Balancing relationships and technology at Handelsbanken

Lan-Ling Fredell

By Lan-Ling Fredell


PA spoke to Stephan Erne, Chief Digital Officer for Handelsbanken, about how the bank is taking its strong focus on personal relationships and customer service into the digital age.

Today, most large banks are moving away from branches towards centralised operations. But Handelsbanken is proud of its local approach to banking and a decentralised organisation. This unusual dedication to personalised human service means Handelsbanken retains a large network of 380 branches in Sweden compared, for example, to 118 for SEB or 218 for Swedbank (both of which have comparable balance sheets).

Despite the number of branches, Handelsbanken manages to keep its eye on costs, with a cost to income ratio in Sweden of 35 per cent in 2018, which is low by both Nordic and European standards. The bank also had the highest ten-year total return of any of the four major Swedish banks, has ranked number one in customer satisfaction for the last 30 years, and has the highest satisfaction levels with the digital services of Sweden´s big banks, as shown in the new EPSI report. Even with their emphasis on relationship banking, Handelsbanken is not immune to the transforming power of technology. So, two years ago, they hired Stephan Erne, a former Ericsson executive with no prior history in financial services, to act as Chief Digital Officer, tasked with taking Handelsbanken into the digital age.

Stephan has largely shunned the limelight, preferring to focus on understanding Handelsbanken and how technology will impact banking. He explains: “I was very much on an educational journey but also a structural journey to ask, what does this all mean and what do we do now?” His goal in taking this position, he says, was to drive the digital transformation at Handelsbanken and its impact on people, business and society.

“The worst thing you can do is to take away responsibility from the people. If you put in a central steering model, you will kill the engagement.”

Branches drive digitalization

Many banks today have created innovation centres to help them be proactive and stay ahead of competitors. Stephan says this hasn’t been a major challenge at Handelsbanken because of its decentralised structure. Since branches are accountable for their own customers and profitability, they are very focused on how to meet their customers’ needs. He says of the branches: “They are not waiting for someone at the top to tell them what to do. They have a good understanding and ideas themselves. This is the driving force. They are already thinking about the role of the branch in the future.” The challenge for Handelsbanken, he says, is how to structure the transformation journey—which tasks and decisions should you keep local and which should be made with the help of technology or more centralisation.

If you centralise, you ensure efforts aren’t duplicated and the infrastructure is efficient. But if you are too centralised, you risk stifling innovation and can be slow to react. The only answer to this dilemma, Stephan says, is to be very transparent. “You have to create ways of interacting and knowledge sharing. For example, we use digital tools like community sites when we scan fintech start-ups, everyone inputs who they have met and what their thoughts were.”

He continues: “The worst thing you can do is to take away responsibility from people. If you put in a central steering model, you will kill the engagement. From my experience, this is the biggest problem in a lot of companies.” At Handelsbanken, Stephan feels that engagement is already high, so the challenge is to find the best ways to channel the energy.

Open banking initiatives need to keep the customer in focus

The EU’s Second Payment Services Directive (PSD2) comes into force in September 2019. It demands that banks provide standardised information to third parties for current accounts and let them initiate payments, given the consent of the customer. This is expected to open banking to new competition, hence the popular new term ‘open banking’. Banks in Europe have been in a rush to comply with PSD2 and define their strategic positions.

Nordea has been very vocal about its intent to be extremely open to third parties and partnerships, betting that if it’s the go-to bank, it will be able to further consolidate its position as the largest Nordic bank by total assets. Gunnar Berger, Head of Open Banking, said in an interview with Finextra: “Open banking will increase collaboration between banks and non-banks. Open banking is a new way of thinking and working in product development. The promise of open banking is faster, better and more relevant.” Nordea’s thinking has resulted in a flurry of activities, such as investing in FinTechs like Tink (which provides an account aggregation and analysis app geared towards consumers) and being the first Nordic bank to link with Apple Pay.

Stephan’s response to PSD2 is thoughtful and in keeping with Handelsbanken’s customer focus. He says: “Our focus is on really helping our customers understand information rather than just collecting things and showing it to them. This means we have to get the right data, but we also need to use the data to give them good advice.” He points out that Handelsbanken already has a huge amount of data about customers, so the first task is to create customer value with the available data and use open banking to aggregate accounts to get even more data. “Our focus is on making sense, on really helping our customers handle this information rather than just showing them how much money they are spending every day. We want to give our customers insight and help them to make better financial decisions.”

