A few days after the blackout caused by Telekom, the Iranian banks are back on phone and internet. The German la was well as the German courts have shown independence. So at least the German system works, even Telekom has illegally broken law.
With judgement from Hamburg Landesgericht, the Telekom hast to re-establish the connection of Iranian banks. The Telekom has stopped the delivery of ordered services without any reason. It is the most obvious action of following American policy against European policy.
Telekom vs Germany First
Actually, it is totally fine for all that a company can decide with whom they want to make business. In addition, it is understandable that Telekom is rather servicing US companies than Iranian banks. However, the Telekom is not a normal company; even they act as normal competitive company. They are owned for a great instance by German government and are supported by several initiatives and laws from competition through German government. That means, that an expansion to other countries is well understood, but German interest has to be first. If not, than we can sell the remaining shares and open the market.
Where are our politicians?
With this maneuver, Telekom has shown quite dis-respect for European and German laws. As we have the blocking law and our politicians have expressed the clear will to stay in the nuclear deal and keep the business alive, the Telekom showed their weakness. I would have expected that the German politicians snubbed Telekom and his board members in public to show attitude. But unfortunately no attitude.
Win of the strongest?
Right now, it seems that USA or other powerful states can do what they want. This is the beginning of an extreme dangerous situation. If we start that dialogue and discourse are not the measures of first choice, where will we end? If the strongest is the ruler, we are back in the dark times of our history and these times always ended with a massive war in the end
Hope for the best – prepare for the rest!
Yours K-Street6 Team
Since today the SWIFT has closed its interface for Iranian banks. This news is more than thrilling as this is, frommy point of view, not based on any law in Europe. So it is clear against European politics. Needless to say what we expect from government and what we might get.
SWIFT sneaks out silently
Only people with a very sensible sixth sense for timing and of course the employees in the banks realized today that SWIFT has stopped collaboration with Iranian banks. No German newspaper, no website has anything written. We did not find anything in any website of European Union or on website of the German Bundesregierung also nothing was announced. I doubt that we get an answer. But for me it is pretty clear a breach of European laws.
In a statement, Swift described its move to suspend certain Iranian banks from its service as “regrettable” but said it had been done to maintain the stability and integrity of the global financial system.
I personally like most the expression “to maintain stability and integrity”. On which basis? These are very interesting times. It could lead to diminishing of a superpower and the rise of a new world order. As no one can definitely explain the factors and mechanism to become, stay or loose superpower. I simply do not know if I shall like it...
Yours K-Street6 Team
Despite all confirmations of the International Atomic Energy Agency (IAEA) the US have brought back in place the former sanctions, stopped as conditon of the so called nuklear deal. The next round of sanctions of the US administration will start by November 4th and they can become really tricky because they target the financial sector. This means a new aspect in the game ofthe powerful how to deal with US and to find the best strategy to survive.
Sanctions really best they have?
Political sanctions, as we have learned, never hit the right people. Neither North Korea, nor Russia or even Cuba, the powerfull are not really affected. Full stop delivery of goods like weapons, nuclear stuff or other human rights threatening goods work as it is a full stop approach. And, much more important, no eceonimy needs this goods. Sanctions against all sorts of goods are always problematic for business because a lot of formalities have to be obeyed consequently and that makes all business slow and load them up with effort. But usually they are not this big obstacle as long as ones business is not fully targeted. And even then, with some dual-use business can be made as long as end-user are clear and acceptable. Andmost of the sanctions are, this must also be said, not hitting the usual business. And in case, goods are affected, a country like Iran can afford the higher risk margins, provider will charge and thus keep the standards in the country on level.
Hit on banking - hit the economy
But with hitting the banking system no company has the chance to escape.
This is based on three reasons:
So it will be very thrilling how to deal with this not so well-thought-out idea from the US administration. If the banks do not allow transfers to Iran because of the named reasons, business is dead. This makes Iranians impossible to reach improvements in all the aspects of modern life. And is US want to bring down the government and install a new one. last years of Arabic sping has shown evidence that this will not happen.
The EU started to fight back with pulling out the blocking statues, that shall help European companies when they get sued by US administration. Doubts are given that this will work as companies facing problems in US when they are not following US sanctions and having business in US. Or even if there is no direct business in US but customer use the products and sell their products in US will have explicit interest in having every provider following this rules. This would be second, indirect trigger for pushing the sanction in place.
EU receivable exchange
Only hope we have is based on the European ideas of blocking US sanctions by a official governmental based money or better said receivable exchange. This exchange of debts between countries could cure the problem for all companies, willing ot make business with Iran. It will not help trading companies willing to supply Iranian companies as the manufacturer will demand end-user certificates. This are then the next problematic element we can discuss. But it is a pormising beginning.
We hope for the best but everyone shall prepare for the rest.
Yours K-Street6 Team
In the last months or better weeks Irans currency has ground rocketed in a way that it lost more than two thirds of its value. And on the other side the house prices have gained about 50% value as more and more people which have money, invest their money in apartments. Whats going on? The country shall be big enough to be at least a little bit stable?
Pressure from outside
The outside view is pretty clear as the sanctions let everyone sell Iranian Rial as fast as possible and no one wants to have and held this currency. And with becoming less for oil and paying more for all other materials means an increase of prices for the affected goods. This shall be pretty clear for imported goods. But the situation is that all prices increase in Iran by sheer sky rocking. The bread or tomatoes as well as the soap and the milk triple the prices. As I understand completely the impact of external goods this cannot be the explanation for domestic products. How come that bread is tripling its prices? What exactly makes the pricing of the goods?
Really only outside?
And as an also very interesting effect we have now an increase in the departure fee. This is very surprising as the fee is not depending on the prices of flights or anything else. It is implemented in the administrative act of departing from Iran for Iranians. So there is stabiloity given by purpose.
Internal aspects breaking through
So what is the reason behind? I guess the same as with all other goods not depending from oil or external goods. Some see a chance to increase prices with a very good explanation and the Iranian government is not willing or right now not intended to act against this. But the effects of increasing prices, further reducing economic strength and increasing house prices make people poorer and more dissatisfied. I have no clue who has which stakes in there and sees some usage for himself, but for sure this dissatisfaction will not help the modelling power behind. It will just make Iranian poorer and further reduce economic power and thus willingness of the people to work and develop.
Crossing the fingers for future and
Yours K-Street6 Team
With the recent stop of US government in dealing with the P5+1 negotiated contract for preventing Iran getting nuclear weapons and the claim for new and "strongest sanctions ever" times have changed harshly. What does this mean? What will come?
Out of nothing
In on of the last blogs, I have written about my experience in Iran with banks and I was convinced that the small light, which came through the curtain, would become more and more. However, what happened was, that the current president of the U.S. draw back from international contracts, based on doubtful evidence for Iranian misbehavior. For me it came with a surprise as all the companies we are working with in Iran and outside Iran where happy to come back. Of course, things did not go all in the right direction and the situation for most of the people in Iran did not really improve. And yes, Iran is not directly to be called the peaceful hegemon in Middle East, more hey are fighting with their enemies like the opponent also do. From my point of view, no one is better or worse, Iran is juts one of this bunch of young people not knowing what happens in areal fight. However, to take this as a justification for drawing back the contract? I am not sure if this would ever be possible in reasonable business.
Thirty years` war
In recent times, many people compare the current fights in the Middle East with Europeans nightmare, the 30-years´ war. Just for a small classification: This war took place in Europe between 1618 and 1648. It was in memory of humankind the longest and most destructive conflicts with eight million people dead. It has started as a war between various Protestant and Catholic states in the fragmented Holy Roman Empire. However, with more and more that ties superpower coming in, the war escalated to a general conflict involving most of the European great powers. The 30 Years' War devastated entire regions and bankrupted most of the combatant powers.
It means, what is known as the biggest impact in European development started as a small fight between religious groups and grew to the maximum with superpowers entering the stage to "support" their friends.
Is it comparable?
Yes, that sound familiar. In the first glance. We have Iran against Israel and against Saudi Arabia. Right now Saudi Arabia and Israel becoming somehow partners under the big umbrella of USA. In the other side with Iran, we have no real "friend". There is Russia, currently allied with Iran, Turkey is getting closer to Iran by being against USA, but had many issues with Russia, even shooting Russian planes. Therefore, this state is unclear. In addition, China is doing business but not having any military stakes in the region. So right now, we have one superpower with two more-or-less accompanied states against Iran. That seems to be in a military conflict situation clear. NATO not to support Iran as long as USA stays in the line of Nato-rules bound Europe. Russia would benefit from a rising oil price. That means a broken Iran would be not a real issue for Russia as long as they stay in Syria.
This small analysis tells me, that we have of course the ingredients for a comparable war, but with the USA as only superpower in line with two strong countries against lonely Iran. Situation seems to be more a second Iraq trail than a 30 year`s war. Unfortunately for the region.
Assuming this situation and knowing that Europe is not able to do anything against US pressure, Iran has two options.
What will Iran do?
I guess they come up with Option 3 and do silly things like threatening USA or Israel, continuing their warfare in Syria and other countries and then USA will find a reason to attack. Then we have worst scenario, a weak Iran with no friends against a superpower and his two friends.
I hope for peace as we love the country, part of family lives there and our business just grows and grows and I really want to be there also in the next years and enjoy Nou Ruz days in Tehran...cross fingers people!
Yours K-Street6 Team
In the years since at least I am involved in Iranian affairs there was always a kind of hope as sansctions prevailed and people expressed their deepest belief that sometimes this problems will be gone. No we see not really a progress for the people, more or less it became worse with the most significant sign of crisis as the dollar jumped.
It is not only strongly economical
As we started our business, economy was a problem influenced by sanctions and everyone though, by the time the sanction will go, the hard interpretation of Iranian habits, rules will also weaken up, and Iran becomes a normal member of the world society. Unfortunately are on both sides enough people which are not that much interested in a normal relationship. A few years after sanction lift, the economy seemed to start and trade starts. There were a lot of new economy business like the Uber or eBay or Iran. In addition, people had the hope that Iran can connect to the world as if they re-connected their SWIFT-adapter to the world banking system. However, unfortunately it was not only and was never only the economy. Always politics cross the lines. Moreover, here the Iranian government is right not really everybody’s darling....
Jump of Dollar
One clear signal is the jump of the Dollar. People fear that Iran comes more and more in the situation much worse before sanctions due to the activities in Syria or Yemen, which are interfering the interests of USA and Saudi Arabia. Maybe the both are not the most peaceful nations in the world, they are the most powerful. In addition, for a weak economy like Iran it makes absolutely no sense to start a brawl with this people. Therefore, reality is a jump of the dollar, which affects nearly everything in private and public expenses, shopping tours and investments. Some of the big projects have lost up to 20% of their budget. In addition, we are talking about millions of EUROs or Dollars that are lost in exchange rates.
