The business of private banking has experienced significant growth in Spain in the last two decades, growth that has accelerated recently despite the uncertainty and volatility that have affected the markets during this period. To put this growth of recent decades into context, according to data from the consultancy firm DBK, customers with the highest incomes had 117 billion euros deposited in Spanish banks specialising in this segment in 2003, a figure that had risen to 726.144 billion at the close of 2023.
Aránzazu Griñán, Assistant General Manager and head of the Business Division at Creand Wealth Management, an entity specialising in private banking, analyses how it has evolved and what the main factors are that have driven the exponential growth of the private banking business in Spain in the last 20 years.
The expanding range of products and services
The trend towards substantial growth in the range of services and products offered by private banking institutions has consolidated. On the one hand, there are more and increasingly specialised investment products, suited to every market moment and to the needs and profiles of customers. A good example is the developmentof alternative assets, and specifically private equity, which has expanded the range and diversification, and improved the risk-reward ratio of portfolios.Changes in the markets and customers’ own needs are driving the industry to innovate its products and services, evolving alongside them.
On top of new product development is the incorporation of other specific financial and tax planning services, which have improved the overall services of private banking and become a key element to cover all the financial needs of customers.
In recent years, there has been a significant improvement in quality to differentiate the service through advisory support, focused not only on investment but also on comprehensive wealth planning, including tax and regulatory aspects and risk management, to name a few examples.
Technological advances that improve the service and reduce risks
Investment in technology within private banking has helped to create the conditions to improve the service offered to customers. The length of certain transactions has been shortened, which has increased the competitiveness of banks and improved the customer’s experience and autonomy.
Technological advancements have been accompanied by the implementation of advanced cybersecurity systems to minimise digital risks. The sector has incorporated new technological tools and set up reinforced procedures to deal with the risks resulting from the digital transformation of the business.
Regulatory changes and investmentin compliance
Regulatory changes have pushed the industry to boost its investment in this area. Without a doubt, governance, regulation and risk management are some of the operational challenges facing the sector in recent years.
The entry into force of MiFID and MiFID II, for example, yielded progress with regard to transparency and reporting, which has helped to underscore the service offered by private banking. Elsewhere, as digitisation has remodelled banking and financial services, regulatory, risk and compliance strategies have evolved.
Banks are responding to these regulatory advances by developing new tools to maintain service quality.
The road travelled towards specialisation
The survival of private banking institutions has been conditioned by the increase in turnover as an indispensable requirement to remain viable, given the rising operational costs. Hence the need to specialise in different areas, to offer a true value-added proposition that differentiates them from other operators and opens the door to capture and retain customers. This reality has led to a process of mergers within the private banking sector that will continue in coming years.
Some banks have created specialised divisions to serve certain customers, and specific services for key customers or premium customers. The development offamily offices, and services to guide customers through the generational shift of large assets, is how certain entities have opted to promote specialisation and provide added value.
Remodelling structures to improve efficiency
Improving the competitiveness and efficiency of business has been and remains a constant in private banking. This process has been developed in parallel with improving the quality of the service offered to customers, opting for segmentation in the types of services offered. With the increase in technology costs and regulatory processes, banks have set off on a path towards mergers and specialisation in order to grow in volume as a way to remain competitive. The commitment to creating strategic partnerships between banks is another way to optimise business.
This merger process has helped banks to redefine their model based on their target customer, offering an increasingly personalised and specialised service.
Adapting to social and cultural changes
The social and cultural change of the new generations is leading private banking institutions to accompany this change and face the generational turnover, adapting to new needs and priorities.
The preservation of equity remains essential and is one of the main concerns, but banks have been busy adapting to the demands of a customer profile with different values, customers who need real-time information and who, as a general rule, are more and better informed. The end result is a process of more transparent and streamlined services offered to the customer.
Private banking has worked to attract, retain and build loyalty in this new customer by placing all its capabilities at their disposal, including complementary asset planning and family office services, which are highly rated and can connect different generations of customers.
More knowledgeable and interested customers
There has also been a paradigm shift in recent years with regard to the increased interest and knowledge that customers have when it comes to managing their assets, investment options and new products and services. Private banking has undoubtedly made a significant effort to improve the financial education of its customers and of society in general.
As an example, customers are currently more receptive to introducing alternative products into their portfolio. The goal: to diversify the risk of portfolios to improve return on investment based on their preferences, risk profile, investment horizon and the market situation at any given time.