Good morning, everyone. Thanks for joining. This is Sergio Gámez, Global Head of Investor Relations at Santander. Thank you for attending our Investor Day. As you can see from the agenda, we have a very busy morning ahead, with presentations and fireside chats from some of the group's senior management. We will kick off the Investor Day with the Banco Santander Group Executive Chairman, Ana Botín, and our Group CEO, José Antonio Álvarez. We will have a Q&A session to which our Group CFO, José García Cantera, will also participate. After the coffee break, in the second half, we will discuss some of the key issues shaping the growth of our business, such as Latin America growth and our supertankers or core banks with Sérgio Rial, CEO of Santander Brazil, and Dirk Marzluf, Global Head of IT and Ops.
Obviously, as well, we will discuss on additional fireside chat, the digital transformation with Lindsey Argalas and our Innovation Officer and the CEO of Openbank, Ezequiel Szafir. Just to let you know, we wanted to use today not just to give you a great PowerPoint presentation, but also to take the opportunity about how our digital investments is capturing market growth, and give you the chance to see the solutions and hear from the teams that are delivering them. That's why you saw seven booths in total, and you can get a couple minutes demo, talking a different market segment, all of them built on a flexible and scalable solution that actively is bringing to life our vision of becoming the best open financial services platform and earning the lasting loyalty of our customers. Please take the opportunity to go over to the booths during the lunch.
That's all from me now. Now over to Ana. Thank you.
Good morning, and welcome to our Investor Day. I will start by basically reviewing briefly our strategy. As we said, we are not going to be changing our strategy. We're going to be presenting you our next three year, four-year plan, our medium-term plan. It's important to remind ourselves what it is that we set out to do three years ago when we presented in October 2015. We are focused on earning the lasting loyalty of our people, our customers, our shareholders, and communities. We have refined our aim. As a bank, we want to be the best open financial services platform, and we want to do that and earn the lasting loyalty of all our stakeholders by doing everything in a way that is simple and personal and fair.
Really at the base of all we do and our success, not just today and in the past, but going forward, is embedding this culture across the organization. This loyalty strategy is paramount for our sustainable profitability growth over the coming years. It's a virtuous circle. You can see in there, if our people are more committed, they will do an extra effort for our customers who will give us their business more and more, and this will be good for us, for you, all of us, our shareholders, and we'll be able to support our communities in a better way. In terms of how we've been doing this over the last few years, as you know, we have. Please take advantage of this because they're all here.
We have incorporated a lot of new people over the last. Basically in 2014 and 2015, we put in place new CEOs in Brazil, Mexico, the U.K., Spain, the U.S. We have a new head of IT and ops, new head of Santander Digital, head of risk, wealth management, Openbank. Of course, as you know, we refreshed our board and our internal governance. This is super important because this is what has really given us support for the strategy. We have been focusing on two key fronts, earning the loyalty of our customers, becoming the bank of choice, but also very important, and you'll hear more about that today, accelerating our digital transformation and providing our customers a seamless experience across all our channels, whether physical or digital. All of this with a goal of growth, profitability, and increasing strength of our balance sheet.
At the core of the strategy, as I said, you've seen this before, so I will not spend a lot of time. Really at the core of our strategy is earning more loyal customers. We have a big customer base, lots of active customers. Earning the loyalty of more and more of these customers is essential because they're more profitable, they have higher revenues, and this is also true for digital customers. Very important, and this is a big difference with most of our European peers, we have grown our revenues over the last three years. Second, profitability. There is more to do. I will get on to that, and José Antonio also. We've made a big progress on the profitability front. You can see here all our geographies in the group. Our return on risk-weighted assets has gone from 1.2 to 1.55.
Very importantly, in 2015, only 40% of our capital was invested above our cost of equity. Today, that is 90%, and obviously we aim to do more than that. Very important, we have invested in value-creating acquisitions that help us in the transformation of our model. Buying back some core businesses that we had sold, but very importantly through some add-on acquisitions. Obviously Popular may be a bit more than that, and divestitures. It's not just about acquiring, it's about selling when it's not core or they're not performing, and you have the list there. At the end, the net of those two is a net buying, as you see. I will show you the numbers later. We are focusing on the profitability, not just of our countries, but we have been focusing a lot also on the profitability by segments.
This is the only way to maximize profitability. We are not going to invest forever, even if a country is very profitable in segments or businesses that do not deliver within a period of time. This is also helping us on this quest for profitability. You can see here, if you take the benchmark of the 1.2 we started in 2015, that we have gone from 80% to 30% of our risk-weighted assets being above this 1.2 cutoff. As an example, within the U.S., we have shifted assets from SBNA in terms of growth to Santander Consumer, and in many other countries this is happening where we actually investing more in certain segments than in others according to the profitability targets that we have set ourselves.
Finally, on strength, José Antonio will cover in more detail what we have done and what we intend to do in the future. We are generating a lot of organic capital. You can see over this period, EUR 25 billion +. As I explained, perimeter, ex-Popular, we have invested EUR 2.3 billion. We have given back to shareholders and AT1 holders, EUR 12.8 billion. The organic generation after dividends would be a bit more than EUR 10 billion. With the capital increase in 2016, we have added net to our capital base close to EUR 18 billion over this time period. Finally, in terms of our final profitability to shareholders or returns to shareholders, as you know, the new team has focused and will continue to focus on earnings per share and tangible NAV per share plus dividend, cumulative dividends.
If you look at the returns without effects, which is really what is under our control, we delivered 55% increase over this period and 41% tangible NAV plus cumulative dividends. If you look in EUR at the end, it is EUR 22 and EUR 27. Clearly, FX has been a drag on our results and we intend to continue improving. We are not happy where our share price is, obviously, but we have outperformed in this period the benchmark of European banks. I would like to spend now a few minutes, and this is important for the future, which is how is Santander as a group, our businesses, where do we stand in terms of the competitive environment? Why can we succeed and why do we have as a management team the confidence that our strategy will continue to work?
This is very important to understand for the future, I am going to spend a few slides on this. The first thing is that we have scale. It is not just global scale, it is in market scale. This is a key, I would say, foundation for everything that you are going to be hearing in the next few hours. The second is diversification. We have 10 core markets in Europe and the Americas. Not just that, across developed and developing markets. This is what is leading to a more predictable and growing earnings profile than other banks. This is 20-year data, but it works for the last four or five years. It is Bloomberg. It is the EPS quarterly volatility, 9% for Santander, 140% for our peers. These are the best and biggest banks in the world.
The net income increase for Santander has been 5 X, and that is 3 X the peer average. This is, of course, what is allowing us to deliver through the cycle. I'm going to spend some time on the scale question. Why are we able to compete in this new digital world? This is how we manage the bank. If you look at the top of the house, it's the countries, the flags. We do have very strong horizontal businesses that sometimes do not get enough visibility, and we are adding to that. Commercial investment banking, wealth management, and consumer. Consumer in this case, as you know now it's a European business, but it's more and more coordinated with the U.S., and it already supervises small business in China. These three businesses account for EUR 4 billion in 2015. In 2018, they account for EUR 4.9 billion.
What's important is that this is what provides the group value. A lot of the results you're seeing in the countries are already today benefiting from the network effects of being part of the Santander Group. I'm talking about revenues. There are more revenues because you're part of the Santander Group. Obviously, CIB is a natural one, but more and more wealth, which is a new division, and more and more consumer finance. What we're announcing today, and it was in my shareholders letter, is another big horizontal business, which is the payments-related businesses. This is the glue that really binds together our retail franchises. It's super important. Also our SME businesses.
I will give you more detail on these now in a few minutes, but this is a big step forward in having Santander as a group work together and leveraging not just the scale, but the talent and the knowledge that we have across the organization. The third, the foundation of everything, of course, is our digital transformation, IT and ops and procurement divisions, which are generating already big savings across the group and big revenue additions in the case of digital. In 2018 alone, this has helped generate efficiencies of EUR 700 million, around EUR 430 million of which from IT and ops and digital. If we focus now just a bit more on those foundations that you just saw in the last slide, technology and operations is a huge part of what we're doing together.
I just wanted to give you some context in terms of where does the Santander Group stand in this new global digital world. These are the four biggest banks in the U.S. If you exclude the Chinese, it means the world. The number of digital customers. I don't think the market realizes how strong we are in terms of digital, because at the end it's about the customers. By the way, customers is not users. Many times you hear hundreds and even billions of numbers of users. That's not the same as a customer. For the banks, these are customers, and the digital customers measure that Santander uses is more strict than the peers you see there. We use a 30-day active customer. The other banks on this chart, from what they say in their reports, is a 90-day. Let's assume the numbers are comparable.
We would be the third largest bank in the world, at least in the U.S., with 32 million customers in digital. In digital and technology expenditure, this is per year, you can see again, we would be top five, and in terms of digital investment would be probably three or four. A couple of the banks don't report this. We do have the scale, and scale will be, already is, but will be even more important to succeed in the next few years. EUR 5 billion IT representing 10% of our total revenue, of which EUR 2 billion are digital investments. I would like now to cover our geographies. I will start with Europe. What is the scale we have within Europe? Europe is Europe as a geography, not Euro with Brexit or no Brexit and no currencies. This is Europe as a geography, all of it.
You can see there. We include Santander Consumer, the U.K., Poland. Of course, in Europe we are present in what we believe, and I think objectively are, the most profitable overall banking markets. Here we're going to focus on delivering the best customer experience in the most efficient way. There will be a lot of focus on achieving cost efficiencies. In terms of growth going forward, we're going to leverage on Openbank. I'll cover that in a few minutes. Our expansion into the rest of Europe will be organically and will be mostly through our digital banking. I will give you some targets in a few minutes. Openbank has a 38% active Sorry, loyal over active. This is as good a number as our strong European franchises.
Again, if you measure that against other neobanks, it's a very different number, very different kind of customers, with a 59% increase in transactions in the last two years. If we go to Latin America, obviously we're the, I'd say the number one bank in the region. This is a region with 600 million total population. It's 200 million unbanked and 300 million underbanked population. Very importantly, with a strong middle class expansion. This is exactly what we need as a bank, and this is where we believe there's a lot of potential for many years to come. There's 60 million expected middle class by 2030, that's +20%, and that's really where banking can grow. We continue to be very confident that we have a unique position in the region with a lot of potential.
