Technology, Regulation and Customer Relation are Keys of the Financial Sector in 2020

After the financial crisis of 2008, which led, among other consequences, to greater interventions of regulatory bodies in the activities of banks, asset managers, intermediaries, investments services companies, insurers and other operators, the financial sector continues to be immersed in a deep transformation of its business and customer relationship models.

Technology is the main trigger of this change as it makes easier the arrival of new operators with different business models and changes substantially the customer-entity relationship model. An issue that, together with the intense regulation, marks the current and future trends in the financial sector.

This article is inspired by the conclusions of reports on the financial sector by two of the main consulting firms operating in Spain: KPMG and PWC. Both are based on the vision of executives from the financial world and the main regulatory bodies such as the Bank of Spain, among others.

Challenges to improve business models

Operators and regulators believe that the traditional financial sector in Spain should change and face a series of currently planned challenges:

  • Recover the operative profitability and effectiveness. In the interest of improving shareholder’s equity and reducing unproductive assets, one solution may be bank mergers, which generate entities with solid business models, reduce structural costs and provide value to the customer.
  • Strengthen capital and solvency. Operators need to improve the organic generation of funds and apply greater flexibility in the distribution of dividends, since, among other reasons, according to the outstanding loose ends from the operators need to improve the organic generation of reserves and apply greater flexibility in the distribution of dividends, since, among other reasons, among the outstanding fringes of European regulations Basel III is facing the 24.4% increase in assets weighted by risk, which will require an additional 135,000 million euros of capital.
  • Adapting companies to the digital transformation. Companies must identify the value that digitalization can bring to the business in the way it does:
    • Changes in the models of customer-entity relationship from the progressive automation of processes.
    • Improved customer knowledge, since data analysis facilitates the comprehensive management of customer information.
  • Face the new business models in the sector, mainly fintech and bigtech.
  • Restore reputation and credibility of the sector severely damaged after the financial crisis.

New trends derived from digitization

The irruption of technology, therefore, is a disruptive factor that causes important changes that materialize through new trends in the sector:

  • Lower relevance of traditional banks due to the increase in online banking and fintech entities. Users interact with their operator more and more through mobile devices or the computer, and not in bank offices. Clients tend to manage all their financial needs in a more digital and less personalized way, as banks increase process automation.
  • Security Reinforcement. The concern for cybersecurity grows with a view to preventing data theft, which has generated information exchange systems between safer entities such as blockchain or blockchain.
  • Other trends derived from the impact of technology. The innovation in the generation of products, the use of big data as a tool that generates value for distribution, and regulatory changes related to the fintech and bigtech businesses.
  • A new approach in the relationship with the client. Supported by concepts such as transparency, ethics, solidarity or sustainability, because new generations of customers demand it.

The business models of the future

The experts and executives consulted by the two large consultants predict that the financial business models of the future, to be successful, must be based on a series of principles

  • Center the model on the client. Financial operators will need to have extensive knowledge of the profile and consumption habits of their customers, providing them with a very simple product portfolio.
  • Work with simple operating models optimizing distribution. For which the financial institutions will have to redesign their bank branches, creating new formats, seeking alliances with third parties, etc. Banking offices will be of less and less relevance in the future, as consumers will migrate to digital channels.
  • Turn information management into a competitive advantage. The data analysis of the different areas in the banks (commercial, operational, risk, financial …) should be managed with advanced tools to strengthen the relationship with the client and the growth of the business.
  • Lean on innovation
  • Proactively manage risks, capital needs and adaptation to regulatory changes

In any case, the financial business will continue to be based on the value of trust as a mortar that solidifies the client’s relationship with its operator. In Spain, more than 70% of clients of financial institutions have high loyalty rates.

For all these reasons, banks and other financial operators will require a solid and differential brand positioning to transmit their strengths to the market and to their target customers, consolidating an image that should convey the qualities of their business model in a sector in continuous transformation. Specialized and efficient financial communication, therefore, is a key service for financial institutions to reinforce their growth in this new sector scenario.


Javier Ferrer
Financial Communication Manager at Proa Comunicación

The Current Challenges of Private Banking and the Keys to Effective Business Communication

The private banking business in Spain continues to be an appealing niche for the financial sector. According to the consulting firm DBK, at the end of 2017 assets under client management with financial assets of at least 300,000 euros amounted to 450 billion euros. This grouping consists of almost 400,000 people, mostly residents of large urban centers of autonomous communities with higher levels of wealth per capita, commonly known as the “golden triangle” (Basque Country, Navarre, Cantabria, Valencian Community, Catalonia, Madrid).

Strong Investment in Resources

The majority of suppliers set 500,000 euros as the minimum threshold that allows them to provide a specialized offering in products, tools, equipment, relationship managers, and even offices, to their clients with a higher level of capital. The search for an efficient and profitable model is the cause of this limitation.

