The latest scandals involving major banks reported in the press - the illegal wiretapping ordered by the former chairman of BBVA, the failed appointment of the CEO of Santander, or the lawsuits filed by investors who have lost their money in shares or mandatory convertible bonds of Banco Popular - continue to show that Spanish banking continues to suffer from serious reputational problems.
This is despite the fact that the three largest operators, Santander, BBVA and La Caixa, are in the top 10 of the ranking of best corporate reputation which is compiled by Merco, based on 38,000 interviews with the general population and stakeholders. Or that bank customers in Spain are much more loyal to their bank than in other countries, something which, for example, is shown by the fact that 86% of the volume of investment fund distribution is carried out from bank branches, according to Inverco.
This situation is worrying, because banking is the mainstay of the economy, as it finances consumption, house purchases and both public and private business activity. And in the case of Spain, the largest operators have expanded extensively in other geographies such as Latin America, so the effects of their reputational crises are being transferred abroad.
Changes in business model
After the financial crisis in 2008, there was a strong economic recession in Spain, which lasted until 2013. Subsequently, the cycle changed towards a phase of growth in which we are still immersed. The role of banks in this improvement was fundamental, because low interest rates, abundant liquidity and high levels of savings due to the deleveraging of the private sector boosted lending activity and thus consumption.
The crisis had another consequence, the profound transformation of the business model for banks. Banks had to adapt their revenue generation model to a scenario of lower margins due to higher regulatory costs, the greater investments in technology required, and the emergence of competitors with much more efficient cost structures.
A Boston Consulting Group report claims that between 2009 and 2017, the global banking sector had to pay supervisors $320 billion in fines as a result of poor marketing practices. Moreover, McKinsey assesses the impact on the banking business of competition from Fintechs, which it estimates at between $29% and $35% of revenue, due to both customer churn and reduced margins.
Digitisation
These factors explain the banks' strong commitment to digitalisation. This is the key tool with which they will be able to improve the customer experience, fend off competition from Fintechs, and raise the quality of customer service while reducing costs.
The digital transformation that the banking sector is undergoing is also producing other changes in the financial ecosystem, because the importance of front-office processes in customer service models is progressively being reduced, due to commercial pressure and the impact of these processes on the income statement.
Logically, this reduced front-office effort means a greater focus on middle- and back-office processes, which require higher levels of automation and control in areas such as risk management and cost reduction.
Communicating banking transformation
The future of the sector therefore lies in implementing solutions that provide greater agility, flexibility and focus on customer satisfaction, while also generating value. Accenture translates this into banks' commitment to the "commoditisation" of certain services, data aggregation, and new transaction processing models based on distributed ledgers (blockchain) and databases.
In the case of Spanish banks, they have been pioneers and enthusiastic when it comes to implementing new trends that transform business models. Therefore, banks need to effectively communicate their beneficial role as a driver of the economy, and the impact of the major transformations they are undertaking to adapt to the new environment of digitalisation, regulatory changes, and increased competition.
Banks also need to effectively communicate the cost reduction and customer experience improvement processes they are undertaking, so that these efforts are perceived as positive for the end customer and thus for society as a whole.
Only in this way will it be able to change the negative perception it suffers in broad social strata, which is expressed every time events related to banking malpractice, solvency problems or deficiencies in the marketing of products, which affect banks on a recurring basis, occur.
Javier Ferrer
Communications consultant specialising in the world of investment at Proa Comunicación.