Just as another fact, over the last three years, we have grown our market share in Latin America by 90 basis points. As you know, we've done that by increasing profitability in a significant way at the same time. This is what matters for growth, of course. We are among the top three banks in terms of market share in all our markets, and top five in customer satisfaction. In some of them, we're obviously better than that. The other market I'd like to focus on a bit is the U.S. I'd like to start by saying again, and remember, I'm trying to lay the foundation so I can then get on to what we're going to do over the next few years. It's an important market, the U.S. It's actually much more than an important market.
It's actually the largest banking pool with continued growth in the world. It's 1/3 of the world's banking pool. It's a market with a consistently high profitability. Obviously, you might say, well, the direction can only be down. The fact is that if you look at it through the cycle, the structure of the U.S. market has remained very attractive. It's concentrated. There's big four banks. Again, as you saw before, we can compete with those four banks in terms of scale of investment, and that in today's world is very important. The key point here is the last one, which is it's very closely linked with our core markets in Latin America, not just Mexico, Chile too, and Brazil increasingly so, and in Europe.
There's a lot of trade flows, a lot of connections, that there is no other bank like us that can exploit with all types of customers, not just with the top very large customers where there's much more competition. By the way, we compete very effectively. Going back to what Santander has today in the U.S., we believe we have the building blocks. Maybe they can be improved yet, but the progress we have made is very significant over the last couple of years. I show here SBNA. SBNA is the one piece of our business that I was referring to before that on its own would not cover the cost of equity yet. You can see here over the last couple of years, we have done a lot of convergence with our peers in terms of net interest margin.
It's not just absolute, relative performance has been much better than the peers. In terms of attributable profit, once we did the cleanup, we now have a much more sustainable P&L than we had three, four years ago, which was a lot of financial results. Today, they're customer results and it's an increase of 3.5 X. I will not go through the details on the right, That is exactly where we should be focusing, and we are going to be focusing. How can we get more value from our retail franchise? The retail franchise, the footprint of SBNA, is a country with the same amount of people as the U.K., roughly, but with a GDP per capita of $70,000. Very interesting market where we believe we can add a lot of value.
By the way, we have been very limited in what we could do in terms of launching new products, We really could only fix the basics. We could not really have an organic growth strategy. The commercial links with our core markets, I mentioned before. We're doing a lot of work between Mexico and the U.S., between the U.S. and the U.K., We have really very encouraging results where the branch network is important because a lot of these customers are medium-sized customers. This is commercial, We're generating very interesting increases in revenues from the strategy of really going through the network effects with our European and Latin American markets. CIB, I mentioned 70% of the income in the U.S. is coming from international revenues, Of course, consumer and wealth are also being managed more and more horizontally.
To end with our existing businesses, we have these three global businesses, two of which, Corporate Investment Banking, Wealth Management, are truly global and are working as a global division. 42% of our client revenues in CIB across the group, across border. José Antonio will give more details, but this has been one of our best performance in terms of the discipline and capital allocation, and you will see those numbers. Our return on risk-weighted assets here has gone from 1.3 to 1.8, and our medium-term growth prospects are around 8%. Wealth Management, very high return business. We have 4 million potential private banking customers in market, and this is a very attractive, again, opportunity for growth. It shows that when we collaborate across the group, we can really generate that increased growth and increased profitability with a limited investment.
To end this section, I'd just like to spend some time on our culture and what we are doing in terms of having a team that is more and closer to our customers. We want to be a responsible bank. We are measuring how our teams see us in terms of being simple, personal and fair. We have shown the least improvement. I'd say we're not as well graded in simple, and I will say something about that and our organization later on. We keep on supporting our communities and promoting financial inclusion and sustainable growth in everything we do, and supported in 2018 alone, 273,000 micro entrepreneurs. Attracting and retaining the best talent, of course, is key for our success. This is not easy sometimes being a regulated bank, and we're doing a lot of work on this. We want to be a top bank to work for.
We're already a top three bank to work for in seven of our geographies. If you look at the group against the financial industry average in terms of the degree of employers' commitment, we are six percentage points above the average, and of course, we want to keep on improving. We are investing a lot in our digital transformation area in terms of skills, and this is something we'll continue focusing on. Diversity and inclusion is a top goal for us and will continue to be going forward. Looking ahead, we have a three-pillar plan for increasing our profitability. The first one is a continuous improvement in our operating performance. I will go briefly into what this means for us in the U.S., in Latin America, and in Europe.
In terms of Latin America, our aim for the medium-term is to go from 19% return on tangible equity in 2018 to a medium-term goal of 20%-22%, and of course, continue growing our market share and our loyalty strategy. In terms of the U.S., I gave some context earlier on. We are aiming 8% return on tangible equity is normalized for 11.3 capital because as you know we have 17%-18% CET1. There's some tax considerations. Our aim is organically and with the strategy I described earlier of networking within the group to get to 11%-13% market share over the next few years. That's well above our cost of equity in the U.S. In Europe, we're at 11% return on tangible equity. The goal here is to be at 12%-14%.
We continue to aim to gain market share and to grow significantly the number of customers, though not as much as in the U.S. José Antonio will give more details again on the operating performance plans. The second pillar is accelerating digitization and building an open financial services platform. We have explained before how we approach this digitization. It's our core banks, what we call the supertankers, be the best for our customers and deliver profitable growth. Yes, have some speedboats, which are faster, more agile units that will also compete against the main banks. Openbank competes against Santander Spain sometimes, though Santander Spain is very good in digital also. It's important that they can go faster, they can try new things. For example, we were the first full bank on the cloud in Europe. It takes longer to get our bigger banks approved.
There's many things where having a separate organization really helps us and, by the way, really helps the supertankers because there's a connection there also. Over the next few years, we are going to invest a lot more in our franchises, this is one of the key competitive strengths, I believe, going forward is, of course, how much, of course, how you invest also. We are planning a EUR 20 billion investment in IT and digital to improve the customer experience and at the same time to improve the cost of delivery. This is the graph I showed you earlier. It's basically for the next four years. We're going to invest in horizontal businesses, as I described, the big area for us will be payments. These are businesses that if, we, do well for ourselves, we should be able to offer for others.
This is very important for our scale and for our efficiency, also for our returns. We are going to build first for our own banks. In many cases, that is not happening today. Going back to the scale, Santander as a group has 4 million SME customers. We'd rank top 10 in the world by acquiring business. We have over 80 million cards, we do EUR 500 billion in payments across our markets. The three businesses we're going to target, they're all part of the payment strategy. One is Global Trade Services. The goal here is to have one global platform providing integrated best-in-class solutions. We have a lot of these solutions across the group. Some are in corporate investment banking. Others are in the SME side in the banks.
We want to bring all of that together into a single global platform that we can then also offer to third parties. This is based on something which is quite unique. Our three biggest countries, U.K. is not there. It's getting there. In terms of SME customers are Brazil, Spain, and Mexico. In these three countries, we have over 20% market share in the SME market. These are very strong relationships with the top customers, SMEs, from there, we can build across the group then beyond that. We have the full product chain, sorry, full product suite here already, as I said, within the bank. It's a matter of bringing it all together into a single global platform.
It's going to take a few years, but this is something we're very excited about because, of course, these are businesses that are not just allowing to engage customers and part of our loyalty strategy, but the returns are very interesting with a lot less capital than the lending business. The second is Global Merchant Services. Here we also have a unique asset, which is Getnet in Brazil. That is already a platform which we need to take global, but it's all there. It's all together, and it's best in class in a huge market, which is Brazil. It has grown 2 X over the last couple of years. It has a 14% market share, and transactional growth has grown by 16 X. We are already working to take Getnet to Mexico, which is obviously the second biggest potential market, and then to Europe and the rest of the group.
I said before that we are top 10. We're number 10. As you can see, if you take out the specialists, which are the big tech platforms, would be the fifth bank in the world. I just want to stress this again, a bank customer is not the same as a specialist customer. If we can leverage this in the right way, this is a big advantage, not just for us, but for banks in general. We know this. We've done the POS, point of sale. We know that that's a key product to engage customers, and we know what it means in terms of customer revenue uplift when you have that POS relationship. We have 1.2 million merchants worldwide, as I mentioned, EUR 150 billion in global turnover. The third leg for now in our payment strategy is One Pay FX.
This is actually one of our speedboats. We're going to manage these three areas coordinated but separately because that's a way to build faster. One Pay FX, we have two angles, but it's a common platform. It's a global platform. One is for our existing customers. It's called One Pay FX. It's going really well. It has a 20% month-on-month user growth, huge increase in transactions, very high customer satisfaction. If you're a Santander U.K. customer today, you can already use this. We're very competitive for the smaller payments, as competitive as our biggest, let's say, non-bank competitors. We're going to be launching the open market solution will be called PagoFX in a few months. I say a few months because with compliance and conduct, which we value very highly, it's taking us longer.
The good news is when it does come out, it's going to be best in class for. These are the three key words, simple, fair, and safe in this case, because we are going to manage as a bank what many others manage as non-banks. We expect to be live in the U.K., says we are short term. I don't want to give a date because these compliance and conduct issues sometimes take longer, but hopefully by September you will see it in the open market. The goal here is to reach 2 million customers in the open market solution and 5 million+ in the other one. Openbank is Europe's largest full service digital bank. What's important here is that it's a business model, and I believe there is no other way in the medium term.
We must, as banks, be able to service all our customers in all channels with cost incomes of 35%, and this would lead us to return on tangible equities of 20%. I'm not saying we're going to get there tomorrow, but this is super important. We can manage a full bank, full service bank, all products and services with these kind of numbers. Again, in Spain, we've only been live for two years, and the numbers in terms of loyal customers are very encouraging. The second goal for Openbank is to build the model bank. The goal here is that Openbank could be the platform for our big banks in the future. Maybe not for all of them, maybe not for all the services, maybe not for all the segments, but for a significant part of our business.
If this is the case, this would be a very transformational thing. This is the mandate we gave them when they build a tech stack. That it could be resilient, scalable, could take large volumes of transactions as we do in the big banks. We're already testing this in some markets. In the U.S., for example, the core for Santander Bank in Miami is the same as Openbank. It would not be impossible to think that Openbank platform could be the U.S. platform in the future. The third, it's more into the medium term, is that if we can do this for ourselves and our banks, we could actually do this for others. I'm sure you've heard the term banking as a service, but this is something which is a possibility maybe two years down the road.
