how of a bank director and the knowledge of an investment advisor. Founder and Chairman Ennio Doris provides more details, and explains what makes Italy’s banking sector unique and how the industry will evolve in the coming years. 



Italy is at last emerging from a seven-year-long recession, the deepest since the end of WWII. Data recorded 0.8% GDP growth last year and expectations point at 1.5% growth in 2016. What is your perspective about Italy’s performance?

In order to understand the Italian system, we need a premise. Italy’s entrepreneurship is different from many other countries. We are much more flexible and creative.

The 2008 crisis has been very deep. To put it into perspective, World War II created a lost decade in terms of Italy’s growth. In 1949, Italy’s GDP was at the same level of 1939. By the same token, today we have to go back 15 years to find a comparable level of GDP. So, this crisis has done more damage than WWII, economically speaking.

The challenges we face today are the massive amount of bureaucracy, the inflexibility of the labor market, and the excessive level of taxation. Despite these aspects, our entrepreneurs are able to be competitive worldwide. We continue to expand our market share abroad in many different sectors.

Italy’s family businesses are incredibly flexible, with an amazing capability to react to exogenous shocks. Family businesses have a different horizon. They not only focus on the opportunities in the short-term, but they have a long-term vision because the founders want to create growth for the next few generations.

The economic recovery, indeed, is driven by those businesses concentrating on the export sector. If entrepreneurs in other countries would have to face similar challenges, they would go immediately bankrupt. Italian entrepreneurs are able to excel worldwide. If the government addresses the above-mentioned systemic challenges, Italy would have an economic boom.


When we look at Italy’s banking system, is it solid enough to survive the increased market volatility?

Italy’s banking system is very solid. When Lehman Brothers failed and many countries had to bail out other banks risking bankruptcy, in Italy there has been no intervention whatsoever.

Do you remember (US Treasury Secretary Henry) Poulson’s $750 billion plan approved in 2008 to save American banks in order to take out NPLs from banks and let them work efficiently again? After a month they still couldn’t figure out at what price they should have bought those toxic assets. Do you know where the solution came from and nobody has ever written about it? Italy!

In 2008, in Italy people started running to banks because of the fear of losing their savings. I spoke to the Prime Minister and suggested to announce the creation of a fund that would be used by banks in distress should they have needed more funds. I told Prime Minister Berlusconi, “You will not spend a single dime, because our banks don’t need it. It will suffice to show that the State is willing to intervene.” A few days later, the government created a €20 billion fund. Uncertainty ended immediately, people stopped withdrawing their money. Just a few days later, the UK’s Prime Minister Brown copied our initiative with an £80 billion fund, then £100 billion, which he actually had to spend though. Poulson saw that Brown’s move worked out well and he decided to cut the original $750 billion plan down to $250 billion and create a similar fund. But it was Italy that was the first country to come up with that idea.

The issue of Italy’s economy is that it over relies on banks. About 80% of lending comes from banks in Italy, while it’s only 30% in the US. This is because we do not have other financial institutions, such as funds to complement and support banks’ financing. Austerity measures introduced by Monti’s government and imposed from the EU exacerbated Italy’s economic situation. If the economy is not growing and there’s little expectation about future growth, it is a mistake to introduce measures to tighten the belt. Austerity killed the domestic market. Our GDP fell below zero, because the export sector could not compensate the dramatic collapse of the domestic market. This of course created a vicious circle. Many domestic companies went bankrupt; banks’ losses increased massively because they represent 80% of the lending power. The weakness of Italy’s financial system is that is too bank-centric. Italy’s banking system lost in the last six years €47 billion, an enormous amount. But the system remains one of the most solid worldwide.


What would you identify as the main future trends in banking?

Three years ago, the President of BBVA, Francisco Gonzalez, affirmed during an interview with the Financial Times in the UK that in 20 years’ time, out of the 20,000 analog banks only a few dozen will survive. Assuming that this is true and let’s say for example that 400 banks will survive, it means that 98% will disappear. This is due to the digital revolution of the banking system.