Apple? Hello? Where are you?
It was nearly a year that all the Iranian apps dropped out from Apple store. First people cannot believe this as Apple was always a smooth operator for all Iranians. Moreover, Iranian admire Apple and love the IPhone. Even it is not and was never officially in Iran, the friends in Cupertino let the things go on in Iran. The above mentioned start-ups where very successful and unlike UBER the Iranian company SNAP made it possible to ride secure with good cars and brought a lot of people in business. Now you can reach them only in Android-store.
Now? Recently Apples stopped access to app store from Iranian IPs. Still you can reach with VPN but it is the first open sign of way back.
Oil oil oil
This is the real issue. The only working industry is the oil-industry. Here you have the people working; here you have the orders and the big budgets. However, beside this, nothing is really growing or bringing people into jobs. I hope that after this the politicians turn down the spiral of escalation. In addition, not using it in Iran to argue for reduction of freedom and rights for women and men. Now it is really a time of decision - going into the world or going back to Stone Age.
Yours K-Street6 Team
For this year’s nou rouz we have been again in Iran and enjoyed the calm and easy going days in
Tehran. And as we had some problems with the account of my wife we went on and
visited the bank. And what a surprise - fast and nice!
The account of my wife was not really working the last time we have been there, and also the card was locked due a wrong usage by her husband. But you need a fully working card in Tehran, no one is carrying all the bank notes you need for shopping. And also very important, how can you load up your telephone without a working card. So as we didn’t really want to spend a day at banks office we had to.
How can I help you?
Everyone who has been in a Iranian bank branch can only agree with me saying that the Iranian sense for beauty and good taste is completely lost in this branches. There was a ladder standing around, old boxes for whatever in the corner, the seats for waiting old and shabby. I don’t know why Iranians do not like their banks or their bank clerks. But the clerk was very nice and as my wife explained the problems he was really in a good mood to help. The bank account was opened in another branch so he was actually not responsible for the account. But one call and they transferred by mail all the necessary documents to the branch we where sitting.
New card and new internet banking now!
So what has happened? Not only the thing with the husband but also some problems with old
signatures given a long time ago and now changed. So they had to renew the identification. This was done in a few minutes and then he proposed to initiate the online banking as he realized that we are living outside Iran. Within 15 minutes, my wife was eligible to start the online banking and in a way of self service interaction with the teller machine she was able to unlock the account
and change the PIN as she wants. And now we have a online account in Iran working with German telephone in Germany. And all within a quarter hour. This is digitization that helps people. Not necessarily a fancy application but a stable working system which helps me out in a blink of an eye !
Yours K-Street6 Team
Sometimes it is interesting what is not said or what is said in a reference that seems to be at least unusual. This happen in an article of Financial Tribune we are talking about today. Or maybe it’s just me, seeing the things which I am dealing with on the surface. Maybe I should dig deeper….
News from South Pars
But what am I talking about? The other day I was reading through the latest articles about Iran and I was also overflying this article about the status of South Pars.
The article says in a nutshell, that despite some rumor, Total, the French oil company, is planning to utilize on the site Iranian goods from Iranian provider as far as possible. And currently the capacity for providing is about 70% of the total goods.
Rumor about Total
Reason was that obviously some “well-informed” groups have spread the information that Total does not intend to use Iranian goods for the construction site South Pars. As it is financed by government this would be much more than only a herb rebound for the Iranian economy. As Total is exploiting South Pars together with China National Petroleum Corp and Petropars it would be very critical for the government. Even more annoying this would be as the contract says a minimum of 51% delivery from Iranian providers to the site.
News from the shadow are good for whom?
First thing I would like to mention is the obvious need that someone has distributed the wrong information and someone could be harmed. This shows how weak the Iranian government has become on the economic foot. Despite successful opening the country, the people in the country have not yet seen the growing economy. Much worse, the effects if there, are completely eaten up by the Jump of Dollar and Euro. Question is, who wants now a destabilization?
It is all about the documents
Second thing which I found much more interesting was the following: “The European company has defined preconditions for domestic firms, such as Iranian companies having their accounts audited, meeting standards and obtaining international certificates,” he added. He is Reza Padidar, the chairman of the board of directors of Iranian Petroleum Industries Equipment Manufacturers Association. So if this guy says something like this he means it the one or other way. And here my guess meets from reality. I know so many companies failing to provide solid reports. Even company overviews, organizational charts, declaration of independence or ease ownership structures are hard to get on the first step. Things which are completely standard in my world cause real problems in Iranian companies. So I find it very interesting that such a prominent person of public interest is stating this topic in public.
Or maybe he just took the first answer he could find, maybe he wanted to say something. But either this or that or another reason, he has the problem on the table and it bothers him. That’s what I read in this article and it confirms me with all our struggles to reach undoubtful solid information. In this way…
Yours K-Street6 Team
The new year started with some verbal threads from some president to Iran and some senseless potential espionage from in Germany which does not necessarily make our life easier. But there are also news, that look promising. Exactly like the news about privatization of the biggest banks in Iran
Mellat, Tejarat and Saderat to be released into freedom
With the news from the Financial Tribune, a usually very good informed and for me one of the most covering newspapers a little bit of spring visited me on my desk.
As recently reported, the IPO of the three banks is planned and no up to highest decision. That would mean, that at least officially the government steps back from the prominent position and let the banks work on their own. Even we all know that this is not true in the tight world of Iran – even it is not that true in any other country – the sign is important. It tells the story from a development of the Iranian governance moving away from the all controlling state to a more open and free power economy. Even that we know that in the background a lot of important decisions are made, it gives the chance to normalization and as the author said, hope for more divestures. Currently there is no information on IPO, but we will keep a eye on it.
The rational behind
It is interesting to think about the rational behind. Why is a government giving away its power within companies. As we see in China, they change society with orchestrating companies due to their governmental (short or long-length) owned stakes in the big companies. So we see also a shift toward own interest in US by the political driver “America first”, which also gave currently an economical push for the US.
In Germany we saw a lot of divesture in the past years but also a shift backward with the banking crisis.
So why is Iran going in this direction?
Today I am not daring to give a best guess, but I hope that Iran is using this chance to become more and more not a state of Mullah but a country driving the economic and political improvement of the whole region in a smooth an gentle way. The year started with promising signals, hope for the best
Yours K-Street6 Team
With January 1st, 2018 the PSD2 starts and a lot of people are really partying this topic. And I Am not sure if I want it. For me – and maybe I am a little bit oldschool – a bank is a bank and my money is something for me and not thought for sharing. For sharing I have payment proxies like a credit card or Paypal.
So what the heck is the PSD2? PSD2 is the Second Payment Services Directive, designed by the European Union. It bases on the PSD, the Directive on Payments Services (PSD) from 2007, which should create a single market for payments within the European Union. With some few rules it made what we know today as easy transferring from one country to another: the SEPA - Single Euro Payments Area. And this SEPA really helped clients and made a lot of things better, also on the fee side.
And PSD2, what, why?
So after a few years, new ideas came up to the European Union and they aimed to open bank accounts for third party services – always in favor of the little client. That means in short words that now a bank has to give access to a service provider if the client approves this access.
This opens room for several new services:
Please have a look here at "Sepa for Corporates" a good and short explanation.
They lived happily ever after?
For the banks is chance and problem in one shell. Banks can start to become financial superagents or just deliver information. But I as client, I worry about this. Why? Very easy. Today you buy something and you pay with your proxy credit card or Paypal. If something is not correct with the goods or whatever, you get your money back very easily. Tomorrow the dealer access in the second you push the button your accounts, no matter if he has sent the goods or is even thinking about sending. So no security for the buyer. And then once you gave the permission, who says the dealer is not using this access fraudulently? And who says this dealer will never be hacked and someone from bad country will take your money? But if you don’t give them the permission to access your account, I bet we have to pay extra fees to use credit cards. Than I am worse off as before thanks to regulation
Yours K-Street6 Team
Since we are travelling to Iran we never thought about the tectonics of Iran. Of course we can remember the catastrophe of Bam in 2003, but it was never so really in my active thinking. Now with the big earthquake we got a smooth reminder. We took this to write a small excursion about Iranian special situation.
Iran is on top of a high active seismic region.
The latest earthquake on November 12th 2017 was located within the Zagros Mountains. Here the Arabian and Eurasian Plates move towards each other and we can observe a permanent continental collision. At this location, the relative convergence of the plates is about 26 mm per year. And that means a lot in tectonic measures. That is really a lot! Think about what two and a half cm are...
Very interesting, the Iranian plate is a relatively small lithospheric plate. It is part of a continental plate in Asia. But as we know such small plates as microplates, they can have strong movements. Especially in the case of the Iranian plate. It lies as a part in the south of the Eurasian plate. The Indian plate lies in the east, the Arab plate in the south and the Anatolian plate in the west. The Iranian plate is mostly covered from the Iranian Highlands, but also most of Afghanistan, western Pakistan and part of eastern Turkey. Interesting wise, the southwest of Iran is part of the Arabian plate. And guess what? Thea seam of Iranian and Arabian plate goes directly through the middle of the Zagros mountains and ends later in the south in the Gulf of Oman. The seam to the Indian plate follows the Baluchi east cover of the Indus plains, and merges in Kashmir in the seam of the Himalayas.
The map of tectonic wonders
With respect to Wikipedia, we link to this map, which is also depicted in the following. Here one can see very easily the overlapping plates under Iran.
Reading this description no one wonders any more why we have this mass of earthquakes in Iran. We personally never had the experience of a earthquake, but hearing this, it will come. Hopefully we will not hit too hart.
Yours K-Street6 Team
Today I was not sure what to write in my blog, so I was more talking to friends than working. But one told me about the latest article from the Middle East Bank, which is really interesting to read. It combines a lot of topics about the difficulties of money transfers from and to Iran, but the view on own faults is very enlightening.
Bad boys didn’t let us transfer money!
As I merely cite the article in the following, I will not miss to comment afterwards….. But please read yourself:
“In response to recent complaints of Iranian petrochemical companies regarding difficulties in transferring money from China to their accounts in Iran, the head of Iran-China Chamber of Commerce enumerated money laundering concerns as the main reason behind the problem. “Iranian petrochemical companies issue their bill of lading from the ports of Fujairah or Abu Dhabi, therefore due to money laundering issues, Chinese companies claim that the money should be transferred to a bank in Fujairah or Abu Dhabi and not to Iran,” Asadollah Asgaroladi was also quoted as saying by ILNA. However, Asgaroladi noted that legally speaking, Chinese companies are right in doing so since a shipment that was supposed to be sent from Iran was sent from UAE. “The mistake originated from our own petrochemical companies,” he said. The head of Iran-China Chamber of Commerce also pointed to problems facing Iranian students in China and Malaysia, as their families have traveled to these countries to visit their children but they have also purchased significant amounts of goods and shipped them back to Iran. “Many of these families have bought about $100,000 worth of goods from China and shipped them to Iran without paying any kind of duties and that issues related to Iranian students in China have nothing to do with US President Donald Trump’s visit to China,” he added.