The last bit what I want to mention briefly is Superdigital. This is a business that we call profit with purpose. It is self-funded, it actually makes money while it grows. It's a non-bank bank account, if you allow me the term. We are now embarked on building a global platform. You will see Superdigital being rolled out in all the Santander countries for that part of the population that is either unbanked or underbanked. The goals here are quite ambitious. Today we're in Brazil, Chile, Mexico. In the medium term, we aim to be in 7+ markets, in all of Latin America. Actually this is a product which could be very interesting for our developed markets also. There's a lot of numbers on this slide, and I will let José Antonio you will see the same one when he talks.
I'd just like to give you two numbers. One is that you're going to see a P&L for Europe. Our businesses in Europe are totally undervalued right now if you look at our share price and valuation. We're going to give you much more visibility across Europe as a region. Europe today is 50% of our profits. It's 70% of our balance sheet, it's about 50% of our cost. If you look at all of the European businesses, ex the corporate center, that's about EUR 10.2 billion at the close of 2018. What we are announcing today, this is very different to other competitors, is a net decrease in cost across our European businesses of 10%, roughly EUR 1 billion. Again, if you look at the European business, a lot of this is about IT and ops. A lot of this is about building things together.
10% net decrease in cost compared to 2018 close. Many banks give the numbers, they go up, then they go down, they always stay the same. This is not what we are doing. We are going to have a net decrease in cost of 10%. We are saying medium term, we are giving ourselves a bit of flexibility in the timing. That is a number. The other number is that the total, EUR 1.2 billion savings. Of that, EUR 1 billion is in IT and ops and EUR 220 million. The numbers are quite similar by coincidence. Europe, 10% decrease net. Total cost, EUR 1.2 billion. In terms of capital allocation, this is our third, obviously we have been working on this already for the last few years. We are going to do much more here. We have a number of initiatives that we are going to continue to work on.
The key message here is that we have taken, it is not something in the future, we have taken measures to bring the corporate investment banking model to the next segment. A lot of our least profitable portfolios, it is not countries, it is segments. It is the mid-corp segment. What we have done is we have introduced the same profitability cut of rates and bench and thresholds for the mid-corp segment across our franchise. We are also working very hard, this is going to be very important on the capital tools. Having the tools to really understand bottom up how we can maximize not just economic capital, we have been doing that for years, regulatory capital, which until three years ago was not a focus. We are going to align senior management incentives to make sure everybody has this common goal.
I like to end here by saying that we are very confident on our strategy. It has delivered for us over the last three years. We will continue to focus on loyal and digital customer excellence as our main goal. We have this very clear three-point plan that José Antonio will give you a few more details now, we continue to focus on increasing earnings per share and tangible NAV per share with dividends. The return on tangible equity goals, you know already. We aim to be between 11% and 12% in capital. I would like just to point out that the goal is to manage around 11.5%. We will aim to get to 12% as soon as we can, as long as we can continue investing, we can deliver not just today, in the medium term.
The 11%- 12% is very important because we want to have some room for volatility in foreign exchange, especially. That is why we say 11%- 12%. We could be below 11.5%, our target is to be around that 11.5%. Efficiency is a new target. We want to be 42%- 45%. This is quite ambitious, of course, for a bank that has half the business in Europe. With a dividend payout, which we are aiming, our intention is to have a progressive dividend payment, not to have a lower cash dividend per share than we will have in 2018. We are convinced this will continue delivering for all our stakeholders in terms of profitable growth and increasing strength of our balance sheet. Thank you.
Good morning to everyone. Thank you for joining us today. After Ana went through the main points of our strategy for the next year, I'm going to focus a little bit more in operational issues and operational levers that we have in our hands to improve our profitability in the coming years. The presentation is going to be split in three main points. Being the first one, the operational levers we have in our hands to enhance profitability. The second one I will elaborate a little bit more in detail in capital and capital allocation. Finally, I will remember you the group medium-term goals that were already mentioned. In operational levers, I'm going to go through three different dimensions. First, at the group level.
Second, elaborating a little bit more in detail in the core banks in the main geographies and the exercise we plan to do in those geographies to improve our profitability. Finally, I will go through the global business that are increasingly important for our strategy, as Ana mentioned in her presentation. Going to the first item, how to improve our profitability. We have in our hands basically three tools to increase our profitability. The first one, naturally, is always operational efficiency. As you know, we are one of the most efficient banks already. The cost control is well established in our ADN. We plan to keep this going forward. The second one, we are in the middle of some integrations, being the most important one, the Popular integration in Spain, but also Deutsche Bank in Poland and other integrations.
I'm going to elaborate on our outperformance in the synergies we expect to get from this integration. Finally, this is new. This is the new cost paradigm in Europe. That means that we can make significant progress in reducing our cost base in Europe, just sharing services and products across the region. Second is about revenues. In revenues, we have our loyalty strategy that is already very well-known for you. We have the advantages in this regard to being our presence in Latin America where the growth is higher than in Europe, and the percentage of unbanked population give us opportunities to grow. We have the new revenue tools that we plan to get with our new global businesses. Finally, in capital allocation, it's going to be in the coming years a natural reweighting towards Latin America.
Now we are deploying in Latin America around 25% of our capital. Risk-weighted assets in Latin America represent 25% of the total risk-weighted assets of the group. This number is going to grow, not that fast, but probably goes into the low 30s in the coming years in the medium term. This is going to deploy more capital in the region. We have pricing as a tool, particularly Ana mentioned in the segments in which we are obtaining a return on equity above the cost of equity, and the segments in which we are not. Pricing is the main tool. This affects mainly the mid-corporate segments in which the return on equity tend to be lower than the cost of equity is the main point, the main focus point. Is not the only one, but is the main one.
Finally, we are monitoring and reducing our unprofitable portfolios. Those are the main levers we have in our hand. If we look how the journey between the current return on tangible equity to the 13%-15% we are targeting in the next three years, you have the levers there. Being the first one, our natural reweighting into Latin America. The second one is catching up in the U.S. Yeah, so the profitability improvement in the U.S. The third one is operational efficiency in Europe. That is about productivity gains in the way we operate the bank. The fourth one is more capital efficiency. Finally, we get the business as usual. Wide range. You may say that the range is quite large, between 13% and 15%. We will be at the upper end of the range. The main sensitivity point is interest rates.
We may be at the upper end of the range, depending on the assumption on rates, or be slightly lower if the rates remain negative or in zero. This affects basically Europe, where the sensitivity is pretty high. The next slide is about cost. It's the same that Ana showed to you. Basically, what is important here, and we were discussing, we were presenting this, the numbers for Europe is slightly different than the usual number in the market. It's a net number, so this means that we're going to reduce, I'm going to elaborate where later on. We're going to reduce cost EUR 1 billion in Europe net, compared three, four years, compared with the end of 2018. This is a quite ambitious target.
Some of these come from the uplift of synergies in Popular, some other comes from doing the things in a different way than the one we were doing in the past. Once I elaborated the group level, I'm going to go through the different areas of the group. I'm going to start with Latin America, a region that has probably the only country in which, if we compare with the last three years, the macro is more supporting is Brazil. Not because Brazil is in a great shape from the macro standpoint of view, just because the last three, four years, Brazil was in a deep recession. The GDP shrunk by 10%, and we don't expect this to repeat again in the next three years. All the other regions, we are facing a scenario that today looks quite different than it looks six or nine months ago.
Now there's a significant deceleration in the growth in the economy, both in the U.S. and Europe, and this affects the business, and this affects our business going forward. Starting with Latin America. Futures of the region, very well known. Relatively high percentage of unbanked population, relatively low leverage compared with the mature markets. Organically, we tend to grow in the region double digit or more than double digit in local currency. We have had, in the last couple of years, relatively stable credit quality. You see our starting point, the cost to income is already below 40%. The return on tangible equity is close to 20%, and the ROE is north of 3%. The numbers, the starting point is already quite demanding, but we are targeting a little bit uplift in some numbers, these numbers, in the coming years.
We see a relatively high and sustainable revenue growth, probably 10% figure, around 10% CAGR is a number that we can keep in mind for the region as a whole. As a result of this, we reduce the cost income, and we improve a little bit, not that much, the return tangible equity. Looking at our business in the region, basically the region represents 25% of the balance sheet around the numbers, and 40%-45% of the profits of the bank. You see that our record has been excellent in the last three years, four years. You see in Brazil, the return tangible equity went from 14% to 20%, Mexico from 13% to 20%, and Chile from 16% to 18%. Excellent execution in the last couple of years. Still, the region offer significant opportunities to grow. Let me to go through this country by country. Brazil.
Our position in Brazil, I've been telling the quarter results presentation that our franchise has improved significantly. It's true, we improved, I would say, pretty significantly in some areas, like Ana mentioned Getnet acquiring business. We went from 3% market share seven years, eight years ago to 15% market share now. Crédito Consignado, the company that is called Olé, which bought four years ago, the market share was 4%, now it's 11%. We did tremendous catch up in the consumer side of the business. Also in SMEs. We were the leader, and we still are the leader in CIB, but still, when I look at the business in Brazil, we still have plenty of opportunities in several areas. Let me to name some of them. On the liability side, we need to catch up. When you look the asset side, we catch up on the retail side, CIB.
Corporate is not yet. SMEs have room to grow. On the liability side, plenty of room to grow. We have an opportunity to gain market share in the coming years. Where we plan to go? You have here in the slide some of these areas. Retail funding, clear. Insurance, where we're going to launch auto insurance in couple of months, that we are not growing. Mutual funds, where our market share is well below our natural market share. We pretend to continue to grow in each of the market that are extremely profitable. You have the samples there of Getnet and Olé. Getnet is acquiring business. Olé is the payroll-based lending businesses. You have the Superdigital that Ana elaborate about this. You have BEN, Pi, and we have another business, the auto business that we are launching. Pi is like investment platform.
The auto business is a new business, and BEN is related with what in Europe we know like a ticket restaurant. We were able to capture significant opportunities already. Our franchise has improved dramatically, but still, we have plenty of space to keep growing and capturing market share in Brazil. It's an area of opportunity, a clear area of opportunity, knowing that probably we're going to have some margin compression going forward. For that reason, the volume is going to grow faster than NII, while the fee income, probably we are able to deliver in double digit in fee. With good cost control, growing in line with inflation, around inflation. Probably this is a big area of opportunity for us. Going to Mexico. Well, the track record equally has been very good in the last couple of years. Return equity 13%-20%.
