In August 2018, Germany’s second-largest bank, Commerzbank, wound up a crack team its Polish unit mBank had set up to create a pan-European digital bank called Copernicus.
At the time, mBank – 70%-owned by Commerzbank — had just started to license its mobile and online banking system to financial institutions outside Poland, including La Banque Postale in France. According to Puls Biznesu, a Polish daily newspaper, work was advanced in Warsaw and Frankfurt and several dozen people were working on the project, named after the German-Polish astrologer.
At the same time, mBank’s founder, Slawomir Lachowski, was meeting with Hong Kong investors to push ahead with plans to create his own pan-European bank, Golden Sand Bank.
The two events are not entirely coincidental, Lachowski says. “Copernicus is simply a continuation of mBank’s 2006 idea to create a low- cost, simple and convenient bank on the go for mobile customers in borderless Europe,” he says. But Commerzbank didn’t want it then, and doesn’t want it now, he adds.
“I am not surprised my colleagues went ahead. But also not surprised that it was not carried through,” he says.
“I was asked to become a member of the Commerzbank management and implement this ambitious project from within this giant corporation. At the time I had long, long meetings with Commerzbank in Frankfurt, but finally in 2008 I rejected this seemingly attractive proposal, realizing that I would have much more chances of success realizing this project based on the resources and experience of mBank Poland. I said ‘guys, no, this won’t work.’ So, I left Commerzbank.”
There was an opinion at Commerzbank that mBank would be for the bank’s Eastern Europe operations and had no right to enter the Western European markets, a Warsaw source said.
The end of banking as we know it?
To be launched by the end of May, Lachowski’s new venture is financed by investment from Hong Kong-based venture capitalist GSR Capital. Golden Sand Bank is based in Gibraltar and has a British license as a financial institution. Technically, the bank will be supported by Asseco Poland and IBM.
The new project is slightly different from Copernicus, Lachowski admits. “It is about digital only, mobile-first bank and wealth management across Europe,” he says.
“We plan to launch within two months in Gibraltar, but Brexit has made that problematic, so we have also applied for a license to operate in Germany and could launch there within 12 months.”
Market sources suggest a minimum of €400 million ($451 million) is needed to meet reserves capital requirements and reports in 2018 suggested the overall cost of rolling out a new bank are around €700 million.
Lachowski is doubtful such high costs are needed. “Ten years ago, it was necessaryto invest €200 million to €400 million to build a bank from scratch, he says. “Today a fintech bank needs €30 million to €50 million from scratch to start operating activities. The costs of marketing and operations to a break-even-point range from €50 million to €100 million depending on the type of activity and scale of operation.”
Lachowski, who had spent several years digitizing and transforming mBank, said the new bank will be active across Europe, with Germany top of its list for expansion.
Brexit has made Gibralter problematic, he says. “So, we applied for a license to operate in Germany and could launch there this year as well.”
Once upon a time
“mBank launched in 2000 and disrupted the banking market in Poland,” Lachowski says, adding that within five years it had become the third-largest bank in Poland in terms of customer numbers.
“Then I came up with the idea of a pan-European bank in 2006,” Lachowski says. “It perfectly suited the concept of a new-generation European bank based on the Single European Passport and corresponding with the founding principles of the European Union of the single market.”
When mBank’s mother company decided to close the Copernicus project down, Commerzbank Chief Financial Officer Stephan Engels reportedly appraised himself capital market and bank shareholder sentiment if a fintech such as Copernicus, which was expected to operate at a loss for several years, was the route to take. The answer was an overwhelmingly “no.”
Around €700 million, it was rumored at that time, would have been necessary to fulfil the different regulations of the banking supervisory authorities in the various European countries, and Commerzbank shied away from such compliance costs.
Commerzbank is also in the process of restructuring and is about to approve a purchase by Deutsche Bank and decided to stick with its own, less ambitious digital brand, Comdirect.
This was not the first time that German owners of mBank had been seen to stifle its aspirations for foreign expansion, Lachowski says.
Several years before, mBank successfully opened branches in the Czech Republic and Slovakia and was already preparing to launch more in other countries, but Commerzbank blocked the idea, as a result of which the then CEO of mBank, Lachowski, resigned.
“I wanted to show the Commerzbank management how it could be done. And it worked. We had 1 million customers within the first few years. The business model and the technology just fit,” he says.
Poland a banking giant in the making?
Some believe it is no coincidence that many bank innovations come from Poland. “Polish banks are lean, they work in agile teams and have very good expertise,” Michal Trochimczuk, a managing partner at Sollers, an advisory company based in Cologne and Warsaw, told DW. “Poland has enough IT professionals and the costs are acceptable,” he adds.
The former employees of mBank are not the only Poles planning a direct bank active across Europe. Alior Bank, with the support of solarisBank, Raisin and Mastercard said they planned to jointly unveil a European digital bank.
Wojciech Sobieraj, the former chairman of the Polish retail bank Alior, is also building a pan-European bank named Vodeno based in Amsterdam, with cash from Warburg Pincus.
German challenger bank N26 is also ambitious – with over 100 engineers by the end of 2019 and a second European office in Barcelona, while Revolut has gained around 3 million customers since its foundation in 2013.
“But Germany moves at a much slower pace than Poland in adapting new technologies in the financial sector,” Trochimczuk continued, adding that Germany has legacy issues and its banks tend to be very profitable, but very inefficient.
“The regulatory environment in Germany could be an issue for new players entering that market, but Poland has great potential.”