Banks have two main streams of revenues. When 10 years ago, banks were lending at an average interest rate of 10%, while the cost of capital was 2-3%, they had a 7-8% margin that would allow them to cover all costs and make a profit. Today, banks lend at an average of 2.5%. The cost of capital is 0 but you see immediately that the margin went down considerably, from 7-8% to 2.5%. Banks can no longer cover their cost.

Commissions charged on services represent the other stream of revenues. 15 years ago, if you wanted to do a transfer at the bank the cost was, let’s say €1. If you go today, it will cost you six times that. The number of people doing these kinds of transactions at the physical office of the bank has decreased dramatically. Everyone uses online banking, where the cost of the transaction is minimum. So, also the margin coming from commissions falls.

Banks must reduce costs very significantly. They need to have more streams of revenues, such as for instance asset management. In 2012, the share of families using exclusively physical banks to do their transactions was 53%. Two years later, it went down to 48%. Online banking grew by 5%. If we project this growth, we can say that in 15 years’ time, people going to bank offices to do their transactions will be very low.

Another key aspect to consider is that in Europe every country tries to protect its own banking system. In Italy, for instance, we have 30,000 Italian bank offices and 1,500 foreign bank branches, which is approximately 5%. In Germany, France, and Spain is less than 1%. There are two ways of penetrating a foreign market for a bank. The first is to set up branches, but as we’ve seen it has become extremely expensive. The other way is to buy a local bank. In order to buy it, you need to be authorized by the national central bank, like Bankitalia in Italy or Bundesbank in Germany. Well, they always deny the authorization unless you want to buy something very small. BBVA, for instance, wanted to buy Monte dei Paschi di Siena a few years ago, but they did not get the authorization. So what can a bank do? BBVA, thanks to the digitalization, can open one office in Italy—without asking for any authorization—and offer its services to everyone.

Small banks will have no room. Because they have to make the same kind of investment in infrastructure, no matter how many clients they have, and they won’t be able to afford the cost. The big banking groups will dominate as they are already controlling the market in the US. But they will have to provide all services as in the US. Investment in human capital and innovation is crucial because technology evolves rapidly. This is why I agree with Francisco Gonzalez. But I wonder, out of those 400 banks, how many Italian groups will survive? Five, six, maybe three. Banca Mediolanum will be one of them.


Before we discuss how Banca Mediolanum applies innovative services and invests in human capital, could you please provide an overview of how the idea of founding Banca Mediolanum came up?

The history of our bank can be an example for the transformation that many other banks will have to go through if they want to make it. As my first job, I worked in a bank in close relationship with clients. Then I directed a small engineering company. The founding idea came up when one day the owner invited me to go with him for a meeting. I got on his beautiful Citroen Pallas. It was 1969. I had a small car, a Fiat 850 with plastic carpets. I sat in the back and the Pallas had a soft moquette. In that moment I realized, that he was driving the car I wanted and that I was only in the back seat.

I felt he was driving my own life and I wanted to be at the steering wheel of my own life. At that point I realized that I wanted to be an entrepreneur. Six months later, a friend of mine told me he was working for a bank with a commission-based salary. That was for me the password, commissions. It was a bit like being an entrepreneur because it’s up to your own ability and productivity. I resigned immediately and joined the company. I worked there for four years with great results.

One night, I visited a carpenter and he made an investment of 10,000,000 lire, which was a considerable amount at that time for a carpenter. He asked me: “Mr Doris, do you know what I gave you?” And I said, “A check for 10,000,000 lire.” He showed me his hands, full of calluses and destroyed from the work and said: “No, Mr Doris, remember that I am a person that cannot afford to get sick, otherwise my family won’t be able to get by. If you manage my savings properly, in 15 years I’ll have some money to support my family and when I get sick, I won’t come to work.”  

I went back home and I was very sad. I thought about 15 years’ time. It was a long time. There could have been a much better solution for the carpenter, which was to get a health insurance. It would have cost him probably a fifth of that investment, and he would have been able to stay at home when he was not feeling well. That night I understood what I wanted to do. I realized I didn't want to be successful because I was able to sell financial products to people. I wanted to be useful. I really wanted to be the doctor of families’ savings. I needed to be equipped with different instruments—funds, credits, insurance—in order to find the best “cure” to people’s financial problems. At that time, however, the idea was too innovative because financial institutions worked separately. There wasn’t a group doing everything at the same time.