Outstanding execution there, the number of customers. At the same time, we are in the middle of an extraordinary investment plan. You look at the numbers in the last three years, one feature that is different in Mexico and in all the other geographies in which you have been growing the cost around double digits. This is because we are investing a lot in improving operational capacities in Mexico. Why is that? In Mexico, we are extraordinarily strong in CIB. We have a very good position, leader of the market in corporate and SMEs. The area in which we are relatively weak is the area of households, individuals. For that reason, we need to invest in this area, and we are investing, we are doing so to grow in this area, and we are growing.
In 2018, for example, we grew the payrolls in the bank 600,000 a year. We got from 3.4 million payrolls to 4 million payrolls. We need to grow another million, or we say we are going to a million, 2 million more. To get to 6 million payrolls in the bank will change the very nature of the bank. We are relatively weak in retail deposits. That makes our funding a little bit more expensive than our competitors. Those are our targets. We are delivering, at some point, after the investment plan is complete, we're going to play with the operating leverage of the bank. Income is good, but it can be better. Now we are keeping there just because we grow revenues 11%, 12%, 13%, cost 11%, 10%, we are keeping there. Going forward, we can improve that equation.
In Chile, well, we have the leading franchise in the country. As you know, it's more stable. The level of bankization is higher, it's not that high. It's significantly higher. The level of leverage is higher, it's still room to grow. We expect to keep sustainable volume growth, probably high single digits in the country and expand if we include where we have significant space to grow. With this, Chile should keep a return on equity and tangible equity in the region of 20%, where we already are, and to improve the loyalty of our customers. Probably adding customers to the system is still a game to play in Chile. Yeah. Although it's more advanced than other countries, it's still a game to play there. When it comes to the U.S., I elaborate a lot of this, where are we in the U.S.?
At the U.S., we have different businesses. As you know, we have the SCUSA business, where it's performing well. The return on tangible equity is well above the cost of equity. We have the private banking business, the offshore private banking business, that is performing well. We have the bank, where we are improving. In the last couple of years, the first focus was regulatory issues. We made significant progress there. We are almost done, not 100%, almost 100% done. Now we're going to focus in improving the profitability of SBNA, the bank that is the weakest part of the business, where our return on equity is still below cost of equity. The bank has three businesses. We have the CIB that is relatively new for the bank. The middle market and the retail. We are making significant progress in CIB, both in CIB and middle market.
You see the figures. We are growing. We are growing in a sustainable way. We improve our NII. We are improving this. Still retail, we are working on the operational side to improve the quality of our service, to improve when you see the ranks of quality, we are still relatively low compared with our peers, and we need to work more on that in order to get an uplift on our capacity to compete in the markets. Retail, improve customer satisfaction as a first step to grow afterwards. In middle market, we are already growing. We are showing good results. Consumer finance, we've been gathering momentum. We have higher originations. The quality of the franchise has improved, and we are having good earnings momentum, and we expect to have this going forward. Wealth management is about our capacity to grow the offshore customers in Latin America.
We think that in the medium term, we're going to be above the cost of equity in our business in the U.S. Europe. In terms of balance sheet, Europe is around 70% of the balance sheet, 50% of our risk-weighted assets, and 50%, north of 50% of our profits. You see the situation in the last years, we got into numbers that compared with the industry are quite good, yeah. 52% cost income in Europe with a return on tangible equity of 11% and a ROA of 1.7% is a good number in relative terms in Europe, yeah, for the shape of the industry at this stage. In the medium term, we want to improve these figures, and I'm going to elaborate country by country how do we plan to do that.
With the strategy we have, the loyalty based on loyalties, based on increasing the digitalization of the bank, working all the time in customer satisfaction as we do in every market. You have here Europe and our track record. Also, you have the numbers, leading position in the markets in which we operate, Spain, Portugal, U.K. Consumer finance is an outstanding franchise, the best franchise in auto finance across Europe, working in 15 countries, extremely successful. In Poland, where we, after the acquisition of Deutsche Bank, we got 11% market share plus the consumer business, and we have a good position to start with. You have on the right-hand side at the bottom the numbers. The gross income in Europe is in the region of EUR 21 billion. Operating expense is EUR 10.7 billion, and net operating income is EUR 10 billion.
What we were mentioning before, I'm going to focus on the cost side, that this is one of the focus in Europe in the coming years with this EUR 10.7 billion cost base in 2018. We expect to obtain EUR 700 million net cost reduction coming from IT operations and shared services. This is what I was calling at the beginning of my presentation, the new cost paradigm in Europe, is the journey from the traditional data centers to the cloud, the evolution of the core system, the traditional core system we have, along with the change and increase, dramatic increase of productivity in the operational side of the bank, in operations. It will allow us to bring new efficiencies of EUR 550 million.
The further integration in Europe, I will say traditional way of integrating things and doing more things in common, sharing services, products across the different franchises in Europe will provide us another EUR 150 million. Popular in Spain. Remember, at the time we made the offer to buy Popular, we said to you that our synergy plan was to get EUR 500 million cost reduction. Approximately at this time, 33% of the cost base of Banco Popular. We think that we can deliver additional EUR 250 million on top of the EUR 500 million for cost synergies in Popular. This means at the end of the process, we're going to end up reducing 50% Popular cost base at the time we acquired the bank. Unfortunately, this doesn't change our expected return on invested capital.
Remember at that time we told you 13%-14% is what we were expecting to get. Those numbers, as you remember probably, were below the consensus, what came different from the consensus was the revenues. At that time, the market was betting slightly higher rates, probably higher growth than the ones we see in the market. We're going to end up with the same return on invested capital with different movements between lines. Probably less revenue, some less revenues, more cost reduction than the one that we announced at the time. Going to the business in Spain. First to say, execution has been very good in the last three years. We increased the return on tangible equity from 9% to 11%. The significant advance in digitalization and the number of loyal customers, you see the numbers there.
While in an environment that has been challenging in terms of banking business. The macro environment was good, was supportive, GDP growing the line 2.5%-3%. Unfortunately, it didn't translate into growth in the lending in the business that was relatively low or going down in some years. What we are seeing as a better outlook, probably we are starting to have a relatively better pricing in the market, along with a benign credit cycle. The cost of risk is in the region of 30 basis points -40 basis points, and we bet that it's going to remain basically there. The pricing is starting to become more rational, probably due to the difficulties of the different institutions to keep going with the profitability targets. When we look forward, what are our main targets?
Now we are the market leaders in SMEs, north of 20%, 25%, more in the 25% area. We are growing well there. We are quite happy with the integration of Popular there. We're able to keep our market share, not only not to lose market share, to keep slightly winning some market share there. That is good development. We have still opportunities in insurance, plenty of opportunities in insurance, where our position we are launching. We were not in several segments, like SMEs, we were not there. We plan to be there. We already reached an agreement with other partners to grow there. Along with different initiatives in the digitalization, all these things. Keeping in mind that we're going to have all across the group, I will mention on the capital section, a capital-light approach model.
We don't want to bet on growing volumes or growing volumes on the lending side if we don't achieve the level of profitability we require, not in the lending alone, in the relationship with the customer. With all of this, what we see in Spain is customer revenues probably growing a mid-single digit. The cost to decline, significant decline in nominal cost. Probably we're going to be mid-single digit decline in cost. Cost of risk is stable and a profitability that, as a result of this, is going to go from the current 11% to the region of 14%-16% in the medium term. In the U.K., the situation will be in the whole 2018 in ring-fencing. As you know, ring-fencing remains in the traditional band. Non-ring-fenced activities went to the London branch.
We will update you at the due course of the restatement we do of the numbers in the second quarter to guide you through this. We've been more selective, cautious in some sense. In the last two years, we decreased our portfolios in the corporate segment in the U.K. On the other side, our underwriting in mortgages has been in the region of 60% loan-to-value, average portfolio 41%, low risk. We keep this. In an environment that has been fairly competitive. Our bet here is to grow selectively in SME businesses, in businesses that are based in connectivity, in relationship with our other franchise in other countries, and working in operating efficiency where we can get still significant gains. In the midterm, we should be able to return to double-digit profitability. Currently, we are 9%.
We think that we can go to 10%-12% with a focus in cost management and continued risk discipline, keeping the cost of risk very low. Consumer finance, as I said, I would say is an outstanding franchise across Europe. Is the company of choice for automakers in Europe, the ones who don't have a captive player. Normally, we have relationships with them. We provide the services. The track record of the franchise, the current profitability is still pretty high. You may say, well, we are not expecting this to be kept. Margin compression is significant in this business. In Europe, in the landscape where to grow revenues is very difficult, we are having more competition coming from non-traditional players in this space, and you see this, we're going to keep growing the business. Positive revenue growth.
We are doing cost savings, integrating process, and doing some integration among our franchises across Europe. We are not keeping in our assumptions the current cost of pay that is too low. Now we are between 30 basis points and 40 basis points, and our projection is more in the region of 60 basis points -70 basis points of this in this space that is closer to the expected loss for this kind of business across the cycle more than the one we have today. We don't have any hint to go in that way, is our assumption going forward. In Poland and Portugal, two leading franchises in both countries. Very good profitability. Different kind of growth. In Poland, we could keep growing double-digit. In Poland, unfortunately, we haven't been able to show at the bottom line all the power of the franchise due to the taxation.
Taxation has been very strong on banks, as you know, from the Polish government. Still, we have a 13% return on tangible equity with equity that is pretty high due to the regulation, local regulation. We can get easily to 14%-16% in Poland in return on tangible equity. In Portugal, although we got 18% market share, we are gaining share. In the front book, we are north of 20%. The front book in mortgages, the front book in SMEs and corporate, we are north of 20%. We are gaining share in mortgages and SMEs, and we can increase our profitability. I am going to go to elaborate on the global businesses. The existing global businesses that we have is CIB, corporate investment banking and wealth management, although we have all the others in different stages of development. I am going to focus on these two.
In CIB, well, good track record, 1.3 return on risk-weighted assets in 2015 to 1.8 in 2018. We are generating a capital-light model. I will show you numbers of this. As a result of this, our goals, we think that we can grow revenue here 8% a year. Our CIB is more corporate driven than institutionally driven. That is may surprise you, our performance here, but is more corporates, although we have presence in some institutions, but it is less institutionally driven than others. Our model is to serve our customers in the markets in which we are incumbents, and we are developing and are unique to distribute the model. The performance has been very good. In wealth management, we incorporate this division one and a half years ago. Why? Our share here is well below our natural market share.