A regulation is a regulation and is a regulation
We are dealing with a lot of nations and as German I am allowed to say that a lot of nations do not pay that tight attention to rules as the Germans do. For some of the European countries a rule or regulation is some kind of suggestion for behavior, you can obey if applicable. If it is better not to do, also fine. And this is also some behavior we know from our Iranian friends. But maybe sometimes it is not to bad to stick to rules. Especially when you want something from the others, the ones who installed the rule. I was not aware that Chinese are also very picky about rules, but I have to admit, I understand them
It was definitively because we are Iranian
And we also see, as it is mentioned in the article, not always someone is mean to one because this one being Iranian. Sometimes it’s just because of doing something not the way some other nations would prefer to be done. And this is what gave me a smile as I read this article. When I discuss with some of my clients to do things as agreed or try to explain why some rules have to be obeyed, I have no a good and prominent partner in supporting my argumentation. That’s what I like and will make my live much easier…
Yours K-Street6 Team
As we have always one ear to Iran, the news today are really exciting. Recently came through, that the well know renewable energy investor Quercus has signed a deal with Iranian government to invest nearly half a billion euros in a solar power project. The construction in Iran will start early in first half of 2018. This project will multiply Iran’s installed solar energy capacity by several times. Today they have 53 MW under production, according official figures.
Renewables for environment
As reported, the whole site will have 600-megawatt (MW), located in the central Iran. It is hold as sixth largest plant project behind China and India. The reason for this heavy investing is not that obvious, knowing Iran as one of the richest countries in terms of gas and oil. But what most visitors realize once they come to Iran is the air pollution. Not only that still today mostly older and not really clean cars are used, but also the heavy energy plants burning gas and oil to deliver enough energy for the plants. They have all their share in the air pollution. And Iran has to focus on this things not becoming worse in terms of problems for trade and production but also people are becoming more and more interested in their environment. And no government wants to have people on the street just for nature. And also not to forget, Iran has made already a commitment to develop 5 GW of new renewable energy capacity by 2020.
The logic of energy production
The plan for re-powering Iran with renewable energy is not new, it was officially announced a few years ago, but with sanctions no one could have thought about realization.
The fascinating strategy behind is becoming more independent from oil and gas and start to become the major hub for electricity in the region. If you know, that Iran’s special geopolitical location gives the country huge resources of solar, wind and geothermal energy, then suddenly all pieces fit together. In the end the country is becoming one of the best areas for renewable energies.
With the attractive investments in wind and solar energy the country can not only finance itself with selling fuels they don’t need anymore to other countries at god prices, but also draw in the whole chain of industry following the plants. It will not stop with exploration of wind and sun by building plants, it goes on with infrastructure, streets and trains. People in the distant regions of Iran become part of the industrialization and jobs bring money. And money brings further development. That’s why this strategy is so amazing. Read more here
Yours K-Street6 Team
In the current discussion of success of start-ups and the reasons for this, a lot of noise is in the air. There are a lot of reasons which make it attractive to use or at least try out new products. But one trend I really cannot understand - it’s the financial mothering.
I don’t know if this term is really valid and used, but it describes what I have in mind. More and more this financial startups come up with a service that brings clearness and order in one’s money thing. These companies sort every expense to a certain category and give back a report showing for what the money was spent. Then some of this companies let the client define ranges and stop scenarios which let the application warn the client, that he exceeds his limit. Some offer a system of different “money pots”, that the client can sort actively his money to saving, pension or spending funds. And some of this companies ask friendly their clients if they do not want to save more and offer also products for saving.
Privacy and independence?
Maybe this is really a question of time or age but I would really be not amused if my bank comes around and tries to support me in this way. And even more, I know what I spend, where I spent and if I save enough for whatever purposes. It is my independent will to decide that today I save and tomorrow I spend and no one knows that. What will be the next step, by opening an account you have to agree on that the bank informs your wife or some authorities from the national addiction prevention in case someone is not saving enough?
Success by nudging
If the world is going in this direction then banks do really need to fear this kind of competition. A lot of aspects we can talk another blog are really threatening but can be solved with money, but if clients need their personal financial watchdog and give up privacy it is a complete different game. Then competition is no longer Fintechs, it is every shop, system or network staring with Amazon, going via Google or Microsoft to Facebook - it could literally be every company that organizes ones financial belonging. That’s freaky…..
Yours K-Street6 Team
In our little opinion corner we mostly focus on the much highlighted client-oriented topics of banks. Or we ask about the governance in this regulator-friendly times. These are obviously the most important parts, which can come in one’s mind. Today I will state that behind these a rather internal cause stands, as I see it in my daily business in the industry. The origin of problems is, deeply hidden in the production, the - mostly - poor production.
It is not there, if I don`t look at it
Most of the regulatory driven topics have their origin in the production, but the more visible offspring of this issues comes then to light when it becomes a request or inquiry from the Bundesbank, Banque de France, the ECB or other institutions. I will now not talk about the changing demand for data protection, secure production or the very German topic of the cum/ex deals to realize some more tax refund as necessarily obvious in first glance. I am talking about all the issues as missing business contingency, user access management, risk management etc coming up with a production not growing with forward moving time and business.
New strategy - taxis go abroad
To illustrate I will give you a colorful picture about this. Let`s say the bank is a taxi. Then we have the car with it`s different machinery parts, the cabin with its interior, the driver and also the client. As the business is calm and easy and no real competitor in sight due to market entry barriers, everything is totally fine. So a taxi operated like a bank would then start to think what can be done next. And someone could come up with the idea of making transportation faster and cheaper. That wouldn’t be fun so why not go in distant destinations to try to have as much taxi in their fleet all over the world to serve the client wherever he wants to ride a tax. Maybe this is not so relevant for the daily business, it definitively costs a lot of money. But much more important, the managers are paid by the number of taxi and they can be in exotic places. So the strategy makes really sense.
How to finance the strategy?
But it costs a fortune and someone has to bring the money. So they would start to increase attraction to get more clients and they would communicate to differentiate the services for normal clients and VIP and others groups to increase the revenue. They would spend a lot of effort on the outside appearance, the look of the wheels, the shiny and bright chrome bumper, maybe the nice multi-color surround light and hope to attract clients.
Self perception and awareness of others
The clients would hope for a fast and reliable transportation and draw the conclusion, that such a shiny car must be operated the same - professional - way. They enter the car and see that the cabin has two parts. One is reserved for special clients, which should drive much more often and ask for a lot of services like extra coffee, shoe polish or just simple a water. As our normal client sees this and he is more interested in reaching his destination, he does not care that much, maybe he is a little bit irritated. But as he or she takes the next time the next taxi, she doesn’t think that much about that. Instead the taxi hopes to lure her into the better class by showing her what she will find behind the curtain.
Changing the business
So as the taxi operations have to be cheap and the company needs some more sales, the manager of the taxi had the idea to change the driver into a service sales person. The main task is no longer driving but talking to the client and selling additional stuff like coffee, water, chocolate or goods from the sales partner network. First all good skilled drivers where substituted by good talking sales people. Skills of a driver in terms of knowing the streets and finding the best ways are no longer needed. For this the driver got some small navigation system, nothing expensive, simple enough for the private rides of the boss. Obviously it doesn’t work in a highly frequency business ride, so the car is never going the direct way, causing a lot of discussions with the clients and thus loosing turnover. And as all taxi did the same, the clients moved on and used other transportation as bus, bike or private car. Even some freaks came around and offered driving services for cheap with no fringes. As the whole industry suffers, the problem was very fast identified as the mean competitors that have so many advantages because not being a taxi. They also started to complain at legal authority, and they received support to help keeping the jobs etc.
Next strategy: reduce costs
As the driver was already cheap and in the management were good and expensive people the only way to reduce further costs was the maintenance. And really, it paid off. The price was so unbeatable that the taxis increased their attraction. The turnover increased a little so everything seemed to be fine. But it comes what has to come. The engine wasn’t in the best shape, breaks, tires and suspension became older and older. So the police showed up and not only asked for a refurbishment but also handed over to the inspection authorities, which found some more problems to be solved right now. And while the taxi was no longer on the street and the managers complaining, new - or old well-known - competitors used their chances and took the place of the taxi.
So as our taxi does, the banks also see only the end of the story. But in the same way as maintenance for a car does not only mean to wash it and do the absolute minimum, it is definitively the wrong approach for a bank. Maintenance is taking new technologies, utilizing new approaches or processes, offering additional services and so much more, e.g. that the engine is working in the state-of-the-art style. Today is now the tipping point if banks have a future or not and much worse, if bank employees have a future or not.
Yours K-Street6 Team
I have found a great graphic from Mastercard. It’s created for the introduction of the new £1 coin, compared to the old one that was introduced back in 1983.
Let's sum up a few highlights:
There are more than 30 million counterfeit £1 coins.
Royal Mint will produce about 1.5 billion of the new £1 coins in the course 2017. This calculates to nearly the weight of about 4,090 elephants. But let the graphic speak for itself:
Yours K-Street6 Team
While we are in Iran and having a meeting with one of our clinets, outside a huge mass of peple flooded the streets. The financial institution "Caspian Credit Institution" declared default. No prewarning, no communication and a lot of people on the streets, fearing about their money. Or at least rumor says, they will declare default....
In April 2015 news where announced that the Caspian Credit Institution which was renamed from Arman Iranian Credit Institution, will be listed as the fifth certified financial institution in Iran on the Central Bank of Iran’s website. In the last days of the fiscal year the bank managed to get a license. As reported on Financial Tribune, Caspian Credit Institution was formed through the merger of several credit institutions and cooperatives based in Khorasan Razavi Province including Fereshtegan, Ferdowsi and Badr Toos. Tose’eh, Noor, Asgarieh and Kowsar are the other credit institutions registered with the regulator.
These unlicensed financial and credit institutions have been a major source of trouble for the banking system in recent years.
Now in 2017, two year later the problems seemed not to be tackled down. Radio Farda reports, that "hundreds of people who have not been able to withdraw their deposits from Caspian credit institution staged a protest gathering in front of the Central Bank of Iran in the capital, Tehran, chanting angry slogans, on Monday morning, May 29. A day earlier, in a similar protest in the city of Khorramabad, capital of Lorestan province, 490 km (305 mi) southwest of Tehran, several protesters had attacked Arman credit institution with stones and smashed its windows. Police forces used water bombs to disperse them. Videos of the gathering in Tehran also show a number of the angry protesters were shrouded, a symbolic gesture to show they were ready to die for their cause. The protesters were shouting “Allah Akbar” and “Death to Seif”, referring to the Central Bank governor, Valiollah Seif."
