Digital banking continues to be a battleground for banks as they seek to modernise, gain a competitive advantage and ultimately deliver a better and swifter experience to their customers.
In this interview, Rui Constantino, Santander Portugal's chief economist, discusses how the bank is approaching digital banking, the key areas where it is focused on achieving growth and development, and the main trends in the Portuguese and European banking sectors.
Q: Digitalization is re-defining the traditional idea of what a bank is. For you, what does a bank look like today, and what could it look like in the future?
Constantino: Banks are what they have always been and will continue to be in the future – a facilitator and a partner that helps people and business prosper.
Digitalization is a broad definition of a comprehensive transformation process, which very simply aims to improve the way banks operate, manage risk, and help people and businesses across all channels. It is designed to create the best customer experience.
The development of digital tools is allowing banks to simplify the relationship with their customers. We are partners in long term relationships, and we are fully committed to our customers growth and prosperity.
Banks are what they have always been and will continue to be in the future – a facilitator and a partner that helps people and business prosper
While serving customers, banks must manage risk, and that must not be forgotten. If banks manage risk properly, customers have a safe place to deposit their savings and a solid partner from which to obtain financing for their projects.
Managing risk is a key function of the banking sector, which we should never forget. Banks may demand a lot of information, but it helps to better know the customer, which leads to better financial solutions. Recent developments in the US have shown what happens when a bank forgets its core and mismanages risk. In this context, Santander is proud of its risk policy, and is proud of the confidence its customers deposit in it.
Q: For Santander Portugal, and other banks, there is a focus on digital banking as well as maintaining a branch network. What is the rationale for this?
Constantino: At Santander Portugal over the past few years, we have embarked on a comprehensive transformation program, aiming to better serve our customers with an in-depth review of internal processes and increasing digitalization of our services. In a highly regulated market, where we are commercializing a commodity, digitalization is a way to improve quality of service as well as reduce the cost of the service.
By doing so we reach economies of scale, providing products and services that are simple, and adequate to the customer, and provided at a fair price.
We can therefore distinguish digitalization in two main procedures.
The first is where the customer feels that there is an evolution: investment in digital channels allowing 24/7 service through the physical network or through digital channels. This has led to improved productivity and better customer experience in core products and services.
The second is invisible to the customer, but is perceived in customer experience, product and process simplification, transparent relations and fair pricing. A noteworthy example is the change in the mortgage process, which is now fully digitalized and integrated with our partners – mainly real estate companies – which reduces the time between first contact and signing of the deed by two thirds, to about 20-25 business days. This happens with through fewer re-works and with information flowing between parties in real-time. This experience has been replicated in other core products, allowing us to better serve the customer, which reflects on an improved customer experience.
Going forward we will continue to invest in digitalization aiming for a better customer experience. Branches will evolve to being a point of contact with the client, with high qualified staff with deep knowledge of our products and services and with best-in-class advisory to the client. Technology cannot replace the human connection and having a capillary network with staff focused on providing the best service is the perfect complement to the digital channels.
Q: In terms of achieving growth and development, what are the most important pieces of Santander Portugal’s strategy?
Constantino: Our strategy is focused on driving a strong transformation around customer needs and experience, with a further simplification of processes, enabling us to take administrative tasks out of the branch, so that our commercial teams can focus on what they do best: serve our clients.
We have been repeatedly delivering strong profitability that covers the cost of capital, and we have maintained rock solid balance sheet quality, enabling us to invest more in digital transformation
Also important has been our strict financial discipline – adequate risk appetite, a focus on cost control, and efficient capital allocation – which has been at the core of our strategy for many years.
We have been repeatedly delivering strong profitability that covers the cost of capital, and we have maintained rock solid balance sheet quality, enabling us to invest more in digital transformation.
To highlight our performance in 2022, Santander Portugal delivered the best results ever, reporting €607 million of net income, a return on equity of 13.1%, a low NPL ratio of 2%, and a top tier ranking in terms of customer experience according to our NPS.
Q: Over the next 12 months, what are some of the key banking sector trends you expect to see in Portugal and across Europe?
Constantino: The banking sector is going through a significant transformation. Customers want banks to be available anywhere at any time. They want products that are simple and that cover their needs. And they also value a bank that has a purpose they can relate to.
Our transformation includes product and process simplification, full customer coverage through online channels, and all complemented by the retail network. To have success, this requires large investments in the digitalization process, which in turn require a solid bank with enough scale to leverage up those investments.
Within Europe, Santander has been able to collaborate on the digital front, sharing best practices and devising a common approach to being focused on the customer and providing a best-in-class service.
While most transactions are local in nature, economies are more global. For that reason, banks must have a wider approach, something which Santander is very strong – we are a local bank with global reach with presence in 10 main markets, some of which are key markets for the Portuguese economy. These include Spain, UK, Poland and Brazil, for example.
So, for a retail bank, scale and global presence will be a key factor behind each bank's success. These retail banks will be accompanied by niche banks that are more specialized – that do not offer universal banking services – which operate purely on digital channels. The digital transformation that is happening will possibly lead to fewer banks, and scale will be the driving factor to support investments in the digital front.