Our natural market share, blended all across geographies in which we work, is around 13%. In these businesses, we are well below. In insurance, half of this. In the others, 30% below our natural market share. We lack of focus. We developed this division because on top of this business having superior growth than the other banking businesses, our natural market share, we are well below our natural market share, and we can grow here, and we have an opportunity. The reason why we target both in mature and emerging markets are blended, kind of 10% growth in these businesses. Once I finish with the different countries and areas and global businesses, I am going to go elaborate on capital. I already showed these numbers.
This is an exercise that tells you about the last three years, that we've been doing an exercise, quite a money, that was growing the business, because we grew the business differently to many of our peers in Europe. Growing the business demands capital. We grew risk-weighted assets. We increased cash dividend year after year. That demands capital. We were able to accumulate a capital at a rate space of 40 basis points per year. That is the guidance we gave you, and we keep giving you in the last years. The focus being the capital, and demand on regulatory capital. I am not talking about economic capital, because in economic capital, things look quite different. In regulatory capital, we are working, and we keep working in improving the capital allocation.
I already mentioned that it's going to be a natural reweight in target Latin America due to the superior growth of the region compared with the other regions. We established minimum threshold to all the segments in order to keep allocating capital to the segments. I'm gonna elaborate here of the sample of CIB, what we've done. I'm going to go and apply what is starting to apply to the corporate segment. As I said, the mid corporate is the segment in which we think we have more opportunities for better capital allocation. At the same time, the commercial transformation operational efficiency will allow us to have a return on tangible equity 13%-15% with a core equity Tier 1 11%-12%. Let's look at the sample of CIB, where we have a targeted capital allocation customer by customer.
We grew revenues at 2% CAGR in the last three years. Risk-weighted assets went down 5% CAGR. As a result of this, the RWA went up 13% CAGR in the last period. We are implementing the same model to the mid corporates, where we have probably the main opportunity in managed properly in allocating better our capital. We are implementing capital tools, product-based tools, to ensure that the relationship with the customer creates value. With every customers. This consistent across the group. If we are successful on this, and we think that we're gonna be successful on this is the map of our return risk-weighted assets look like in the medium term. We have already two countries above 3% threshold of return risk-weighted assets.
We expect to have four in the medium term and having the mature markets in the region of 2%-3% return risk-weighted assets, and still U.S. and U.K. lagging slightly behind the 2% threshold. This is our expectation for the return risk-weighted assets on the different business. What about capital building? We finished 2018, 11.3%. We are generating capital at the base due to results of 175 basis points -190 basis points a year. With 40%-50% payout, we end up having 100 basis points consumption in paying dividends and 81 coupons. Risk-weighted assets though is gonna be in the region of 45 basis points -55 basis points per annum. Finally, we have the regulatory headwinds that are in front of us that I'm gonna elaborate a little bit on those. The expected regulatory impact, some are already very well known for you.
The IFRS 16 that came in the first quarter is 20 basis points, is due to the leases, you know. The targeted review of internal models that SSM is conducting, along with other minor issues, is gonna cost around 30 basis points. The targeted review of internal models is between 10 and 20 basis points, and other small pieces go to 30 basis points. In 2021, and this is differential with other players, due to the nature of our business, we don't expect material impacts coming from the CRD changes, CRR, or the application of this. We think that we can manage to keep going with a 40 basis points free capital generation year after year with the tools I already mentioned, the threshold for all the segments.
Reducing unprofitable portfolios, we are already doing that. You see in some segments that we've reduced the portfolios just because they are not profitable. Our percentage in portfolios in IRB is lower than our peers. We've been pretty active in securitizations. In the past, we were doing securitization just for liquidity purposes. Now we combine liquidity and capital at least. That is doing basically the same with reducing the risk. The senior management remuneration is very much linked to return on tangible equity, as you will see in our proposals to the shareholders in the next AM that we're gonna have next week. Finally, on credit, because everybody speaks about capital solvency. Our liquidity position is very good. LCR and net stable funding ratio due to our very retail nature, we are well above the minimum thresholds.
What is more important in MREL, we already comply. We comply basically with subdebt. We don't rely that much in senior debt or corporate deposits to comply with this. From this position, we are much more advanced than our competitors. As a result of this, our issuance to the market in the credit space is going to be mainly in the low end of the credit range. It's going to be basically covered bonds, senior debt. We already did the non-preferred debt, the subdebt and AT1, we already did this. That's basically the end of my presentation. Just to remember, view the targets, the global targets for the group, 13%-15% return on equity, improving efficiency, building capital to be in the range of 11%-12%. The close to the 12%, the more flexibility we get in matching our FX, and this flexibility is welcome.
This gave us this capacity efficiency in the region of 42%-45% and keeping our dividend policy between 40% and 50%. That will allow us to keep remunerating the shareholders in a progressive way, adjusting the dividend in a progressive way along with the EPS. Now we remain at your disposals, Ana, myself, and José García Cantera, to answer the questions you may have.
Thanks, José Antonio. Thanks, Ana, as well. We have 45 minutes. We open now the Q&A session. Alvaro, Morgan Stanley first.
Hi. Alvaro Serrano, Morgan Stanley. Two questions, I'm afraid, on capital. Ana, you mentioned that you'll get to 12% as soon as possible in your presentation. There's also, you've outlined in José Antonio's presentation some of the regulatory headwinds. Can you maybe talk about the timing, as soon as possible, when that might be? Also, are you going to be able to align the efficiency management actions to the headwinds? Are we now going to see maybe there's a risk of some dip there, and just overall timing of the sequence of events? The second question relates to that is, obviously, the capital build over the last three years has actually been very strong, but there has been sort of unforeseen events. The question is what visibility you have at this point on capital headwinds that might come that you don't have in the plan?
This time last year, we probably didn't anticipate, or investors didn't anticipate the deduction in SCUSA, for example, and things like that. Is the capital build really going to sort of go down to the bottom line? Thank you.
Sure. In terms of the timing on capital, 2019 is the most difficult year in terms of the headwinds. José Antonio gave our expectation is 50 basis points net. What I can say is that we will, and this is of course subject to some uncertainty, but our aim is to be above where we closed this year. We do expect to be above 1,130 basis points . I cannot be more precise right now, but we are confident that we will do that, which basically obviously means generating more than 50 basis points during the year. As I said before, there's many internal measures where we were not really managing regulatory capital until three years ago. We started four years ago when the new team was in place.
There's still efficiencies across the group, and we've taken measures all along, but there's still things we can do, and we're doing to ensure that we can deliver above that usual 40 basis points on capital. It's very important, yes. That takes into account the efficiencies we're planning, which are very ambitious. I will give some more comments in the closing in terms of organization. Strategy is important, planning is important. To execute better, you need the right organization, and that's what we are going to do as of we're announcing today some changes there. This will help a lot to execute faster, which is what we've been saying all along. You're right. In terms of the headwinds, we are as surprised as you sometimes. There was a capital add-on in the U.K. of 100 basis points. I think it's a year ago.
That was 20 basis points at the group level. This was not expected. There's certain things that Unfortunately, every time they surprise us, I don't think they ever surprise us in a positive way. At this point, we feel confident with what we are saying. Again, 2019 is going to be the most headwinds. 2021 will continue to be building capital probably. We're going to get to 12% as soon as we can because that's going to give us the flexibility to be between 11.5% and 12%, and even to have the flexibility to be below 11.5%, because that would make it possible for us to increase profitability because of the hedging, which today is costing us, I think this year about 17, 18 basis points is our estimate.
Yes.
We need to have that possibility to maximize profitability. I hope that answers the question.
Yeah.
Good morning. Thank you. Marta Romero from Bank of America Merrill Lynch. I've got a follow-up question on capital. In order to get to the 12%, what levers do you have apart from the ones that you've laid out in the presentation? You brought back the scrip dividend. Could you bring back your strategy of listing minorities? We've seen some of your subsidiaries trading at hefty multiples relative to the group. Would you consider being opportunistic in that regard and making a placement in Brazil, for example? The second question is related to the corporate center. Unless I'm mistaken, I don't think I've seen any targets related to the corporate center. In your previous plan, you were aiming for a 15% size relative to the group. Have you dropped that target?
Since you've mentioned these cost savings, but you've left the corporate center out, how do you expect, generally, the losses at the corporate center to progress? Thank you.
The main lever to increase capital is to increase profitability, right? We also have to ensure. I could increase profitability by 50% by selling tomorrow a piece of one of our subsidiaries. That's not the plan, we want investors that want results today. I want to insist that we have increased cash dividend per share. You've seen the numbers. We need to find a balance, and one of you investors said, and understands, that this is our goal. When I get asked what is the most difficult thing in my job, it's to find the balance between delivering today and in the future, and between delivering for all my stakeholders. I need to deliver for the people. Sometimes we need to raise salaries. We need to deliver for customers. Sometimes we take tough decisions and cut fees, but that's the right thing over time.
Sometimes we need to think about our shareholders, that are not all the same. In terms of the scrip, for example, and since you mentioned that, it gives us added flexibility. We have said, I think I've mentioned, that we are not intending, this has to be approved at our shareholders meeting next week, to decrease, or at least we'll keep the same cash dividend per share. Our retail shareholders love the scrip, and it gives us some flexibility. Not huge. If you consider that we're not going to decrease the cash dividend per share, our intention is not to decrease it. It means that we might have some small scrip. I think this is very important. In terms of minorities, it's what we said. As a new team, we are still not planning to list minorities.
We are where we are, that is really where we intend to be. Basically, that's it. We're not planning anything at the moment. I'd say the main lever, again, is the transformation of our model, increasing profitability, being very rigorous in the way we allocate capital, and in the way we invest and stop investing. We've been doing that over the last few years. We want to do more of that. In terms of the corporate center, do you want to say something?
Yeah
quite efficient already, because that has also the TLAC for the subsidiary. If you take the actual cost of the corporate center, we are super efficient, we did a lot of that. We probably can do more, that's not what the main issue is. It's about sharing across the countries more, as I explained.
Well, I didn't mention explicitly the corporate center, a target for the corporate center. I gave you the main component of the cost of the corporate center, that is all the sub-debt, senior non-preferred, all the stuff that goes straight to the negative NIM, net interest income, of the corporate center. I said to you that we've already done all this stuff. Basically, going forward, we're going to have a pretty stable corporate center in absolute volumes. The only volatility comes normally for our tactical hedging of the expected results in the country. If we do hedge, and we get the currency appreciate or depreciate may affect the corporate center. It's the only significant volatility I see going forward in the corporate center. The other is pretty straightforward, is the cost base.