Another source, NCRI Iran, is claiming that "there is news among the depositors about the merging of Fereshtegan (Angels) finance institution with the Caspian institution. For this reason, the depositors fearing their assets might be wiped out (plundered) visited branches of Caspian institution to take out their assets and demanded their deposits be returned to them."
Bank system is the crucial point
And with these scenes Iran has really to discuss internally how to manage the banking system. If a bank run starts, as we have seen in Great Britain recently, the shockwaves can cause severe damage. Even it can bring Iran back to old times. It may be any fault, which leads to the default of Caspian Credit Institution. Right now, no confirmed information is available. But for sure, this shakes the confidence of any investor heavily. A economy is only as good as the banking systems. And here we see much more room for development as this evidence proofs.
Yours K-Street6 Team
With the sanctions having being lifted a big step was made. But much more important for the suffering economy is the weak banking industry. Not only have banks suffered the last years from the dropping profits and thus rising number of unpaid debts, but much more they have not support the Iranian companies in their need of cash or facilited transnational business. So the latest news from France gives a glimpse of a light in the shadow.
Bank Saderat is resuming Paris business
On its website, the bank stated "Following ongoing and effective diplomatic, legal and banking measures taken by the Bank Saderat officials in the aftermath of the implementation of the nuclear accord, the central bank of France has officially announced the complete lifting of restrictions put in place as a result of sanctions in a letter to the Paris branch of the bank".
That means by now, the privately held Iranian bank can start to become a stable pillar for European business. This move follows the approach in UK in last year, when the UK Treasury announced that asset freeze no longer applies to BSI and Bank Saderat PLC.
Growing Iranian Bank business in Paris
With Bank Melli Iran and Tejarat Bank two more Iranian banks have branches in Paris. With this increasing number of well-known banks, Paris could move now with the Brexit to Iranians number one location for banking business. That can boost not only Iranian-France business but much more the France position after Brexit in European banking industry.
Germany also in good position
But as the bank was back to business in Germany already last year, still Germany is on the track to win the race ….
Yours K-Street6 Team
The interesting thing with banking in Iran is, that we have on the one side a market completely excluded and cut from the rest of the world, but on the other side knowing whats going on in the world and also having the same capabilities for development or demand.
In Iran the situation is in a certain way much better than in Europe. Neither is the whole system of payments to that extend elaborated, nor is there a connection to the outside. So the need is much more given as in a good equipped societies like Germany. And you can feel it mucxh more directly. The typical topics are micropayments which enable people to be liquid without credit cards or any bank account. This apps are like bahamata somehow a little bit a Paypal clone, but it works and people using it more and more. And that helps apps like Zpay to become the middleman between Iran and rest of world by bringing the card to the phone and the payment process in a world without sanctions.
Regulator as driver
And there is also the government that wants to come out of the mucky corner and postulates the target for Tehran as the fintech hub in middleast. That gives the interesting situation, that the government and the central bank itself are supporting the market in terms of an technical accelerator or business angel.
And this governmental driving factor all over is the Central Bank of Iran (CBI), sorting things, speaking out ideas and supporting new start-ups and thus getting familiar with the new banking world. Also its easier to bring the Fintechs to obey the rules, CBI has established. This rules allow Fintechs as long as they do not operate in money creation, currency exchange or having own payment tools. These rules shall help the established banks in their most attractive business of cards issuer and give space for financial new comers to experiment with new ideas as long as the big banks do not have such ideas…
Fintech awards grow ideas
The First Fintech Festival which is hosted by Bank Pasargad has created some good ground for start ups. Target areas of interest are of course the core-banking, but also business intelligence, data mining, customer loyalty and digital currencies. Sizzling idea of this 3-day event is, that bank experts are around to help the fintechs to develop and market their innovative ideas. And all that in a 54-hour marathon.
Yours K-Street6 Team
As reported, IBM has launched in last year a blockchain ecosystem on Hyperledger Fabric. Clear target for IBM is to become one of the blockchain superpowers and be in the middle of future blockchain networks. Nothing could have been more boosting this technology as when one of the tech giants starts to pamper the small plantlet.
The Hyperledger is one of the open sources for blockchains, developed by members of the Hyperledger consortium. Stated on the website, the consortium describes itself as “Hyperledger is an open source collaborative effort created to advance cross-industry blockchain technologies. It is a global collaboration, hosted by The Linux Foundation, including leaders in finance, banking, IoT, supply chain, manufacturing and technology.”
Now the the consortium announced a switch from incubator state to fabric state. Then the fabric will be able to provide a framework for building enterprise-grade blockchain networks. Meaning not only supporting with a ready-for-use blockchain but with a really deployable solution, that is capable to transact at rates of more than 1,000 transactions per second among large ecosystems of users. That would mean, we are almost at bank standard for most of the transaction banks we can imagine
As the foundation itself sees their blockchain still in the stage of an poc, the impressive list of adaptions tells another language. The site is regulary updated and always worth a visit. By now it is a long list of proven runs within nearly all areas of operation in a bank. That makes it really exciting to keep on the track
Yours K-Street6 Team
The most of the Fintechs which are well-known in public take their publicity from the fancy new ways of interaction with the customer. This seemingly new and futuristic new banking is what the people like to talk about and like to take as prove for the inability of banks to cope with the future. But it is not necessarily the philosopher’s stone for banks…
Great interfaces, great apps
Where the competitive differentiator?
The reality is, in my opinion, that new and fancy interfaces like cool reports, that show the client for which she spent its money or banking facilitations like the Photo-to-Transfer apps, that read your invoice via smartphone and prepare it for you are really a great help but not decisive for banks in the current fight to survive. As, for example, I have most of my financials on a non-paper basis, only a very small amount of invoices are coming in by paper, mostly doctors and the government for retrieving any parking fines. For these a photo-app is perfect. But nearly all of my banks have this feature; it is no more a competitive differentiator. Except for one bank, that has not this feature: It is a typical savings bank and is local based. And right now I have the need to pay on my account money and guess what, all of the fancy banks with the great apps have no way foreseen to pay cash on the account!
Better lower your production costs by digitalization tools
I have and will always represent the stand point that a bank either needs to reduce the production costs or create real differentiation between banks. The second is a little bit the dilemmas we all know perfectly well as client. There is no clever savings plan out there or some very risk taking bank that gives money when you really need it. The first is mostly blocked by the simple fact, that the margin you can create with retail clients is significantly low, thus a real intelligent effort in this area is not efficient, banks better put their money and clever people in the derivate or M&A sector. The latter is mostly regulated by the authorities. Banks have less and less room for own decisions.
Fintechs rather support than attack.
This is also what we see on the collaboration between banks and Fintechs. There you see a complete change over the last few years. Many startups realized that it is really hard to deal alone with retail. Reasons are mainly high customer acquisition costs, information security costs and the power of complaining clients that are anything else than relaxed with their bank. We now see more
and more the strategy of working together with banks. And here we have than the situation that this new and fast start-up people ram on the banks with their culture and their legacy systems. Both are the obstacles for modernization of banks. And both are now endangered by the fusion of banks with Fintechs – hopefully endangered and in future overcome!
Yours K-Street6 Team
Recently in a German magazine was again an article about the blockchain. Again it was stated how great the technology is and how awesome the new future will be. And of course a prediction of big banking extinction was stated. I have to admit, there is something wrong with the current banking systems. We read nearly daily about some data leaks in Fintechs as well as banks, we have not the products, people wish for financing their houses or to save money. But to blame the Banks is one thing, but to forecast a peer to peer world is from my point of view to far reaching.
Colorful landscape of alternatives
But lets see what we have! As an experienced and well informed investor in Germany you can find a lot of new investment opportunities or investment places. We have credit broker like smava or investment broker like ayondo. We have also some investment facilitators like wikifolio and of course we have the big swarm funding communities like Kickstarter or startnetxt , just to name two of the most prominent platforms, to finance products, ideas or people with some profit expectation. So if a savings account at the local bank or savings bank is not enough for you or shares from the DAX or Dow Jones companies and funds from the big asset manager are not appropriate enough, one can find a lot of material to start its own investment world.
Really without banks?
But does that mean that we are already living in a peer to peer world without banking? Actually no. we just do not see the banks but they are still there and do the whole ground work that the broker are working. And this is the problem banks have. They are more or less pushed back in the second row. Banks have no cool products, they did not create wikifolio or something similar. And the reason for this is in my opinion the main obstacle for banks in the future. It is a little like the problem of Volkswagen. There is a clear mainstream focusing on the Diesel for certain reasons. As it becomes more and more harder to fit with this concept into new times, a more creative solution
was found. But no one did the turn into something really promising like hydrogen
or electric vehicles. The outcome for Volkswagen is a disaster.
Is old school ready for change?
But behind this stands a certain thinking from people, socialized in an outdated environment. And that’s the same with banks. There are not new school people deciding. And I am not talking about the upper most senior management. This hits all the people in a certain age and certain working history. These people are grown up in their banks within the last 30 years and have seen a complete different picture not only of banking but of work style, technology, needs and procedures. These people think like the engineers at Volkswagen and the results are easily traceable. Unfortunately people always pull people from their own into positions. So we will see, when and if the first bank will turn around or one of the big banks will fail again.
Yours K-Street6 team
What all happened to the banks in the last years? With the fall of Lehmann Brothers the situation which should have never happen could be seen. With the downturn of interest rates, a big part of banks business is lost and much more severe, the normal way of recapitalization and playing on the interest band is no longer possible. And if this would not be enough, we have more and more regulations for banks and on the other side young smart Fintechs that attack the banks in their own home turf Business.
Where are the ideas?
So how could it be that the smart people that re-invented the financial industry in the mid-eighties are now losing ground? Where are the new ideas, the astonishing concepts and the market maker as banks held themselves for it?
Banks as innovators - long time ago
If there is an answer, it would not be just a simple one. What we see is, and that’s why I held the fall of Monte dei Paschi as so dramatic, is, that a whole industry which was the engine of new markets for centuries is now only a shadow of itself. The Monte dei Paschi for example was founded for organizing small loans and little savings for the poor people around the area of Siena. Over the centuries the bank grew and was finally one of the first banks handing out money for land. This
was tremendous avant-garde!
It is not the only bank that was modern, full of ideas and at the edge of technology for a long time. But now it seems that banks have lost their innovation power and do only administrate what they have already gathered. And then we see new companies like weibo, coming from complete different markets and introducing easy ways of transferring money.
This just because they need it to keep their customers!