I needed a lot of money to realize my dream, because I needed to create a bank, an insurance company, and an asset management company. I thought that if I could find another entrepreneur interested in the idea, we could speed up the process. In 1981, I was getting more than 100,000,000 lire in monthly commissions. I created a division of 800 people and my hard work was really paying off. Then, one day, I stumbled upon Silvio Berlusconi who in an interview said he was open to discuss ideas with other entrepreneurs to create new businesses. I showed him my idea. I wanted to create a company whose mission was to become the point of reference for Italian families for every financial issues they may have had to face—be it credit, insurance, or savings. “We need to be the number one,” I told him. I said that I was ready to start from scratch after showing him a pile of files of my commissions and successes. He loved it and we started working together. We didn’t sign any paper, as gentlemen do, we just shook our hands.


How did you implement this innovative concept of a 360° financial group?

My vision was to create a global consultancy group. We started developing our network and distribution channels but we were still missing the bank, which we created in 1997. They suggested I should open branches all around. But they were really costly and I knew I couldn’t face the competition with groups that are 500 years old. My battlefield was on innovation and quality of service. At that time, the internet had a very low penetration.

So my innovation was to create a banking services center that would keep in touch with our clients by phone. We hired graduates and trained them for 11 weeks. On top of that, half an hour a day was dedicated to further training with senior management. I wanted to create a skilled workforce able to deal with all sorts of transactions, because you cannot have two or three people dealing with a client for different transactions.

So our operators are extremely skilled; they can deal with all transactions because I wanted to have the highest service quality for my clients and we continuously invest in human capital development. I’ve been to New York, and in order to show how our banking services center worked, I used to show it on my phone. Within 3’ any operation was concluded. For our clients above €100,000 we guarantee that an operator—not a recorded machine—will pick up the phone within the second ring. It’s a waiting time of 5-7”. For all other clients, it’s within 20”. I challenged all American banks and I won all the time.

Of course with the rise of the internet, we innovated with apps for smartphones. The most important innovation, however, is not technological. Fast-forward to that new banking world with no physical banks. Banks will still need bankers for complex matters, such as mortgages for example. People love to have one point of reference, not too many. So we introduced a new figure in the banking system, the Family Banker. Our Family Banker possesses the know-how of a bank director but also the knowledge of an investment advisor.

Ever since I had the idea of creating this group, I imposed a culture. The culture of global consulting. The Family Banker and our human capital is the most important innovation, because in 10 or 15 years that will be the professional of the banking system. We cannot only react to changes. Banca Mediolanum is a trendsetter, not a follower. We predict trends and innovate accordingly in order to seize opportunities. Other banks keep working in the traditional way without considering the shifting trends of the banking system worldwide.


You once said: “I’ve never met a successful pessimist. Optimism doesn’t mean ignoring problems, but knowing that there are solutions.” Your father has also influenced you, when he invited you to look at the future by saying, “There’s also tomorrow.” What does ‘tomorrow’ hold for Italy? 

Psychologically, human beings have been the same throughout millennia. Our emotions and feelings are the same. Once there’s fear, we get two reactions: we either feel paralyzed or we run away. The speed of our reactions means surviving. When we are frightened, our brains do not work efficiently. We lose our creativity and give room to automatic responses.

Today, there’s the fear of the market. Communication is key. Media bombard us with negative messages. When there’s an issue, people tend to run and withdraw their money. That’s the impulsive and mechanic response. That is also why people lose their money. We need to know that if we stay positive we are more creative. We will start putting things into perspective. Today the market is down, but at a certain point it’ll have to go up. So you can start planning accordingly and choose the best strategy. That’s how we work. While other banks experience a loss of clients and capital, Banca Mediolanum keeps growing and collecting capital. We have to think of crises as opportunities to improve ourselves and the world we live in.

Italy possesses extraordinary entrepreneurs. If the government manages to simplify bureaucracy, streamline regulations and wipe our red tape, Italy becomes the leading country in terms of economic growth in the whole world.