Well, we try to be as efficient as we can, but there's not going to be a big change. All the stuff related with MREL that is already there. Those are the components. You can do your maths.
Thank you.
Yeah.
Hi, good morning. Carlos Peixoto from CaixaBank. Switching a bit on subject, I was wondering, first, I noticed that on the U.S., the return on tangible equity targets are based on or are adjusted for the excess of capital at the U.S. I was wondering whether there is any specific plan for the allocation of that excess capital. Then on a different matter, also, the interest rates scenarios embedded in your business plan, what are they? I noticed a chart where you have a gap for different interest rate scenarios. Should the low end be flat interest rates in Europe and the higher end assuming some sort of increase? If you could give us some visibility on that. Thank you.
The U.S. excess capital, we're now allowed to pay dividends since about, I think, 18 months ago. The question is, there's an extra tax to be paid, so it's less efficient than other subsidiaries in terms of dividend repatriation. That is the main issue. It's not about anything else. As I said, we've been very limited. We're still a bit limited in terms of launching new initiatives. We could decide to launch Openbank in the U.S., for example. That would require some capital. It's mostly about organic growth, but at the end, the most short-term reason why we are not repatriating more is the withholding tax on dividends, because there's not a double treaty agreement between Spain and the U.S. Interest rates, yes, that's one of the reasons. If interest rates don't rise in Europe, would be more towards the 13%.
That's the main one, right?
I elaborate on the Popular case, yeah. I was saying that once we increase our target in cost reduction, we remain with the same exercise, basically, in terms of return on invested capital, just because we reduce the expected level of interest rates compared with the ones we had at the time of the acquisition. Well, we are basically flat, this is slightly up in the medium term. Basically, what we have today.
Popular is, as you know, at the time of the acquisition and when we raised the capital, we said we would be in the 13%-14%. We're still reiterating that today. At the time, we were expecting 2018 to have loan growth in Spain. The fact is it's been - 4%. At the time, not just us, but the market was anticipating a very different scenario. We will be there in spite of a much more difficult context. That's one of the reasons we are increasing the cost targets from 500-750, as we're announcing today, to make sure that we can deliver, including the new, more difficult context in terms of loan growth and interest rates.
Paco Requena. Yes, Sérgio.
Yes. Francisco Riquel from Alantra Equities. First question about the capital allocation at SCUSA. You are assuming 100% of the capital for the risk-weighted assets, but you are only consolidating 70% of the profits. It also has some fiscal implications. What's your stance regarding this capital allocation for SCUSA? Also, if you can update on the JV with Chrysler. Where are we on that subject? Second question on the capital allocation in the U.K. business. You have 1/3 of the capital tied to the commercial and corporate banking business in the U.K., and you have been struggling to obtain decent returns in this business. What is the problem here, and what is the plan for this 1/3 of the corporate business in the U.K.?
Also, helping us to understand the U.K. plan, your macro scenario that you are assuming given the Brexit uncertainties. Thank you.
Sure. I will start with the U.K. Our plans in the U.K. are estimating approximately 1% GDP growth over the next couple of years. That could be better, could be worse, depends on what happens with Brexit. Your guess, I guess, is as good as mine as to what's going to happen. I'm a bit confused. That matters, not tremendously, because we have a very high-quality portfolio. The loan to value on our stock is 42%. The new business we're writing is at 63%. In London, it's 58%. We're being very conservative in terms of quality, and that has been the case for some time. We have been very consistent. I cannot give you specific numbers in terms of our profitability targets, including in the U.K. portfolios.
Clearly, the commercial and corporate business was one where to be much more competitive, we need size, but we're focusing more on transactional banking services. We are focusing more, I mentioned some numbers in terms of the U.S. There's a lot of business happening now, and there is a U.K.-U.S. corridor where the numbers in the slide, we're actually generating, compared to two years ago, EUR 40 million in revenues that are new. We are working on the group assets to bring that profitability higher and allocating capital to the businesses within the segment that do deliver a high return. Again, the Global Trade Services payments, that's one of the focuses, how can we be even more competitive across the group bringing these best-in-class products that we have in the group but that are not always shared in all geographies. We are being very disciplined on that.
In terms of the JV on Chrysler, I'm not sure. It's ongoing conversations, I think.
Yes, it's ongoing conversations. The conversations are constructive, I can say. Well, we come to a conclusion relatively soon, I hope. The discussions are constructive. On the inefficiency capital in SCUSA, I don't know, you want to elaborate?
Well, I think I mentioned that in my presentation. There's a lot of things happening behind the scenes that sometimes you're not seeing. For example, one of the ways we're im-- the business in the U.S., first we had to be not just at the regulatory requirements, but at our own standards in terms of how we manage the business. One of the things we did over the last few years in SCUSA is really change the way the business is run. We have here Scott, who is an expert, actually, in consumer finance. We are running the business to bank standards. At the same time, within the U.S., we have allocated more capital over the last few years to SCUSA than to SBNA.
In SBNA, what we're doing is, again, trying to improve the profitability in the commercial side by the network effects, and this is what I mentioned with the U.K. We have also cleaned up the balance sheet, and I'd say EUR 3 billion-EUR 4 billion risk-weighted assets have gone from one side to the other. There's a lot of things happening under the surface in terms of managing the business in a more sustainable way. It's not the same to have big net interest margin because you have a big portfolio than have increased your net interest margins the tough way, which is one customer at a time. Opening current accounts, making sure those customers are real customers. That's the work we've been doing because that's the only thing we could do in the U.S. We are allocating capital within the geographies, not just between the geographies.
Ulargui
Hi. Ignacio Ulargui from Deutsche Bank. I have two questions. One on the cost path and the cost savings that you are just aiming to get on the EUR 1.2 billion costs. Is that medium term? How far beyond 2021 we are looking to that? The other question is on the securitizations, what is the role that you have from Santander Consumer Finance? How relevant is it going to be? Or which unit will be the one that is more relevant in terms of the securitizing the portfolio? Thanks.
Maybe we want to answer the securitizations. On the costs, I think we gave the detail in terms of the one-offs also, right, in your presentation. It's going to cost us EUR 300 million for Popular and EUR 300 million for the rest. That will be over the next three to four years. We are giving ourselves a one-year flexibility to execute properly, but that is the timeframe that we're looking at. This is a big change. As I said, this is a net number in the case of Europe. It's not a net number in the case of the Americas. A net EUR 1 billion reduction in cost has to be executed properly to ensure that we're also investing as we should be investing for the future. Again, this is the balance we need to find.
In terms of the securitizations, Santander Consumer is a big part of it.
What we have is very much in line with the size of the portfolio. The portfolio in consumer finance is around EUR 100 billion, of which one-third is Germany. Spain, Nordic countries is like 12%-15% each one. It's very much aligned. The securitization very much aligned with the size of the portfolios in the different countries. It's not that we favor some portfolios against others. No. You securitize a chunk that tend to be EUR 1 billion-EUR 2 billion, each one, and depends on basically the size. The portfolios are highly granular, as you know. It's basically auto lending, and is where securitization from the cost of capital point of view, the equation between capital reduction and cost of the securitization is the better. The cost is well below the cost of equity, and this is the rule we use for securitizations.
We select those portfolios in which the securitization is more efficient in terms of cost of capital release.
There is not a target on securitizations per country or per unit. It's basically one of the tools we have to improve the overall profitability. Okay? We don't target a specific number per unit or per segment.
Hi, good morning. Mario Roberto from Fidentiis. My first question is on the funding strategy in Spain. You have been pushing for years with the 1|2|3 account, and now you have a lot of loyal customers, but also very heavy retail base there, and very expensive one, which is causing you a lot of trouble on the NIM. I wonder whether you are going to change this strategy materially or whether you are still happy to maintain a high funding cost in Spain to eventually make more profits from this strategy. The second question is on the cost of risk in the U.K. and in Brazil.
In the U.K., since I guess that market expectations are way more pessimistic than what you have shown in your presentation, I was wondering if you can give more color on the cost of risk assumptions that you are making. In Brazil, if you can maybe give a specific number or at least some coloring about whether you think you can get materially below 4% cost of risk. Thank you.
In the case of Brazil, our expectation, remember, Brazil is coming out of a huge recession. We had 9% decrease in GDP. Last year was the first year that had positive growth. I think the guidance for Brazil is stability in the cost of risk overall for the country, and that we feel quite comfortable with. In the case of the U.K., you're right. We are historically low cost of risk. It's around, I think, seven basis points. That is going to go up. In our plans, the guidance is that, I'm not sure if we said this, but it should be maybe double that, 14 basis points , 15 basis points probably. We do have one of the best, and if you look at the stress test of Bank of England, we do have one of the, I think, probably the safest mortgage book relative to our peers.
At the height of the crisis, if I remember correctly, this cost of risk went to 40 basis points in 2009. That was just after the integration of Alliance & Leicester, which did not have as good a mortgage book. I mentioned what's important here is the front book, of course, right? The front book, we're being very conservative also, and we're focusing more on high quality risk than growth, even though I believe we've grown a bit over the last 12 months in mortgages. One to Three, I'll just give a headline view, and then maybe José Antonio, you can give me some more detail. One to Three is a strategy. It's not about a product. As I said several times, sometimes we confuse users with customers.
The other point I'd like to make in Spain is that four years ago, we started from a very, very low point in terms of customer engagement in Spain. Just as a parenthesis, when I mentioned before the countries that were not covering the cost of equity in the group, that technically we have been very drastic, we sort of saw Spain. Spain was at 8% in terms of market share in transactional customers in 2014. This is a huge goal for us. Again, it's this balance between delivering today and in the future. We're trying to have real customers, and this is the strategy we followed. We have been quite flexible. As you know, we have changed the conditions as interest rates and the context has gotten, let's say, less favorable to what we expected.
The real important thing is that having a loyal customer is worth 3X more than a non-loyal. This is where we're putting all our efforts. Santander Spain, even though the focus is on integrating Popular in a flawless way, this is not an easy job. This is a big bank. There's a lot of things happening behind the scenes. The teams are working every weekend in technology and operations, not just them, actually, the commercial teams. Having that and at the same time improving the customer experience in order to have better customers is crucial. In terms of the net interest margin and how that's working.
Yeah
I think we're actually converging slowly.