Keep and defend the status quo
Why is this service not coming from a bank? I have now not a real answer, but what I think is, sitting in the middle of one of these banks, that banks simply have not the power to create new ideas. And this is not because banks are too much taken by fulfilling regulations. I think much more, banks have not the right people to meet the new requirements. The average banker is today someone trying to cut costs and Change the huge fix costs of IT and staff into variable expenses. Doing this, a lot of investments are not done in both resources and thus the agility is shrinking more and more. If a bank is willing to survive, the way of reducing costs is a false friend. New products, new technology and new markets are the real friend, but they are costly and right now no one gets rewarded for increasing the expenses. We have and not only in German history an example for this. The steel industry can give a good role model what happens if the innovation diminishes by cost cutting. We will see, if banks can change the direction…
Yours K-Street6 team
Until 2018 all banks have to establish an open standard for application programming interfaces (Application Programming Interfaces, API) that gives the client the chance to manage their accounts at different institutions with one app on the smartphone. As it is pretty a progress to get a technical support from our regulators, but it opens the door for some not so welcome friends, the transparency and the domino effect.
Transparency goes wild
The API gives the client the opportunity to integrate all his bank accounts into one application, compare the conditions, also with institutions with which no contract is in place already, and switch money between the different accounts and banks. That is much more efficient than today as I have at least 4 banking apps on my smartphone. But that means also, that the application administrator has full transparency over my financial capabilities. And guess what who will join the road of transparency?
At first we will have all the shops selling you the expensive stuff. It’s much better than Schufa and much faster. In a first step they will demand to have some or your funds on a secure deposit where nly thy and you together have access. In a second step they will declare the right to access your app on their own in case of late payment and grab your funds. That’s what real transparency means for them!
And then we have the government. As it is so much easier to have the same understanding from comprehensiveness with sharing the application, you will never have the problem to pay late your taxes. By the way, who guarantees that we no bank does have a look back into your pocket and getting also the comprehensive view on you?
Welcome to the domino effect
I am always with the digitalization as a real driver for new efficiencies and if one can do something, one should do it. But with such a open system I have a real problem with such a source of infection. If one of the banks has a problem with data protection all others have a problem with data protection. Or if one provider of one of the components has an issue with data protection, all have an issue with data protection. This goes that far, that if today one of my banks has a issue and unfortunately I would not receive my money, other options are there to survive. With this connection, there is no other source of liquidity. So maybe I do not understand perfectly everything or I see it to risky, we will see
Always forward or way back
We will see if my fear is suitable or if everything goes the smooth way. Hopefully there will not happen anything such gigantic, that the clients go back to the cash money. Then we will be faster back in history as we can imagine tody...
Yours K-Street6 team
Within the last weeks more and more expressions of negative experiences in Iran reached us. In different opportunities, when it seemed to be appropriate, mostly representatives from mid-size companies complained about the minimal success. We always saw a much more differentiated picture, our expectations are still positive and our mood is still good. So this was reason enough for us to find out, what the swift of mood can be caused.
The Iran in the good news
In the first year after sanctions fall the newspapers are full of articles about Iran. This is actually a news itself, as in former times a report, article or short notice from Iran in German newspaper was as rare as the news of a new population in the universe. Now we see a lot of literature about the economic situation and of course a wide range of descriptions of all the possibilities in this country. After all, main argument is, there are 78 million people living and they all want the one or the other product of Western origin.
Also we have a lot of publications concerning the Iran as one of the most interesting and beautiful countries for sightseeing in the Middle East. Something I can definitely agree on!
And seeing what happens around the Iran, it is so unlikely that we will see a move of tourists back to the former places to be. So from this point the current reporting of Iran is more or less positive and changed massive against the former news. Even the current participation in the Syrian war is not so criticized as other political movements in other areas of the world have been under heavy reaction. And this is more than welcome as it helps to reduce restrictions or prejudice, but this is also only one side of truth.
Shadows over the good news
And the other side comes also to the surface. More and more we see also articles containing some warnings or risk descriptions of Iran. As the first curtain was raised, everyone thought it will be easy to go to Iran, make some business and have fun! But actually people and mostly mid-size companies realize that is not the land of honey and milk. Due to the still valid sanction of the US, European and moreover German banks do not want to step into business with Iran. This means that the banks with US business are even to reluctant to accept money transfers from Iranian origin. In this context banks are also not willing to step into letter of credits. And as long as Hermes is not fully in Iran – something that should be realized in 2017 – export insurances are not in place. Definitely it is not easy to understand how the sanctions work and who is part of the accepted group of business counterparties and who is not part of this group, it makes it nearly impossible for outsiders to understand and find safe business opportunities.
But going alone through the jungle of a unknown new world is seldom the path of wisdom.
News of progress but normalization
But there is, for our opinion, much more light than shadow. Of course it is not that easy as making business with Italy. But with the settlement of old Hermes debt in June potentially Hermes insurance is possible for Iran business. As second good news, the Bank of Industry and Mine is back on the international floor and was approved as issuing bank for short-term letter or credits.
So following this path, we see a good progress in the evaluation of Iran as real partner, maybe the picture gets more realistic as it was a few months ago. Anyway, realizing this Iran and its different societies and understanding that they all have their own ideas and agenda, is the first step to a normalization of the relation. Also Iran moves, slowly and always under the constraint of different powerful streams, pulling in different directions, this is also a progress of normalization, even when it takes more time as expected. Everyone looking for a opportunity in Iran should obviously be well aware of this circumstances.
And obviously, in unknown waters a good pilot can prove always very helpful!
Yours K-Street6 team
As it was recently in the news, US have sent 400 Million Dollar in cash on pallets to Iran. Everyone was guessing about the circumstances of the deal and the possible conspiracies behind the deal. I think the topic with the pallets is worth to risk a closer look.
Lack of funds
The Iranian economy is, as all other economies in the world driven by the steady flow of money to finance growth. This growth gives the reasons for interest and raises of fortunes and most important, gives the people jobs and thus a measure for their living. What we see in Iran is mostly a lack of liquidity due to the problem of getting money undoubtedly correct into the country. This makes it not so easy for willing investors as they have to stay in line with all the rules also or mostly prevailing in the US.
Lack of acceptance
The other issue of entering the Iranian economy comes from the harsh rules of US government against cooperation with Iran. Despite the recently closed deal, we have
a lot of constraints for making business with Iran. One is shown very prominently within this news, as it is not allowed to transfer money between US and Iran. This reduces the acceptance for
open deals with Iran for all companies, having heavy stakes in the US.
400 Million problems for economy
In a nutshell it is maximal complicate to make business with Iran. It starts with a problem of smooth bank transfers, goes to the missing acceptance from US to this topic and has no end in the cultural differences between the so called Western economy and Iran. The way back to normal is much much longer as the way away from normal. What we see all day in supporting our ventures in Germany is always the same question mark on the people faces. This comes to an end only if Iran behaves like a poster child in all aspects and show Iranian business as best in class. This will also include the set up in terms of market transparency, corporate governance or minimizing of trade barriers.
Yours K-Street6 team
With one of my last visits in Tehran, I was meeting up with some of the bankers and had a interesting chat about the topics, upcoming with being now back in the normal capital markets and business field. I had the impression as it must have been the same discussion 50 years ago, as with BTX the rise of e-banking has just begun.
Open the market – create competition
These times, innovation was to bring new clients to the own counter through the internet. Innovation was fancy and nice, but no one saw the other side of the coin. This is the same as today in Iranian banks society. Everyone only sees the opportunities for foreign money new clients and a bright new world. No one looses a single thought that this will also mean, that the banks have to cope with the competition from foreign banks. And these banks are hardened through the last decades of hard competition in Europe, US or Asia.
Internet and banking – misunderstood love
In comparison, the story of internet and banking goes in the same direction. Banks used Internet to scale production or to create new products, market and productivity gains could be achieved without consequences. Internet banking, which means a real disruption, was unilaterally exploited and disruption completely underestimated or ignored.
The fall of the branch
Since the first online offering in 1976 still in the BTX today half of the stores are no longer existent. True "online" strategies, there are a few, a few online banks have found their niche, Fintechs currently show what may be possible. At that time, Internet banking has made it possible to offer the products significantly more customers than the stores at much better cost, thereby achieving economies of scale in cost and coverage. However, neither of store sales for the challenge set, yet the technology has been set up appropriate new products or forms of investment advisory. Gladly taken were the enormous savings by switching from branch accounts to online accounts. However, as customers learned to appreciate this advantage, the banks were aware that they had lost USPs. Customers need neither the bank nor the branch, but the service. Banks followed the customer and translated dedicated distribution channels with appropriate communication channels on. As a result of this online consultation stores are even less used and more jobs fall away.
Disruption loops again
The disruption starts now, as the employee of the online advisory neither needs branches nor has the same skill profile as branch employees. As a result branches and their staff are still under heavy “restructuring”. Banks now have to lift substantial restructuring costs, need for the new employees modern management and organizational forms, as they are known from other online industries, build and compete in the new environment with a growing amount of competitors. And these competitors may not know banking that good, but they no ecommerce to an extent, banks will not keep up on short distance.
Yours K-Street6 team
In the last weeks we have been really busy with all the new and existing ventures and by the way its no easy to establish a Iranian company as solid commodity provider in Germany with all this reservations. The people extrapolate the last yeas experience into expectations of the future. Thus it makes it very difficult to create a atmosphere of trust and cooperation. Even more I was really happy to see, that some real good movements are ongoing towards Iran. This I would like to share with you today.
The first good thing is, that Iran plans to create a special business district on Qeshm. Following the archetype of Chinas Hong Kong or Shenzen this gives enormous potential for the country. Rumor says it is planned solely as financial centre and it should act as hub for foreign banks. Sitting on this island in the street of Hormuz could be the needed advantage to circumvent restrictions on its own banks’ ability to raise international capital.
The population lays today by around 120.000 people, mostly fishing industry and tourism. It will be very interesting to see, how this move changes the whole society there and jump starts the evolution of the population. As always within Iranian projects, a drop of bitterness is also here to see. Since 5 years, the government tries to build a bridge between the island and the mainland.
Short note: economy growths
But good news, IMF, the International Monetary Fund expects Iran’s economy to expand 4% in the 12 months to March 2017.
Swiss banking software goes Iran
The second good news is right now not more than rumor. It was reported that Swiss software company Temenos will install for the first time its banking suite to Iran. Reportedly the bank Ayandeh will be the first client in Iran. And as I know by heart, it is more than necessary to improve the software used in these banks since ages. To be fair, not all software is outdated, as some have SAP running and of course the Office family is represented heavily, but the core banking systems have to be adapted to modern standards. Talking about getting back to normality for banks is not only the question of capitalization and liquidity combined with the problems of the current level of interest to be answered. Even more for banks it is crucial to adapt to modern standards in bank management as well as bank reporting like the T2S or other by doing business with Europe standards like CRS. So we are looking forward today with much more trust and positive outlook!
