Technology provides the means for retail banks to achieve greater efficiencies that will help both the industry and the economy, says Ana Patricia Botín

Over the past decade the banking sector has benefited from a benign macroeconomic environment. Strong economic growth and historically-low interest rates have resulted in strong and growing demand for credit around the world. Of course, there are some exceptions, particularly in some major European countries. In the Eurozone as a whole, however, credit growth has recovered strongly and has recently been growing at rates close to 10% a year.
In this environment, and despite the pressure on margins, banks have achieved solid profitability.

Rougher seas ahead

However, the tail winds will not be as strong over the coming years. Interest rates are on an upward trend and household indebtedness is high in America and in many European countries. Global credit growth might have peaked in 2005. In this environment, banks’ micromanagement will increasingly determine their ability to grow profitably.

Efficiency and profitability among retail banks are not merely a matter for their shareholders. Governments have traditionally looked to traded sectors of the economy – where global competition is forcing productivity gains, transfer of best practices and deregulation – to deliver productivity growth. But there is also plenty of potential to boost productivity in the services sector, especially in retail banking.

It is estimated that an efficient, integrated banking sector in Europe would boost output in the medium term by 1%. Financial integration increases the supply of funds, lowers the cost of capital and, by increasing competition, would result in lower costs for credit and other banking services for consumers and businesses.

The European banking sector, however, remains fragmented, despite the best efforts of the European Commission to lay the groundwork for a single market in financial services. There are still significant barriers to a single market in retail banking in Europe – differing models of regulation, varying tax structures and, in some countries, a protectionist attitude towards so-called national champions.

Even so, some banks have overcome these obstacles and have already carried out cross-border mergers and acquisitions. The acquisition by Banco Santander – which owns Banesto, the bank I chair – of Abbey, a former British building society, is one of the most important cross-border transactions in European banking to date.

This acquisition is also a step forward on the path to a more integrated European banking market. The key enabler has been technology, together with the business model and the management team.

The role of technology

To succeed in mature markets, retail banks must develop a clear business model with distinct competitive advantages. They need to focus on both revenues and costs as twin drivers of net profit growth. To achieve this, technology is key. Successful technology application is the only way to improve revenues and maintain cost discipline simultaneously.

Traditional technology models are costly. They are frequently silo-style systems that do not allow enough commercial flexibility. Operating systems, however, can become a key competitive advantage if they are based on a multichannel architecture that allows integrated customer management, short-time-to-market product development and coherence and quality of information.

Banesto developed Partenon, a core-banking application, with these characteristics. The result has been a substantial reduction in unit transaction costs, high revenue productivity, improved customer service and better and more-personalized products. It has been so successful that the Santander group has decided to make Partenon the core-banking application for Santander in Spain, Portugal and the UK.

Technology allows us to view the banking sector’s value chain in a way very similar to that of the industrial sector. This is the beginning of a revolution in the economics of cross-border retail banking, mainly as a result of two key characteristics of modern technology.

Scalability and connectivity

The first is scalability. Operating platforms can handle more business volume with negligible incremental costs. In Banesto we have doubled our loan book over the past four years while reducing our cost base in real terms. The implications of scalability for cross-border banking are evident.

The second characteristic is real-time connectivity. Back office platforms can support operations in different countries. As in many other sectors, technology also redefines the concept of geography in retail banking. Santander’s strategic objective is to operate common technology development, technology support and process management “factories” for the entire group.

This new organization will provide full economies of scale to the distribution networks around the world. This “industrialization” of banking operations is what we refer to as a “flat” back-office paradigm: a back office whose size is independent of the number of operations and/or their location.


We are also working on future technology. In 2003 we began an ambitious programme called Alhambra with three main objectives. The first is to make technology simple for the end user, on the basis of a Web structure. The second is to make the information available to the internal user, at the right time and in the right place (that is where and when needed), in order to improve both efficiency and decision-making. This will reduce the ranks of middle management and, at the same time, provide a powerful tool for the sales force. Last, but not least, the objective is to support the business processes end-to-end with an efficient model based on reusable components. Each local bank within the Santander group will be able to have different processes based on a common framework that will boost efficiency and sharing of best practices, providing at the same time flexibility and adaptability to local market conditions.

This model has been successfully implemented in Banesto and will be adopted by Santander in the near future. There is no doubt that technology will be a catalyst for further integration in retail banking around the world, especially in Europe’s fragmented industry.

CV Ana Patricia Botín

Ana Patricia Botín has been chairman of Banesto, which is part of Grupo Santander, since 2002. She has been with the Santander banking group since 1988, before which she worked at JPMorgan.