Private banking customers provide high margins both on and off the balance sheet in the income statement of their financial institutions. But they demand a personalized and very professional treatment, for their high level of financial culture and for the imperative need to trust in a contact person that in practice becomes the “director” of the strategy to be undertaken with their client’s capital to fulfill a host of particular objectives, such as the time horizon, risk profile, assets and preferred markets, inheritance, shareholding structure of the family group, tax optimization, profitability of their investments, among others…

This obliges relationship managers to demonstrate a high level of financial expertise and quality in their services, maintain awareness of regulatory changes, use advanced technology to manage all areas required by their client and coordinate specialized teams that provide the individualized solutions. Only in this way can a stable and long-term relationship with each client be strengthened.

This means that capturing and gaining the loyalty of a private banking client requires a large investment in resources for any financial operator. This is because it is essential to have a value proposition that is global, tailor-made, differentiated and independent, with the focus placed exclusively on the interests of the client.

Business Models

In Spain, the private banking business is still dominated by the large commercial banking brands. According to DBK, they manage 77% of the total assets in this segment of clients, compared to the 23% held by specialized operators. Universal banking has a great advantage over the rest: it can share resources in serving several customer segments, therefore lowering costs. What resources? Above all, those intended for corporate activities (HR, financial management, products on the balance sheet, technology …), and commercial activities (branch network, business growth objectives).

But this advantage can turn itself into a disadvantage. Because in practice, in universal banking, it is more difficult to build loyalty for the type of client that puts trust in personalized services with a partner, since they value less aspects of the service such as digitization, achieving profitability for their investments, among others.

The greatest attraction universal banking has for this type of client is the strength and solvency of the brand, garnering trust for an institution that due to its size and strength of its balance sheet is conceivably not in danger of decapitalization.

Private independent banking, however, can a priori better meet the demands of an exclusive service and quality, although this requires making heavy investments in resources to materialize. Even more so in the current regulatory environment, which after the entry into force of Mifid II, reduces the prospects of income generation and increases costs.

The Effect of Mifid II

The objective of the European directive Mifid II’s implementation is to strengthen the investor and client protections of financial products and services. The regulation covers many areas of activity: product governance, listing and defining the services that can be provided -management, advising, information, marketing, execution-, customer reporting, advanced training of suppliers, transparency in costs, monitoring processes and optimizing investments …

The impact on the private banking business is, therefore, enormous. To the point that the sector considers Mifid II as an opportunity to reorganize business models, since it must adapt most of its activities (and with it, the predicted of costs and revenues) to this new way of working.

At this point, we can see the dilemma between independent advising, for which the client pays a recurring fee and can access the whole universe of marketable financial assets with the recommendations of his/her advisor, as opposed to dependent advising, where the advisor recommends assets to the investor and charges fees from the manufacturer for those that his client has purchased within a limited universe of products (provided that requirements are met in terms of transparency in revenues and costs, and quality of service),

Technology is fulfilling its role as a tool to expedite the implementation of Mifid II requirements, achieving the greatest possible cost savings. It is even allowing private banking models to supported by automated management and / or advising to emerge, aimed at larger quantities of capital, without the help of relationship managers in order to reduce expenses.

The Role of Specialized Communication

However, any business model in private banking must rely on a personal relationship between the client and his/her manager, so that  the objectives of efficiency/profitability and growth are achieved. These are challenges that only with customers with 100% loyalty and with all the financial and equity needs satisfied by their service provider, can be achieved.

The role of specialized financial communication is key to helping each operator optimize its regulatory adaptation and business growth strategies. It certainly helps to position each brand with its strengths, whether its structure is that of a universal bank with specialized teams and areas, or whether it operates on exclusive and independent private banking models, or even other non-banking models. The secret of success in building loyalty is to provide a global service tailored to each client, which can be achieved so long as the differentiating strengths of its service provider’s brand are perceived.

Private banking is a service that manages the integral relationship of the client with his/her financial service provider: the needs of advising and management for his/her capital, the needs of fiscal optimization, the needs of transactionality and financing needs. Communication becomes, therefore, a tool that transmits the differentiating value chosen by each private banking provider, and the key to its success within the strategy of customer loyalty and business growth.


Javier Ferrer
Director of Financial Communication at Proa Comunicación

Ismael Nafría: “Paying for Information is Today an Inevitable Choice for the Survival of the Media”

Ismael Nafría, author of the book “The Reinvention of The New York Times“, has been advising media outlets around the world for years. He knows well the journalistic business and understands the challenges that the media faces today in these moments of change and uncertainty. We review with him some of the issues have been stirring the most controversy lately such as the phenomenon of fake news, although he himself prefers to call it misinformation.