Yours K-Street6 team
One of the major topics in Iranian business became this impossibility of sending money to and from Iran. Yes, one would argue, clever traders have fund ways in using locations or support networks around the Gulf region and thus the money exchange was just a little bit more complex and time consuming. But actually it is a whole different world, if someone can transfer money from his account to Iran as one would do to any other country, except North Korea, of course.
Connected: 300 banks
So good news came up as Irans representative for re-SWIFTing confirmed this week, that the current problems with SWIFT are now settled. According to Abdolnaser Hemmati, Chairman of the Coordination Council of state-owned banks, now more than 300 banks are connected to SWIFT.
As heard in the news, the reconnection was highly discussed within Iranian government and taken as first sign, that the Iranian expectations for economic improvement after the nuclear deal will never be reached. So more hardliner friendly politicians took this opportunity for criticizing President Hassan Rouhani.
Inspired by German Government
So listen carefully, where the sound comes from, this signal is really good news. Now especially we in Germany have to remediate the problem with the open Iranian debts before we can start with Hermes again. But this seems to be, according to news, on a good way as Iranian officials agreed on this topic. And as it was recently in the news, that German government would like to see German banks more and more in the brave position of starting business again instead of reluctant waiting not to be trapped again.
So is this not a really good outlook ?
Yours K-Street6 team
We have been in Iran during the Iran Plast the last week. As we see recently increasing requests from European companies about the usual production issues and obstacles in the world of production. Most companies see the upcoming market but are little bit concerned how Iran and Iranian people are able to work to world class standards. We have also taken the chance to be part of this fair and get some insights in the market and the expectations. And we had some visit on the plant.
Our production from NikooGroup is Irans first and biggest producer of PP fiber. And today we where talking about its full working recycling system, which is installed there. We started our journey early in the morning by 5 o`clock in Tehran. As it takes 3 to 4 hours to the production plants, this day the early bird was our companion. Despite the streets are in perfect shape, the traffic is a mess, like in the most cities this size.
Reliability and Stability?
Most of the talks we had went around the topics that come up in a country that comes back to world society and is currently not so well known. As especially I am here for now a few years getting in touch with the country from private as well as business perspective, I can quiet well understand the topics. Mostly the questions that arise are going in the directions of reliability and thus stability, the other concern is if US will not act unfriendly after doing an investment in Iran.
The second concern I perfectly understand, and as still European banks are very reluctant to finance such ventures, it creates a discomfort. But as BASF is going to invest in Iran, despite their huge US business, this should show everyone there are good and solid ways for working in Iran. And for all the other concerns, we see the same pattern or reliability, kindness or selfish behavior in Iran as in other countries. Indeed, the question for stability is something we cannot respond on a stable basis as the whole region is shaking. Just our experience proves us.
And as last appetizer have a look on our wonderful breakfast, 6 o´clock in the morning in a highway restaurant...
Isn’t that a good argument for going there and have a look? If you like, let us know
Yours K-Street6 team
The Iranian banking systems didn’t create that new innovative solutions despite the closed market they lived in. They rely on known and long used mechanism to pay within the country or get money transferred throughout the world. Why? Because it is simple convenient and understandable for them. Maybe this is also some sort of answer what future banking should be?
Nou Ruz in Iran
We try to be every New Year, the so called Nou Ruz, in Iran with my wives family and friends. This year we made it again, so I am lucky to write now with a perfect view on the hills of Teheran. I love to be here with all the friends and family to go out talk and see how life goes. As expected, actually now a few days after sanctions lift nothing real and concrete has changed for the normal people. Maybe there is some big business ongoing, but the biggest change I saw right now was the big advertisement for BMW on the way from the airport to city instead of the usual Samsung. But that’s another topic. Today I want to try to compare Iranian banking inventions with the rise of Fintechs in Germany and the lessons one can learn from Iranian banking.
And as I have often mentioned, Iran is not really a banking paradise. It may become somehow in the future a paradise for clever agents selling insurances and saving plans or such stuff. But actually Iran shows the same pattern of banking as we have in Europe. Checking accounts, credit cards, saving accounts with great interest for foreigners, but relativized for Iranians and the raise of financing activities for cars, washing machines and so on. Even the stock exchange is regularized to a high extend. This is as astonishing as the country was separated from the rest of world by cutting the swift connection. So one would assume, the banking has developed itself in another direction or there are at least new ways of payment services, like the mobile phone based payment services in Africa or something like the messenger based money transfer like the Chinese Weibo. This would be soar as mobile phones more or less a non-human extension to Iranians. So there is nothing like this. This solutions are really convenient for the people in their countries but obviously not for the people in Iran. On the other side, one would think they have found new ways of international banking. There is no swift so they have to find clever and very sophisticated ways. But there is no funky new app on the market, nothing new in terms of service to get money from Iran to the rest of world in a smooth way. For this they still use the kind of old Hawala system.
Payment services adapted to the circumstances
All this is pretty interesting and astonishing as I would have thought in a closed market like the Iranian market there they come up with some new ideas adapted especially to this market. But people obviously adapted the obstacles in their market in another, more common and for them convenient enough way: What one can find here and what is pretty normal in Iran is the extensive card usage. And this with a lot of providers.
As there are a lot of different and not compatible systems out there, every trader or shop needs some, or mostly three different applications for paying with cards. And this is absolute not usual, even the smallest shop around the corner has this environment and card payment is very welcome. If I compare this with Germany, where we have several more or less intelligent payment systems and everything works fine, but all are complaining about the way of payment. The shop doesn’t want to pay the high fees, the clients wobble between cash and card, never having the right one with them. In between the banks are laying the infrastructure for payments. But did any of these banks go out on the market and ask the people what they want? In the end everyone is either paying cash or EC-Card, as always.
I guess, what we can see in Iran is the only reasonable adoption of the situation. Cash is senseless when you carry millions of Rial or Toman with you. It is really obvious when you imagine that you have as 100.000 Rial the highest note that’s worth more or less 3 EURO. What do you think how much you need as cash money for a normal purchasing of a week’s food and other basic stuff? Guess what – we all would skip this and pay with cards. And the shop owner has the only choice to offer all system available on the market. But this is just a behavior guided development, forced by the circumstances not by efficiency. So the people adapted the situation and took the solution that was there, get warmed with it and used it.
Service centric thinking?
So coming back to Germany and banking itself and especially Fintechs. You know I am a friend of Fintechs in terms of banking disruption. I was one of the first to have accounts with online banks and did my stuff on the internet. I am since four years with Smava and made a good experience and I am right now testing the Ayondo approach of investing money. So to say I like to try out new services. But what is the real expectation of the clients? Do this new ideas meet them? I do not think so. As in Iran, the people uses the system that works and that is reliable enough for them. So here they have all several accounts for card payment due to the senseless value of bank notes and all are living up with this method. And they need to get money from Iran to rest of world, they use old ways. And this gives a little bit the answer, I assume a new successful banking has to find: what do people need and what do they want to do for it? And for my point it is to have a place for getting loans and being able to invest money reliable for their retirement or the marriage of their children. It should not be so sophisticated that clients cannot understand and should deliver an outcome that is countable and visible. This is the world people want to see. And if you risk a small glance on the cash especially we Germans have on our accounts for no or nearly no interest, it is easy to derive the need for better solutions and for a trustful relationship. So for me, the picture of Iran gives a good example what banker should create for the people and not try to impress other bankers....
Yours K-Street6 team
In the current news every time you read about a Fintech it seem they invent the world again and one could believe, the end for “normal” banks has come. But with a second glance, one can see, that behind every Fintech a bank does the service and takes care of the governance. So how will there, in the end, banking end up as the service provider for the face to the customer companies?
Never change the legacy systems?
With some years of experience in banking I saw a lot of intentions to make banking not so costly and more flexible: I was within cost cutting projects or in ventures of outsourcing to get down with the costs. In the end we always see the same scheme. Banking is dominated by the big backbone systems. This systems that work since centuries in the bank and provide the main products. This systems, the so called legacy systems are characterized as developed forty years ago, described with nearly no or just few words in wide spread out documentation and salted with just a weak idea who is using the data in which ways in the follower systems. But they do their job and that’s what counts for most of the banks. If you have some new products or necessary changes due to legal reasons, then please never came up with the idea of changing this legacy systems. The better solution is always to put a new module somewhere on this. That is easy to do, easy to understand and bears not that much risk. So every manager is happy with this solution.
If we cannot deliver, maybe it is not market standard
So is there really every manager happy with this solution? From my experience a lot of ideas are dropped by being too expensive and a lot of business is dropped due to the fact that the systems simply are not able to produce. So at least the sales manager would love to get new products in the market. But as the systems are not able to deliver and coincidently the manager taking the real decisions are grown up with this kind of systems, often one can hear that maybe it’s not market standard what the client demands. And then a lot of presentation go around why we cannot produce what maybe could be an advantage for the client and thus also for the bank. So the legacy systems will never be touched and banking moves in small steps forward.
Back end or front end?
Now one can say, yes, it is costly to change this systems, but is it necessary? If the client needs something new, give it him on the front end or do it with manual work if the client is that important or the sales has the power to push it through. But even there, a lot of banks are not able to deliver a proper real time management information system for their clients or great working interfaces adoptable to the individual needs of each clients. So as discussed in another blog, Fintechs are jumping on this ideas and creating new solutions for the client’s eyes. But they concentrate on a very small part of the whole picture and they use a bank behind them. And guess, you will not know how the processes are bended in this banks to the right way to serve this needs. If the banking provider behind is really making money I doubt. I mean there are a lot of great ideas for the facilitation of banking. I was mostly taken by the idea to use the passport or driving license together with the camera of the mobile phone to identify the customer doubtlessly. And to bring the information to the point that you can open the account in a few seconds without legitimate yourself via postal process. But I bet, there are not so many master data systems outside that are able to cope with this app. A big project to adapt the interfaces between the different sources of information and the several master data systems was the follow up of this great idea. You think why several master data systems? Yes! The before mentioned legacy systems demand master data in specific ways, and often it is cheaper to create a new master data database as to develop the existing base. Mostly it is simply not possible to enhance the existing system, that’s why we have then several systems. Maybe one for the client’s data, one for his account data and one for his tax data or other specific stuff.
So where is the future of banking more likely to be found? In a front end Fintech or a back bone disrupter?
Back bone disruption if you ask me!