“If you don’t understand the complexity of banking, you can think there are easy solutions.”

Hype must give way to pragmatism

PSD2 has been a catalyst for banks to reconsider how they interact with the wider financial services and technology ecosystem, and increase their willingness to look at potential partnerships with young FinTechs. Handelsbanken’s quest to help their customers is at the forefront of Stephan’s mind when thinking about the kinds of companies that the bank might partner with in the future. He says: “We are looking for companies who help us to make sense of the data, to help us analyse.”

But partnerships between large banks and small start-ups can have complications. Stephan explains: “You have to find different ways of working with them. You can’t, for example, let them go through the ordinary process of supplier testing. We have to think differently about how we evaluate these companies. For example, how do we make sure this ten-person company will survive for the next three years? It is pretty easy to have some trials and do a proof of concept. It is something very different to integrate this into your real operation.”

Stephan thinks that much of the talk about partnerships with FinTechs is over-hyped. He says: “If the partnership is at the core of your business model, then it’s extremely important that it’s a stable company with good security and financials, and a sustainable business model. This is the real challenge. We see a big potential to work together with FinTechs and combine their power and drive to innovate with our customer intimacy, scale and ability to handle the regulatory challenges in this industry.”

Working with FinTechs is not the only over-hyped area, according to Stephan. New technologies like artificial intelligence (AI) and blockchain also fall into that category. Stephan says: “If you don’t understand the complexity of banking, you can think there are easy solutions and these technologies are silver bullets. If only we had a team of If you don’t understand the complexity of banking, you can think there are easy solutions artificial intelligence specialists, we could solve all our problems. But this is not how it works, and if that’s your expectation, when little materialises, the hype crashes.”

Stephan’s challenge is to keep the bank focused through this cycle of hype and frustration. With blockchain, Stephan believes that its main potential will not be fulfilled by re-tooling existing processes and structures: “The problem is often not solved by the technology itself. Instead, emerging technologies like AI and blockchain are a catalyst to challenge existing processes, responsibilities and ways of working. It is beyond the technology. It is a real business transformation question.”

“For us at Handelsbanken, we are betting on customer relationships.”

Augmenting human intelligence

Stephan believes technology will augment human intelligence rather than replace it. That’s why internally Handelsbanken calls AI Augmented Intelligence, rather than artificial intelligence. One field where Handelsbanken uses AI is in investment advice. They have had an increase in investment advice meetings of more than 40 per cent, which means they also need to review 40 per cent more documents than the previous year. To handle this positive business increase, they have developed and implemented an AI tool based on IBM Watson technology for more efficient compliance. They combine the capability of AI to assess and analyse text with NLP (natural language processing) and the human capability to understand context and complexity to create the most efficient output.

Stephan cautions that, while the tool has been built, they can’t relax and lean back. He says: “It is not like building a water pipe, where once it is installed you can go away and it just runs. You really have to work with this continuously. We are using the feedback of our people to improve the application and the application analyses and creates insights for our colleagues.”

This AI application is just the first of many for Handelsbanken. Stephan says: “Based on the experience and technology that we have built, we are now running more trials in other areas. You can create a lot of value with AI, but it is not the solution to everything. You have to filter out what is really creating value for your customers or employees, not just push out a technology because it is cool.” Handelsbanken believes the combination of personal relationships and digital tools are the key to their success and they have no intention of changing their winning formula. Keeping their customers’ trust in all interactions, both personal and digital, is a key focus. Stephan says: “Our potential to differentiate ourselves as a bank is to focus on security and the integrity of our customer data.”

Handelsbanken believes that with the world getting more and more complex, their customers need a trusted advisor to help them navigate through their financial life. “The combination of digital tools and personal/local interaction is the thing that we think creates most value for our customers. It is also the way we can differentiate ourselves from other banks who are only betting on digital channels.” All their work with digitalisation and technology boils down to one thing, says Stephan: “For us at Handelsbanken, we are betting on customer relationships.”

About the authors

Lan-Ling Fredell
Lan-Ling Fredell PA innovation and fintech expert

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