As Spaniards endured one of Europe’s most stringent pandemic lockdowns, Banco Santander SA’s digital-only Openbank did roaring business. Its brokerage client base expanded 58% in the first four months of the year and trading in shares, ETFs and warrants on its platform more than doubled.

The confinement has made people digital beings “by decree,” says Ezequiel Szafir, Openbank’s chief executive officer. With that trend likely to continue, he sees banks of the future looking increasingly like Inc. -- online store fronts for financial products in much the same way as the retailer is for consumer goods.

“Amazon took something that’s real, which is retail, and simply made it digital,” Szafir, a former Amazon executive hired in 2015 to oversee Openbank’s new online platform, said in an interview in Madrid. “We’re trying to do the same transformation in banking.”

Businesses reviewing post-Covid 19 strategies are finding that online activity -- from shopping and gaming to banking and social networking -- that was shaking up their worlds even before the pandemic, has flourished. For retail banking, a survey by McKinsey & Co. from mid-April found a jump of as much as 20% in digital-channel use across Europe. More than one in five customers in Spain and Britain tried online banking for the first time.

That’s giving a new impetus to banks’ online push. They’re looking to speed up plans to move creaking legacy platforms onto the cloud, a slow and often costly process. Some are also building standalone online platforms from scratch or using off-the-shelf solutions designed by fintech companies, which may be faster and cheaper.

“Many banking groups are taking a hybrid strategy combining the effort of transforming the original bank and also developing a neobank or, at least, some speed boats, sometimes in alliance with fintech,” said Francisco Uria, head of Europe Middle East and Africa financial services, banking and capital markets at KPMG.

Banks globally will spend about $1 trillion over three years to take more of their operations online, according to an Accenture Plc report. Spending on digital transformation has been led by U.S. banks, with JP Morgan Chase & Co earmarking $11.4 billion a year.

Key Speakers At The HM Treasury Hosted International Fintech Conference
Antony Jenkins
“It’s the only way they’ll remain competitive,” said Antony Jenkins, who was the CEO of Barclays Bank Plc between 2012 and 2015 and is now chairman and founder of 10x Future Technologies Ltd. “They’re already under pressure because return on equity is poor. They have to compete with fintech and big tech. They need to get more agile, get these functionalities onto the market quicker.”

Survival Question
Europe’s banks can expect revenues to fall by more than 40%, which means it will take them four years to get back to pre-Covid levels, the McKinsey report found. With a rise in interest rates from historic lows delayed by the crisis, survival will require cutting costs. That will mean shutting down many more branches, slashing jobs and taking the show online.

The cost-to-income ratio for traditional banks is 55% to 60% compared with half that for online challenger lenders. Santander Chairman Ana Botin told investors Openbank’s expansion would allow it to reach a ratio of 25%-35%, a level the entire group could attain in the long term. Santander’s 2018 cost-to-income ratio was 47%, according to S&P Global.

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