As I always repeat myself in demanding better products that are more useful for the client, the other side is much more thrilling. The real thing banks have to fear is, that one starts banking from the scratch and uses modern techniques for development. Then we would have a bank being modular, able to keep up with new challenges and adaptable for every direction as necessary. This is in my opinion the real threat. It is expensive and it will take a real risk taker to go for this. But the one who dares can change the whole industry. This because if you have to change and are able to include either tax, legal or clients demand fast and cheap into your systems. That makes the big difference in the costs. Maintenance is one cost driver, but change is the hell of a cost driver. And now products that meet the expectation even of small group of people can be introduced. And most important, as long as the work stays in the machine, the effort is always not the problem to be discussed about in endless management rounds. If it is simple calculation power to be added. Then banking is there where it could be and where a lot of companies from the social media industry are today...
Your K-Street6 team
As we have have been the last year completely into the works for our fibre producing partners, we had some interesting insights in this world and its challenges. In another blog I have already written about the problems of the unclear financial situation caused by the complexity of non-swifting. Now we would like to guide you a little into the world of heavy industry, backbone of not only Iranian economy.
A new world
Mostly I am written about banks and the circumstances I find notable. This is a little biased as I am working since 15 year in and around the banking industry. But with my first views catched with my first visits to Iran, I had the feeling of getting in touch with a whole new world. This petrochemical industry is, despite the roots of the exploitation oil and gas are traceable for a long time also to Germany, I had no deep contact to this industry.
As I have mentioned before, we were working for a company in our near environment, producing PP fibre and nonwoven. In this context, the polyolfines or other petrochemical products are just raw materials. More or less not so interesting when this big packs arrive on the plant and come to the production process. But seeing the production in one of this big cracker plants is something completely different. I had the chance to see the back bone of Iranian industry from at close range.
So I was really interested as we got the invitation to a site of one of the bigger companies in this sector. Idea behind was, that we evaluate the possibilities of starting some business together. Even the sanctions are not lifted, on the horizon the new area comes already in sight. So for us to get a deeper understanding we wanted to see, where they produce this polymers. We started our journey very early as we had to go about 3 hours away from Tehran. We were driving with our car through the still sleeping city and headed down the highway straight to to the plants. With the beginning of the day shift we reached the big area of this plant and started the day with the workers. The plant manager served us a breakfast as the worker also get, great yogurt, warm Iranian bread, honey and tomatoes and cucumber. Typical Iranian breakfast, but really delicious. After that, they showed us the whole plant. We saw the big reactors, the log heat pipes, this overwhelming big warehouses and finally the end product. In this case we had some LDPE granulates in our hands. We were more than four hours in this plant, talked a little bit to the workers and to the management, late in the evening we headed back. to Tehran.
Banks production topics diminish with this comparison
Comparing this to banks, it is the same old industry. the foundation are also laid several centuries ago. But this mass of processes, topics and things they have to deal with, it is once more a little bit hard to explain, why banks are so much slower in their development. Its so much easier to deal without the constant fear of occurring heavy accidents or massive pollution of environment with the smallest mistaken.
New challenges - new ideas
After that experience, we are very happy to sort out the possibilities for this company in Europe. As this is on of the rare privately held companies we would love to enter this new market for them. Now, as soon as we are back in Germany we start to develop the way of creating a market for them. And then we have to wait until sanctions lift has settled...
Lets see, when we can start into this market, that's so important for Iranian economy.
yours K-Street6 team
Some weeks ago I was talking with some well-connected and experienced bank manager about this and that and suddenly we jumped into the new hype of blockchain and had a quite interesting conversation. He told me about the tremendous hope his institution puts in this new founded technical wonder. And I agree upon his opinion, things like the blockchain can give banking a completely new shape.!
New approach from outside banking - as usual?
So blockchain is the very sophisticated technology behind the BitCoin approach or to describe it in one sentence, it is the sequential transaction database which is derived from the set up of cryptocurrencies. It is a distributed storage and verification tool for all transactions in a system. For a deeper insight please have a look at a great article in Financial times.
The biggest thing that comes with this blockchain approach is, that there is no central management system or kernel for organizing all the transactions. Based on a clear identification and decryption protocol every transaction can be confirmed on itself and will be stored in a decentralized but always up-to-date storage, the famous blockchain. This gives a major jump in how banking works as you don’t need the mass investment of a core banking system with all the maintenance aspects and you dot need any more all the intermediaries between sender and receiver of funds. And this comprises all kind of funds, money, stocks, bonds – simple anything can be exchanged securely between two players.
So today, if someone wants to buy some shares he is asking his bank to take the order and send it to the market. As typically there are some few intermediaries in between until the order reached the broker. From there it goes back through the same long lasting and fee consuming chain of intermediaries. And that happens on the other side with the seller. Behind this process are reasons like that the market should be transparent, governments want to secure and oversee the transactions and so on.
Tomorrow you have a direct connection between all sort of buyer and seller and both can be assured that the transaction is valid, but all players on the market get an update in their shared database, the blockchain. So all can see the trade and government can monitor and control. And let’s assume a not so open world. I mean, that nor everyone but certified players can become banks and follow some from banking authorities or governments agreed reasonable rules for being part of this money system, we have still the advantages and possibilities are tremendous.
Disruption from the backbone
Every new player can be part of the system and grab his place in the industry. The barriers for market entry are no longer that high in terms of necessary investments. And this can disrupt banking much more than all the new ideas for better look & feel or client convenience. For me still the biggest gain comes from an efficient and smart set up of the core banking facilities. If a bank reaches there significant automation and finds smart ways to change for new requirements, than banking has reached the era of digitalization. We will see!
Your K-Street6 team
The longer we face a phase of low interest rates, the more we see the thin margin and following profit generation from banks. In times with high interest rates, margin generation was much easier and the costs were covered still with a sufficient cost income ratio. These times are long gone and banks have to gain efficiency wherever they can find them.
How to recover?
And indeed, banks try a lot to reach the old heights again: They reduce staff, try to get economics of scale by merger or acquisition or gain more margins through new sophisticated products. All of these measures go in the same direction, to improve single topics or hot spots with specified instruments.
But what really is the situation, banks face? People still need current accounts, they need something for doing their savings, credits are still necessary for most of us to buy houses or even cars. In a nut shell banking is still necessary, but obviously banks not? If this is the case, who else is providing the products and services to the people? And more interesting, why is this profitable for these new providers?
Should the market be gone?
The answer to these two questions can describe the situation banks face. And these answers are not really hard to gather, because we see them in every day’s life. Every dealer offers payment on installments like the tech markets for TV or dishwasher, a lot of producing industry offers bank services to their clients or new customers as auto banks do and insurance companies offer products for savings reasons. So they all have a vivid interest in banking and to use their position to get the client closer to them by connecting her by her wallet. And of course all are starring at this super successful Fintechs with all their fancy ideas!
But who is really producing these services? This are still the banks, offering this kind of service now to the B2B world, trying not to lose the grab on the retail clients. Behind every new Fintech you have banks providing the execution. But it seems that banks losing the connection to the clients. And this is a part of reality. We are all using teller machines or credit cards but don’t care who is running these. It is not such a big thing to have a MasterCard instead of a Visa. It is all about payment and usability. Even more, it is about the benefits one gets by using a special credit card, like a card from an airline to collect miles.
Now we can speculate a lot about the reasons, why people love this Fintechs or other banking providers but not their banks, these well trusted and honored institutions of the past. But as people are still willing to give money to obscure investment channels popping up with great marketing and a lot of promises, we can put on records, there is a market for financial services. This situation is very similar to other industries, like telephone companies, the stars from the 80ties and 90ties or more obviously, this reminds me on the transportation industry. Today the big online shops are booming and inventing the most sophisticated techniques for storage, distribution and finding ideas to solve the last mile problem or gain efficiency in distribution. But these new solution seekers are not the big players like the well know, long market dominating players like DHL or UPS or other shipping companies. And guess who takes the profit?
Wait or get waited
Indeed, the pure transportation providers are not taking away the big share. And the very simple reason is, that thy needed ideas to survive and needed ideas to get both a good margin and a good growth. So that’s why Amazon or Zalando invest a lot of money to the areas, where actually a company like DHL should have the most knowledge. That’s why ideas come from the big retailers like Amazon or Zalando.
So what is the answer for banking? Digitalizations, as all scream around? Buying Fintechs and integrating them into the business? Maybe, I am absolutely a fan of digitalization, but only if the process is perfectly in shape. To digitalize a bad process just returns a bad digitalized process. I think the real reason for banks facing this situation is the way bankers do business. Coming back to my comparison with transportation, banks have the same problem. They do business as they did it since years or even decades with systems of the same age. Yes, banks have to stand the price of compliance and these are huge. Yes, banks can only stay profitable when having a significant seize. But this is valid for every business, seize does matter. What really hinders bank to be back in old glory is the missing capability of being a 21th century business. The industrialization of banking is much easier than many other industries. But as it was maybe too easy for banks so no one thought about disrupting the old systems and methods. And as we see, banking is more necessary than ever, we are talking about the service not the brand. Banks should start to integrate their solutions wherever they can. As no customer asks today, who is financing the good she wants to buy. This is the chance for banks. Why not turning this decision to a short twist on the banker’s app and the purchase is no longer in the hand of the tech market.
First make process smart, than digitalize them, that means good digitalization
But will this need digitalization or just purchasing a new Fintech? It is digitalization of 21 century processes. Then a bank can bring some fancy applications to the market, but first you have to streamline and reorganize the old machines and methods. Then the future will partly lay in digitalization! It is one key to be fast and smart to come back as a respected solution provider. But the really important step is to invent the products people need and deliver them fast and efficient.
Interesting times are ahead.!
Your K-Street6 team
In most of the discussion we see with bankers all over the world, one common sense is the combining element for all of them- it’s the deep belief, that banking supervision handicaps banker’s life. This is mostly directed to the governance issues of modern bank management and all the senseless but costly burdens a bank has to bear. But being for many years now in the business I wonder if this I really true.
Let’s have a look on the demands the authorities like European Central Bank or BaFin as well as Bundesbank and other institutions have. We will see these in the so called MaRisk, which should be for a second the basis for our analysis. The MaRisk give the framework how a good banking organization should work and be organized. Within the first general part (Modul AT) there are all the basically rules for the design of risk management and on the second part (Modul BT) there are specific needs for organization and processes for management and monitoring / controlling of credit risk, market risk, liquidity risk as well as operational risk. We also find here target pictures for internal audit or outsourcing and data protection. To put it in a nutshell, we found more or less clear rules for the business itself and also for the design of the organization.
So one would assume in the business rules the “not allowed” tremendous earnings are the problem and in the organization part it becomes costly due to this very theoretical approach the supervision wants to see.
Is there such a big gap between rules and best efficiency?
But is this really the case. I mean, in the evaluation of risk, there may be or even is some gap between the urgent need of risk management and the rules of calculation a supervision applies. But I doubt that the rules within MaRisk are much harder than a serious banker would apply. But here I would like to focus more on the organizational part. One fast given reason for the great rise of Fintechs is always the explanation, that they don’t need to stick to this rules, that’s why they can be faster or cheaper.