It is precisely this issue that we tackled the first few moments of our talk. In Nafría’s view, there are three tasks that must be undertaken to combat the spread of false news. The first task, he says, places us within social media, where thousands of pieces of fake news are disseminated every day. In his opinion, these platforms must intensify their control over all sources that dedicate themselves to spreading misinformation. “This task is very complex and especially affects Facebook, WhatsApp, Twitter … or Google searches. They have to establish the maximum number of possible control measures so that this kind of thing doesn’t happen, ” he adds.

The second task, in his opinion, is to ensure the public’s media literacy all the way from school. “Trying to foster a more critical mentality among the population when it comes to interpreting certain content and making them understand whether or not they are reading reliable material, so that they be extra careful when it comes to redispersing such information through their social platforms” is a fundamental objective that, according to Nafría, we must take on as a society.

Finally, the media has two jobs. “The media ought not to contribute to misinformation. They have a great responsibility when it comes to not spreading false news, because they must assume their professional role of informing, “he says. “Those media outlets that spread false news, unverified, do a disservice to the entire sector.” In this sense, it is clear: it is necessary to be stricter when applying the essential principles of journalism, which are, confirming the topics, verifying that the sources are reliable …

But, in addition to all of this, it is important that the media help us to understand how the world of misinformation works and that they would identify specific cases. “I’m not saying that this means for them to carry out a continuous analysis of everything that is spread; It wouldn’t be possible given the sheer amount of false news circulating, but they ought to explain the most serious cases, helping identify them and justify why they are such, ” he stresses. This, along with a willingness to be more transparent: how information is prepared, how it is verified … These types of actions would help tremendously to tackle the problem of misinformation.

Although this has become one of the hot topics that today occupies the media, especially when they get embroiled in some scandal of the like, the truth is that the business model that will sustain newspapers is still the main concern among those who govern the destiny of the press.


Payment, a Business Model

Asked how the media can convince the audience to pay for information, Ismael Nafría admits that it is a complicated objective, but at the same time he assures that it is an inevitable option “if we want to guarantee the media’s survival”.

In order to carry out that task, he is convinced that the media must come up information that is truly of quality and pertinent to its audience, be it generalist or a more niche sort. In his opinion, one of the premises that he usually shares with those responsible for the media is that it is better to bet on less information yet of higher quality than for an immense volume that doesn’t bring the publica any value. “I think that there is a saturation and that generic information provides very little value,” he adds, adding that “people are willing to pay for information, but they don’t expect you to flood and saturate them, rather they want you to offer them things that have value. and with which they enjoy”, because this also serves as a purpose of information. “A well told story tells wonderous tales,” he says.

However, they are not the only efforts that the media have to take to build payment walls around their contents. There is another area where there is a long way to go and it is the relationship with the audience. As Nafría explains, it is vital that the audience be truly involved. But not only a posteriori, as is usually done, but before the published information. It is about getting them to participate, that they contribute their contents, their experiences, their knowledge about certain topics. And this is not easy to happen. There are examples, however, such as the Reader Center section of The New York Times, where queries and requests from users are answered, as well as their participation in many current issues. The data on its success are compelling. “In its first year since its birth, it has managed 600 different requests to readers on very different topics,” he says.

Ismael Nafría considers that the decision to charge for the information must be accompanied by other measures and one of the most important has to do with the relationship established with the audience. “If you want your audience to pay, you must work hard and keep it in mind,” he says. From there, you should experiment with all the formats that allow building a direct and close relationship with your community around the medium. One of the formats that is working is the newsletter because it is a tool that generates “very effective connection and engagement with the audience”. Format with more projection and that is starting to become more frequently used is the podcast, although in Spain it isn’t yet really an option for many editors.

That the payment for the information is irremediable at the moment, does not mean – to clarify – that it is the solution to income stream problems. But it has to be seen as an additional way which is becoming increasingly important and that will end up being the main income stream as is already happening in certain media such as with The New York Times.

The Situation with Spain

So what’s happening in Spain? Did editors finally decide to charge for information?

Nafría assures that everything points to the fact that the editors will decide throughout this year regarding payment. There are already some media, he adds, that are charging for information such as the regional and local newspapers of the Vocento group or the Catalan daily Ara.

However, will media outlets that opt for payment not lose audiences to the benefit of  “free” ones? This premise, which was used years ago, has no validity as such, according to Nafría. For him, although readers may be lost, the most important aspect is that the medium is able to achieve a loyal following. We are witnessing the failure of a model, based on audience hunting, which not only makes no sense, but also is dysfunctional. Therefore, it is more sensible and beneficial to increase the loyal audience “with which the media can count on for those that need them, rather than increasing the number of users who whiz through the site once a month without realizing it.”

In any case, it is clear that the loss of audience is always related to the type of strategy that the media puts into practice. But, even if readers lost, it is far wiser to focus on winning loyal users who interact and get involved with the medium of choice.

Bárbara Yuste
Director of Digital Communication at Proa Comunicación