Going to the cost of funding, the cost of deposits that basically you mentioned, yeah. We're going to converge towards around 14 basis points , 15 basis points, deposit cost, maybe. Of which, 10 basis points come from long-term commitments other than the 1|2|3. The 1|2|3 actually has been a very good proposition in terms of building loyalty at a very low funding cost. The funding cost now is relatively low. We don't assign the total funding cost of deposits in Spain to the 1|2|3. There are other long-term commitments, some of them that come from several years ago, that cost around 10 basis points compared with the total deposit base. Naturally, it's not a big number. At 10 basis points, at EUR 200 billion deposits is not also a big number. Small numbers and long-term commitment matters in these days of negative interest rates.
Yeah.
Stefan.
Good morning. It's Stefan Koch from Citigroup. A couple of questions on my end. Looking at Brazil, more than 20% ROTE medium-term target. It was 20% last year. Peers are re-risking, competition is increasing. What's your competitive advantage in the next couple of years? A question on the new businesses that you're setting up, the global payments platform. You guys are becoming a payments company. That's pretty good multiples going forward. How do you see your scale in some of these products? Say, the merchant acquiring space, which is becoming more and more consolidated. Do you think the EUR 150 billion of payments is enough to set you apart and for you to benefit from scale? Or are you coming from such a low level of consolidation across your geographies that there's quite a few synergies to capture there?
Just if you can give us some color around the strategic direction on that business. I guess related to that would be the trade finance services. Right now that looks like a 1% of group revenues on international SMEs. Obviously, that's a pretty small number. How should we think about synergies going forward to the revenue side of things? Thank you.
Sure. Brazil, we want to keep the profitability, but we also want to grow, right? It's a growing market. We believe, again, balancing between growth and profitability, being between 2022 in Brazil is the right combination. The second thing I'd say is that in the past, and this is again, not something which is maybe as obvious, but the quality of our income in Brazil is a bit like in the U.S., but actually also in Spain and in many other countries, the quality is much more sustainable than four years ago. I can give you numbers, if you look at retail, for a long time, I was told as part of the group that retail business in Brazil is not profitable. Well, you know what? It is. If you have the right team, the right strategy.
The underlying transformation in Brazil, and you'll have Sérgio on the Q&A, he can elaborate, has been huge. That gives us confidence that we do have the scale, we do have the assets, and we do have the strategy to succeed in Brazil today and in the future. When I say the assets, our business in Brazil is not just a bank. It's going back to the payment question I will answer now, Getnet is an amazing franchise. Do we have the scale? Just to finish on Brazil, we do need to balance growth and profitability, and we believe once we are 2022, we don't want to become so small. We want to grow with the country. This is super important for the future. This is 220 million people, growing middle class, that is why we're going to be at that 2022.
By the way, Brazil, like every other country, is being super disciplined, and it's actually one of the best countries in terms of managing capital, not just at the top end. They're doing that as they grow. Very much focused on capital rotation, capital discipline within the country and the segments. On the payments, we haven't just discovered payments. Payments has been at the core of Santander, I'd say, since the beginning. In the sense that when we talk about loyalty, what we are talking about being at the heart of our customers' payments and transactions. That is what the loyalty strategy is. That's what we did in Banesto with the 1|2|3 strategy. In the U.K. with the 1|2|3 strategy. If you have your main account, if I ask you, "Sérgio, who is your main bank?" Your answer is Santander.
It's your main current account where you do all the payments. Payments is absolutely core. It's something we need to do not just for ourselves, but probably for others to have that scale. We have to organize it better. What we're doing today is about organization, but also focus, right? The fact that we're telling you all of this puts pressure on us to deliver on these businesses, right? You're going to have much higher visibility, Transparency on what payments are at Santander, how we are making progress, how we're investing, how we're making returns on capital. We're going to be able to give you milestones. This is something we'll do in the next few months. I'd say that the fact that, and again, this is linked to our customer's core business. Acquiring business, I mentioned, point of sale is crucial.
Again, some of the new specialists, to call them something, have figured this out, but they do not have the customers we have. They don't have the relationships we have. This is what we need to really leverage. The relationship, we have 100,000 people across the group talking to customers every day. 100,000 people. We're not the telecoms. They had great engineers. They were not talking to customers. We're talking to customers. Yes, we need to change the model. By the way, banks that have these kind of SMEs, it's going to be the most sticky relationships. A lot of these new payments, you have companies doing working capital at scale. Payments has always been at the core. We are very committed to having these businesses.
As I said, what we're doing is taking pieces we have, and we have all the products. Corporate investment banking has Nexus. It's a cash management system for multinationals. There is no reason why Nexus could not be the cash management, which has been super successful. We are winning mandates across the U.S., across Europe, across Latin America, against the big guys. Probably nobody here knows that. That is a tool that can be brought down to the mid-size market. These are the kind of things that are very exciting in terms of staying at the core of our customers' payments, which is core to our loyalty strategy and digital strategy.
Carlos.
Thank you. Carlos Cobo from Société Générale . Couple of questions, one on capital. I guess we've been discussing a lot about how you're going to build up capital and the headwinds, but I wanted to ask, José, why 11.5%, 12%? The target's been raising every year. We don't have enough visibility on what the central bank thinks here. What is the real calibration of the capital requirements for European bank? We need to understand better what's the point where a bank like Santander has a capital surplus. We struggle to understand that, and it doesn't seem that it's getting clearer. It'll be nice if you could share your discussions with the regulator. The second one on payments.
Following up on Stefan, if this is a new division that you are creating as a point where you could leverage and merge it with other competitors to gain scale, or eventually IPO it to surface some value in the group, or it's just a management focus in the payment segment rather than any other thing? Thank you.
On the right level of capital, you're right. Sometimes, and this happened to us, we thought being above 11 was the right level. Our sense now that given what others are doing, 11%-12% is the right level. We've seen many banks with headline numbers that were higher than us, that if you then look at what's happening underneath, it's probably not comparable. We do believe strongly that between 11%-12% is the right place, and that, as I said, between 11.5-12 is where we need to manage to have some flexibility, and increase profitability. Why we believe this? Because it's not just about the headline number, it's about performance under stress. As you know, we are the bank that destroys less capital under stress, 140 basis points compared to, I think it is 403 for others in the adverse scenario.
I think probably the first point is the strength of our business model. If you look at the pre-provision profit over loans, or over NPLs rather, and the stability of that pre-provision profit and even of the net profit, as I mentioned before, over the cycle, 20 years, that is again, the strength of our business model, and I believe it's today much stronger than it was before. Obviously, the detail of this is much more apparent to our supervisors and to the market because they, as you know, they have armies of people talking to us every day. The third thing is leverage ratio. Our leverage ratio is five. That's 150 basis points above the minimum, one of the best in Europe. That creates an issue sometimes in terms of the density in mortgages in the U.K. We have a 16% density. Some of our competitors have five.
A bit the same is happening in Spain, but obviously on the capital side, that's a benefit. I'd say also the track record, what we've done over the last few years, that also helps us. We've gone from 827 to 1,130 in four years. That's a big change. Of course, there've been regulatory headwinds there. I think the combination of these things is what also the supervisors take into account. Finally, of course, if you look at the SREP requirement we have, which is 9.7%, we have today 130 basis points buffer. All of that together is what not just us, but the supervisors look at. Yes, our GC fee charge is 100 basis points. Just that one difference means that we would actually be comparing 12% with compare with 13% at some of the other banks.
Some of the strengths we have today in terms of density and mortgages is going to mean, as José Antonio Álvarez said, that when, I don't know how to call, the CRD IV comes in, we're going to be much less affected than others. Having said that, I'm not going to say that the supervisors are not going to change, because they've changed before. You all need to help us. If you think the sector has enough capital in Europe, you should go and spend some time in Frankfurt and make your point. By the way, at the end, what's being penalized is European customers, right? SMEs. 90% of credit to the European economy comes from banks. Somebody has to make a point that, yes, being prudent, having more capital, we all want that. At some point, enough is enough.
If they keep on building buffers and buffers and buffers, Europe will not grow. Banks in Europe will have increasing problems. You know what they do, they're going to have less inclination to lend, right? The cost of equity goes up even though rates are negative. You need to help us because we are an interested party. You represent investors, you represent people that have pensions across Europe. The more you can help us, if you believe that there is enough capital in the system. Obviously, there's always things to improve, but that's something I would ask you to help us on.
Yeah, hi. It's Sofie Peterzens from JP Morgan.
We're not planning to IPO the payment business. I'm sure a lot of investment bankers in the room would love to hear yes, but the answer is no. By giving it more visibility, hopefully you can understand the value of Santander in the non-regulated business. This is, by the way, a key goal for us, is we have a business that's super regulated. We have a business that should not be regulated. If it's regulated, then again, that's something you can help us. That's one of my big speeches in Davos, and I go to Brussels all the time. Not that I have better places to go, but I think it's a great investment for me, for you, where we want fair competition.
Either we get deregulated in payments and all these businesses, or they get regulated, but we cannot have it as it is now. That's the other reason we're separating these businesses. Even legally, Getnet is already a separate company, but we're going to put them in a separate so they have visibility. You can understand better the value of Santander franchise, but at some point, we're going to continue fighting for fair regulation for everybody. That's all we're saying. Same business, same regulation. Doesn't matter who you are. That's our line. Sorry, I just forgot to answer that.
Yeah, no problem. Yeah, it's Sofie Peterzens from JP Morgan. I wanted to ask how do you think about M&A and add-on acquisition opportunities? Which countries and business areas would you be happy to grow in? My second question is, how do you see the banking business in the long term? Where do you think competition will come from? Do you expect new players, more alternative players in the banking industry? How do you think we should see the banking business, let's say, in 10 years' time? Thank you.
10 years. Are you serious? If you allow me, I am going to try for five or six, maybe seven. 10 is very far away, but yes. If you look at the chart I showed in terms of who are the players in merchant acquiring, I think you have the answer there. You're going to have some big banks, then you're going to have some very specialized banks. In the middle, you're going to have issues. You are going to have specialist players, because payments is such an important core product for us that it would require scale. It would require focus. It would require having a strong customer base and franchise where you start, and there are not that many of the bigger banks. I think you're going to see a very different scenario, and you're going to see non-banking players having increasing weight.
Again, as I was saying before, we need to push in terms of fair regulation and fair competition. That's the other one. Fair taxes. Super important for society, for banks, but for every single person to get to that so we can invest more. At the end of the day, I think you are going to get a concentration because you're going to have, in today's world, with the tools we have, we didn't have before, you can be a real global player with the current technology. That was very difficult before, but now it's possible. You're going to have retail players that can provide payments. It's going to be relatively easy. It's going to take time. Again, to my point of customers versus users, not the same thing.