Here I say clearly no!
In my opinion, when a bank has a good governance motivated by itself, it is automatically in line with the rules of the supervision. Take the example outsourcing: this should be fast and cheap deliver the same service as before produced in-house. Despite the question if this is in a one-on-one relationship possible, the only thing what supervision demands is, that one has to manage and control this outsourced unit the same way as they would do it internally. So you need a reporting that gives explanations, a sufficient problem solution systems and the lever to change the way of service delivery. So this all must be codified in a contract and lived through outsourcing managers and the general management. But why do some have problems with this? I guess, some banks saw outsourcing as a chance to get rid of a lot of people, reduce costs without effort. But this is not the case, and now they have something outsourced that no one understands inside the bank any more. This was most astonishing for me, as Jon Cryan very openly stated, that Deutsche Bank has outsourced processes without knowing what they do and why they are needed, but now no one knows how to manage them. .
Freedom to do everything
Given this example, which should not be complete as I am missing a lot of insights, I bet, there were a lot of people stating that this rules are too much, but actually not knowing what to manage. And this is from my point of view the problem. It also happened within this traders, jeopardizing the whole bank only guided by the outlook of great bonus. There was also a race between trader and controller to keep up with the rules of risk management. You can bet who wins, the one with several hundred thousand dollars a year or the one with the controllers salary…..
For me, as I have been in several effciency projects as well as adaptions of suüervision rules, this can be done in smart ways. But in the second, the senior management believes, that they are cut in their freedom to decide, they start to work against rules. And what we see, this is not only in banking very costly, it’s everywhere costly, much more costly than it was profitable before. So it’s not only the Fintech, maybe it’s another source of competitor inside, that costs, just thing about Volkswagen today….
Yours K-Street6 team
I have written a lot of times about the Iranian bank landscape as I have gathered some tight insights from my visits. I always mentioned that the situation of Iranian banks behind the curtain of sanctions is something in between high pressure from missing capitalization and refinancing sources as well as pretty comfortable due to high profits within the current interest yields.
So as I have mentioned on and on the danger coming from an opening due to innovative banks and the necessity to highly invest, then the cost issue would come around again.
Costs, costs, costs, really?
Mostly I compare Iran with Germany twenty or thirty years ago. But today I have read a study from Bain Consulting about the situation of German banks. Basically the outcome is pretty challenging and reflects something I can see in my daily work. German banks have some profit gains from the current interest situation and some increase from provision side but still a high cost structure – but much more a digitalization issue.
Meeting corporate governance will be enormous effort
The first pillar of high expenditure comes, and that is something Iranian banks will face with much more impact, from regulatory drivers. These costs for meeting the regulatory requirements in Germany are high since years and will increase in the future. For Iranian banks, which have invested only a small portion of the demanded measurements for good corporate governance, this will be tremendous work and effort in a very short period of time to keep up with Western banks.
Digitalization is going to raise dust
The second expenditure comes from the most important topic. The future will be digitalized and thus means banks have to keep up with this expectation. I am not talking about fancy tools or smart apps for the clients. I am talking about the fact, that nearly no bank has reached a set up in her core banking system, that enables an end -2 - end processing truly as stp. I am talking about the situation that a client’s order, an interest booking or some corporate action are solely produced by the machines, including the deduction of several taxes, calculation of fees and with the right reporting within the legal, client-demanded or bank-internal needed reports.
As far as I see it, banks itself have some great challenges for the future. This is surely what we have seen above, but what we will see more and more and what comes slightly into the focus is the way to make business. The regulator reduces business opportunities for them e.g. by restricting more and more the capabilities of lending money due to the duty of high portions of equity backing. Thus makes the banks no more a risk-friendly and highly rewarded investor but some kind of credit delivery for secure investments. But the fast growing new business will be search for new and better financing sources and thus the banks will have the next problem in their profit generation.
Become strong on the home turf
So from my point of view, Iranian banks should start now to find the strategy fitting to them and their region and doing everything to be a real competitor in this region instead of playing the game of the big banks…..
Your K-Street6 team
In a number of different aspects, Iranian banking society reminds me on Germany some years ago. In the age before opening the market to new financial products and deregulation of stock exchanges we can find a similar picture as today in Iran.
How astonishing banks in Germany and Iran look alike
There is surely a difference coming from the rules of Islamic banking. But that does not necessarily prevent from converging the banking products to well known instruments, but this and the legal framework have their part in the current landscape.
But what really reminds me on Germany is the small willingness for inventions and further development – strongly along the motto “never puzzle the client with new things”. Yes there may some obstacles coming from the sanctions, but this is not the whole story. Even if you cannot import the necessary machines from outside, one can launch ideas for the domestic market. This we have seen in Africa, where the people have not sufficient teller machines around them, they use their mobile phone for payment. And here we see Iran today a closed shop, where it is no necessity for any domestic player to increase competition. There are simply enough people for all the banks.
So this leads now to the question, what will happen after the day of liberalization. Given the possibilities that a market for 70 million people gives, I assume the competitors from abroad can’t wait to jump in. And having all the good ideas from all over the world in one market, a completely new awareness of banking will arise. As well as an increasing demand from the clients to have solutions that fit. This will not only meet areas like the world of insurance, or the question how banking in a mobile world will be but really challenge the current practice of financing private and institutional assets.
Home loan - the most promising bank export
And in the current situation of the market, essential need of Iranians for a home and the given distribution of wealth, I really feel confident, that a home loan bank following the pattern of German Bausparkasse will be really successful. And there are some more ideas like easy-to-get consumer loans for TV, furniture or even the most important part of an Iranian live – the wedding .
We will see, where this leads, but I am pretty sure, that the development of German banking since the mid 80es gives a good outlook, what will happen in Iran after the day one…..
Your K-Street6 team
A lot of banks we are meeting up within the last weeks where always asking, what will change tomorrow in case of. Most of them think in directions like Corporate Governance, Compliance etc. Obviously this is pretty correct, but the most dangerous pitfalls come from the business itself. Within the next few blogs, I will try to deepen this topic…
Still low competition in the market - what market?
In the recent times, we have been in negotiations with Iranian banks. Thus we realized how many banks are there. As most of the people are surely aware of the big banks like Bank Mellat, Bank of Industry and Mine or Bank Sepah, there are today about 40 different banks in Iran. And this are solely domestic banks! The range of products is more or less comparable to the well-known and expectable products, a bank under an Islamic non-interest regime should offer. But some things are very interesting and start, for my opinion to be the challenge for future success.
Situation today is that on domestic currency accounts one may gain a profitability of 20 % a year. On currency accounts this goes in a direction of about 7-8 % yield. As this is paradise for all saving accounts holders, this bears problems on the refinancing side as well as for the stock market, both well blasting in the corporate world of Iran. The most obvious problem for the industry is a real problem for either Iranian economy or the Iranian banks industry. No company can earn an EBIT margin high enough to cover such financial costs, especially not in the very money consuming production industry, dominating right now the economy in Iran. Beside the influence of currency changes, with the lift of sanctions foreign banks can see the potential and offer respective forms of refinancing. This is not only a valid option for export oriented companies but for all companies, showing reasonable financial figures. The problem starts then with this for the Iranian banks, when they have to keep up with the lower margins and to cover their costs with this reduced margins.
The long long trail to finance a company?
But now the second topic mentioned above comes into the game. As it is not really interesting for Iranian investors to go the stock market due to the high domestic bank account returns, banks have not so much options for gathering additional business beside the collection of money and reallocation of this cash funds to debtors. So as banks see themselves, beside the real investment banks, in their origin business only for funds reallocation. Without cross selling into other bank business, beside also todays insurance business, which is not their own home turf, but enhancing the product range, banks have no second pillar for future profits. The effects on the stock market due to this financial situation is coming back to the corporate world of Iran as the demanded risk-free financial gains for investor have also been delivered on the stock market. Thus makes it less attractive for companies to go for a listing from this point of view.
But these aspects as swell as the threads for the banking business coming from low rate of invention and nearly no competition will be discussed in another blog…
Your K-Street6 team
Within the last years we have been in business, we always had the same experience: people either where not able to do business with Iranian companies due to several - more or less - reasonable and comprehensible reasons, or had a very healthy and normal relation to Iran as business partner.
Iran en vogue
Today now something very interesting happend. All are eager to get a foot step into Iran and are keen on having business with Iranian companies. But please not with direct relation or some public., because you never know what will happen if the congress says "No", if the Iranian government says "No" or the Europeans say "No" or if there is something...
Especially as we are currently on a roadshow for a very interesting Iranian industrial group with several millions turnover, a few thousand employees and a stable customer base in a healthy industry. We get mostly the very interesting questions, if someone can invest through a third Party, not really traceable back!
Better wait for the first one...
This is the real problem now for the Iranian economy, and thus for the Iranian government to overcome this situation of waiting until something happens. This can cause a steady state of inaction that will give all opponents of such a opening enough arguments. Cause effectively nothing changes although some very high compromises are given. Thus "why should we do that" will be the only question of this opinion leaders and then we will see the self-fulfilling prophecy, we all fear off.
That’s why we stay on our roadshow, hoping for someone interesting to be really interested in an interesting Iranian industrial Group !
Your K-Street6 Team
With one of our projects, we are currently in the challenging question of a financial restructuring. Situation is given as that the company itself has with several production units in Iran and sells this to a global client base. So roughly half of our production goes into domestic and half goes into abroad markets. Over the years, a stable and trustful relationship could be established. Moreover, with the products we have today in our range, the interesting aspect is, that we have more demand than we can produce. And the limiting factor is not the capacity of our plants, but simple the fact that we do not get moved the financial resources.
Nightmares of financing
One may say, this can easily be solved by using different other sources of liquidity, which would be the usual way as of today. But we do not want to participate in this refinancing, because three important aspects are completely neglected:
So taking this three aspects into consideration, we are currently working on dedicated refinancing strategies for the different subsidiaries. And we are looking forward, that in a few months we can act as real financial management and optimize the working capital.
Today a important milestone for Nik & Sal was reached. We have seen for the first time our website.!
Up and nearly running
The last weeks we have been working with our web agency to create a appearance that follows our idea of this label. Basis of this idea is to bring the warm and kind convention of Persian hospitality to Europe.. So we started to found out who can deliver the best nuts and the best roastings as we like them. Guideline is always to stay with the original taste and ingredients as daily served in Iran. Thus we will bring the original way of Iranian lifestyle to Germany.
Very welcome to our new website. We are proud to be online just in time with the big moments in history. Yesterday the nuclear power negotiations reached a very sounding and promising end. We hope that this is really a beginning.....