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 Amazon.com 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.

Spending Trillions

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.

“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.

Traditional banks operate with a cost-to-income of 55%-60% while for challenger banks it’s about half that. Santander Chairman Ana Botin told investors that Openbank’s expansion would allow it to reach a cost-to-income ratio of 25%-35%, a level the entire group could reach in the long term. Santander had a cost-to-income ratio of 47% in 2018, according to S&P Global.

Santander is plowing 5 billion euros ($5.6 billion) a year to put its legacy system data in the cloud, even as Openbank expands from Spain into 10 other markets and works on technology needed in the next decade. Botin calls it combining “supertankers” with “speedboats,” and suggested in a speech last year that Openbank could eventually become the platform for “a significant part of our business.”

Santander’s peers are adopting similar strategies. In the U.K., Royal Bank of Scotland Group Plc is working on digital business platform Mettle. Nationwide Building Society is working with 10x Futures technology while Lloyds Banking Group is doing something similar with cloud-native digital platform provider Thought Machine. Goldman Sachs Group Inc. started Marcus by Goldman Sachs in Britain after launching it at home.

‘Spaghetti Party’

Digital metamorphoses may be easier said than done. Years of mergers have left banks with core platforms patched together from disparate systems — “a spaghetti party,” as Szafir puts it. For many, it may be simpler to start from scratch. Unlike a legacy platform — like the plumbing in an old house — native cloud platforms are like newly-built homes where the wiring is exactly where it needs to be.

“I sometimes refer to banks as museums of technology because they’ve got every generation of hardware and software within them,” said 10x’s Jenkins.

The native cloud platform developed by Jenkins’s company is being tried by banks such as Australia’s Westpac Banking Corp and Nationwide Building Society in the U.K.

Part of the efficiency of the new platforms is their business model built around customers rather than products. That cuts out data overlap such as names and addresses that on legacy platforms appear multiple times for each banking product.

Open Banking

The open architecture also paves the way for collaboration between financial institutions — something that’s being encouraged by regulatory authorities, with the open banking initiative in the U.K. and the PSD2 directive in the European Union.

Bank websites will become more like online marketplaces selling financial products – both their own and those of others.

It’s leading to a bifurcation in banking, says 10x’s Jenkins. Larger lenders may choose to use their scale and brand recognition to become the distributors of products on their platforms, a bit like an Amazon. Smaller banks will become more like fintechs, specializing in certain products that they’ll sell on others’ platforms. Some, like Santander, will try to do both, Openbank’s Szafir, said.

Banks have started testing their new systems on segments. Botin said Openbank’s platform is used for Santander Bank in Miami and could be deployed for the U.S. unit as a whole in the future.

In the U.K., Lloyds is still in a testing stage with start-up Thought Machine’s Vault platform, said Zaka Mian, group director of transformation at Lloyds.

“We continue to test and learn to develop the confidence and certainty in the use of public cloud,” Mian said in a phone interview. “But if you look at the very long-term, do I think that us and many other banks will end up on technologies like this? More than likely, I’d suspect.”