In the aftermath of the 2008 financial crisis, which led, among other consequences, to increased regulatory intervention in the activities of banks, asset managers, intermediaries, investment services firms, insurers and other operators, the industry continues to undergo a profound transformation of its business and customer relationship models.
Technology is the main driver of this change, because it facilitates the arrival of new operators with business models different from the traditional ones and substantially changes the customer-entity relationship models. A factor which, together with intense regulation, is therefore shaping current and future trends in the financial sector.
This article draws on the conclusions of reports on the financial sector by two of the main consultancy firms operating in Spain, KPMG and PWC. Both rely on the views 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 business in Spain must change and face a number of challenges it is currently facing:
- Regain profitability and operational efficiency. With a view to improving equity and reducing non-performing assets, one avenue could be bank mergers, which create institutions with sound business models, reduce structural costs and add customer value.
- Strengthen capital and solvency. Operators need to improve the organic generation of reserves and apply more flexibility in dividend payouts, as, among other reasons, among the outstanding issues of the European Basel III regulations is the 24.41 trillion euro increase in risk-weighted assets, which will require an additional 135 billion euros of capital.
- Adapting institutions to digital transformation. Organisations must identify the value that digitisation can bring to the business to the extent that it brings:
- Changes in customer-entity relationship models as a result of the progressive automation of processes.
- Improved customer insight, as data analytics facilitates the integrated management of customer information.
- Facing the new business models in the sector, mainly fintech and bigtech.
- Recovering reputation and credibility of the sector badly damaged in the aftermath of the financial crisis.
New trends arising from digitalisation
The irruption of technology, therefore, is a disruptive factor that provokes important changes that materialise through new trends in the sector:
- Reduced relevance of traditional banks due to the rise of online banking and fintech institutions. Users are increasingly interacting with their operator via mobile devices or the computer, rather than in bank branches. Customers tend to handle all their financial needs in a more digital and less personalised way, as banks increase process automation.
- Strengthening Security. Cybersecurity concerns are growing with a view to preventing data theft, which has led to more secure information exchange systems between entities such as blockchain.
- Other trends arising from the impact of technology. Innovation in product generation, the use of big data as a tool that generates value for distribution, and regulatory changes related to fintech and bigtech businesses.
- A new approach to customer relations. Supported by concepts such as transparency, ethics, solidarity and sustainability, because the new generations of customers demand it.
Business models of the future
The experts and executives consulted by the two major consultancy firms predict that the financial business models of the future, in order to be successful, will have to be based on a series of principles
- Focusing the model on the customer. Financial operators will need to have a broad understanding of their customers' profile and consumption habits, providing them with a very simple product portfolio.
- Work with simple operational models optimising distribution. For which financial institutions will have to redesign their bank branches, creating new formats, seeking alliances with third parties, etc. Bank branches will become less and less relevant in the future, as consumers migrate to digital channels.
- Turning information management into a competitive advantage. Data analysis of the different areas in banks (commercial, operational, risk, financial, etc.) must be managed with advanced tools to strengthen customer relations and business growth.
- Relying on innovation
- Proactively managing risks, capital needs and adapting to regulatory changes
In any case, the financial business will continue to be based on the value of trust as the mortar that solidifies the customer's relationship with their operator. In Spain, more than 70% of financial institutions' customers 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 their target customers, consolidating an image that must transmit the qualities of their business model in a sector in continuous transformation. Specialised and efficient financial communication is therefore a key service for financial institutions to reinforce their growth in this new sector scenario.
Javier Ferrer
Director of the Financial Communication Department of Proa Comunicación