There are enough big banks that have real customers like us and a few others that are going to be players and succeed there. Do you want to answer the M&A?
We've been very clear on this. Our focus is in the core markets in which we are, and if we find opportunities in the business in which we have competitive advantage vis-à-vis with the others, we will look at it. We can make it or not, this is our starting relation with M&A, yeah.
Fernando, Barclays.
Hi. Hello. Fernando Gil de Santivañes from Barclays. Just two questions. First one is Spain, the mortgage market, and the real estate visibility that you may have. Volumes, prices, and especially fixed rate mortgage, new production. How do you see this? Second would be, what the assumptions are on the FX currencies, mainly Brazilian real, Mexican, and the U.K. pound independently. Thank you.
Okay. The mortgage market in Spain, as I said in the presentation, that we are seeing we were a little bit more constructive in pricing. We are seeing I will not say that spreads are going up, but we are not seeing as big pressure as we were seeing, let's say, six months, one year ago. This is the mortgage market. In relation with real estate, well, it goes by areas. There are some hot areas, basically in the main cities. The average of the market is still prices are going up, still in the low single digit 3%-5%. Probably in this range. With significant gaps between the main cities and the small cities, and still areas that are relatively depressed and having digest the excesses of the real estate bubble that happened 10 years ago.
Well, the rates of the new production are slightly up. The new production, the front book is coming better than the back book. On average, it's getting better. Not at a fast pace, it's getting better. In FX, basically, as a rule of thumb, we are taking the forward rates. Basically, you take the forward rates is what we have in our numbers. When we tell you the numbers, it's the forward rates for all the currencies, basically. You ask Brazil is at depreciation of, let's say, 6%-7% a year. In Mexico, it's a depreciation of, roughly speaking, 8% a year. Basically, the forward rates. Yeah.
Filtri, Mediobanca.
Thank you. Andrea Filtri from Mediobanca. I have three questions. What is the CET1 ratio behind the ROTE walk that you projected in the slides? Secondly, what is the appointment of heads of the macro geographies you communicated this morning aimed at? Thirdly, in your CET1 walk that you projected, what are you projecting for the dividend payment on the 40%-50% payout? Is it a fixed EUR 0.20 in cash and the rest in scrip? Thank you.
I'm going to answer on the organizational changes. That is one of the key tools for us to improve and deliver on the continuous operating performance in all the regions. We need to share more across whether the legal entities. Everything we're saying, we don't need to change our model of autonomous subsidiaries. We're not going to change the role of the local boards or the fact that our local country managers are responsible, let's say, for the relationships in the country. We do need to manage in a more streamlined way. I believe one of the most important things. I would comment on that in my closing in more detail. If you bear with me for a few minutes, I'll give a bit more detail on why and the reasons.
At the end, what we've been doing for the last few years is a lot of that, we need to do more and faster. Sharing services, actually, the global payments strategy is very much dependent on us being able to execute across the countries for everybody and sharing product services. It's about cost, but it's also a lot about revenues. How do we share amazing tools we have? I gave this example, I think maybe already, but it's just so you have the visibility of how we do what you see here in our mobile banking apps. Which this is going to be a condition necessary, not enough to succeed, but if we don't have the best customer experience in all our mobile banking apps, everything else is going to be much harder.
Today, even though we have 10 core countries, we have 60, 65 different mobile banking apps. We put a group of people in place from all the countries, and we figured out that we could share 70% of the cost, and that that would really be applicable from Poland to Norway. Santander Consumer has also some front-end services. We have a lot from Brazil to the U.S. 70% reusable is a big number, and there's a lot more examples of that. That is really what's behind this. The autonomous liquidity capital doesn't change, the role of the local boards doesn't change, we believe that this is going to be a huge transformational tool for us.
I'll give a bit more detail later, obviously for José Antonio and the teams to execute the strategy that we at the board and ex will approve, having a 12 people management committee, by the way, with seven nationalities and I think six, seven business people, this is very important. The talent we have is amazing. We're not using enough. We want to use more of it. On CET1 and the path-
Well, as a rule of thumb, use the midpoint in CET1 and the tangible equity you have. As some of your colleagues asked, the capital held wins. Other than the regulatory, we may have the traditional ones that are typically available for sale mark-to-market that has some impact. FX hedging, that as long as we approach to 12%, we're going to gain some flexibility, as we said, for our hedging strategy. That now is a policy may become more a tactical issue. In relation with the return on tangible equity, I already elaborated the range very much depend on the level of interest rates at the end of the period. Higher the level, you go to the 15%. If not, you go to the mid of the range.
Yeah. Finally, in the dividend 40%-50%, our intention is to have a progressive cash dividend that follows, try to track the evolution of the EPS. It's as simple as that. It's nothing more than this.
It's five minutes past the hour, but one last question from José, and obviously the management will be available for your Q&A in the lunch and the coffee break. Sorry for that.
Hello. Thank you very much. José Abad from Goldman Sachs. The first question is on Santander Consumer Finance. I think we have early indications of what could potentially become a significant slowdown in Europe. The bulk of this slowdown seems to be concentrated in the car manufacturing industry, particularly in Germany. This is cascading to all these countries with a significant producer or exporter car industry, like Spain. You've cut your ROTE target by 100 basis points -200 basis points here, on the basis of a normalization in the cost of risk. Cost of risk is never normalized. You are above or below. Could you help us a bit understand the fundamentals of actually of this business, starting maybe with what you've seen year-to-date, because the slowdown in that segment has been significant. Maybe not just talking about cost of risk, but also volumes.
I guess the question here is whether there is any downside risks to the targets that you announced today for this business. Second question is on money laundering. There was an article in the local press a few weeks ago about top officials from the Venezuelan government in a money laundering scheme, which involved north of actually 50 banks, one of them actually being Santander. I guess the question here is, you've announced today the strategy, which relies on growing significantly in Latin America, digital and businesses like private banking. What actions are you taking to prevent events like this in the future? Thank you very much.
Santander Consumer business has been a great growth engine for the bank. As I mentioned, we're still managing Europe separate from the Americas. We are working in parallel and one of the goals is to work increasingly together. One of the goals of the reorganization is to really understand how do we manage this business in a business that's really transforming very fast. At the moment, it's a B2B business. It's increasingly, as you mentioned, a B2C business. Everybody in Santander Consumer, in Consumer Brazil, everybody is already working on that B2C. What are the things we can do together? By having three big areas, three big groups of countries in a much more streamlined management committee that can execute, we're going to be able to converge. This is not just about three areas.
At the end, it's about a single open financial services platform, and you're totally right, the consumer business is one where lots of things are happening, and we want to be there. We have the scale. That's one of the things, again, that we need to work on. It's already happening, by the way. Magda's team has done an amazing job. It's working with Scott's team in the U.S. We are actually working towards leveraging our relationships. We have 60, 65, I believe, relationships in OEMs at Santander Consumer that we have not been leveraging in the U.S. or Latin America. We're starting to do that. There's a more profound change happening, and we are absolutely onto it. Again, you need scale on this, and that's why we're going to coordinate more on that.
Look, specifically on the issue you mentioned, I'm not sure we can say much, but I will say that this has been a huge focus for us. Obviously, we're in countries where these issues are especially relevant, but it turns out it's not just in Latin America. It turns out this is not an exclusive Latin American issue. It's actually a more European and worldwide. One of the most important things is that we can actually share best practices, and we created two years ago, three years ago, a global division in cyber. Again, when we talk about being competitive in the U.S., if you cannot be at the top of the list in terms of cybersecurity, you cannot compete, right?
We today have a global division, and that has been the case, and it's like all the way from the first to the last of the businesses. We have 1,000 professionals in cyber, investment plans of EUR 300 million, I think it's over the next few years. We are very much focused on that. We didn't spend much time here, but believe me, internally, we spend, I have the sense, most of the time on control and supervision and risk. We need to focus more on the business, and that's one of the reasons for the reorg. Is there anything you want to say more on the specific issues?
Well, in AML, we implement the same systems all across the group. We have deployed in the past years in several countries, in the most sensitive ones, armies to make sure that once we had the system, the system was able to calibrate properly. Otherwise, we generate a number of alerts that is impossible to match. We already got a reasonable calibration of the systems we have in all the countries, and we share the same system all across the board. The same way are we doing with cybersecurity. We take a lot of care of this. We invested a lot on this because it's a very sensitive issue. In relation with consumer finance, as a matter of fact, we are growing in Europe this year. The production is growing. Why is that when the market is going down?
Is because we depend upon our relationships with specific OEMs. In that sense, you want to say we are lucky because our relationships, our main relationships, are with OEMs that are gaining market share, you know what our main relationships are. As a matter of fact, we are growing the business in Europe this year. Last year, we got significant market share on behalf of our partners that grew their market share. For us, it matters a lot how they behave in the market. In the used cars, the market is fairly stable. Yeah, because We have a significant used car business in Germany, that is fairly stable, yeah, compared with the new car market.
Okay. It's 10 minutes past the hour. We need to leave it here. 10 minutes coffee break, and as I said, the management is available for your questions. Thank you. Hello, can you hear me? Yes. Ready to kick off now. Apologies for this 15 minutes delay, but it was a good excuse. More time for Q&A, although apologies for some of you that couldn't ask. Okay, now we are going to address our core banks. We're going to address what we're doing in Latin America, the structural growth potential that we have there, our recent performance. With us here on the stage, we have Sérgio Rial, CEO of Santander Brazil, and Dirk Marzluf, our Global Head of IT & Ops.
I'll try to ask a couple questions that I think most of you have for both of them, then obviously we will have time, I'm sure we will this time, for more questions from you. Sérgio, I always remember the first time you presented here, was at this venue as CEO of Santander Brazil, was back in 2015. Part of the market thought back then that we had not just an earnings at risk issue, but a book value issue on the back of what was happening. We made a 14% return on equity. Three years on the road, or four years on the road, you publish close to 20% ROE with the Selic at 6.5%. In terms of shareholder value creation, it's even much better, right?
Someone from the audience was asking to Ana, José Antonio, and José, what's next for Santander Brazil? Again, what's next for Santander Brazil?
Okay. Well, good morning. Yeah, that's true. Three years ago, 2015 was very different. It was actually the day where the BRL had gone over four at that time. It was really the lowest point in recession. First of all, I think the team on the ground has done pretty solid job. I think Ana and José Antonio have expressed that, you've seen the numbers. I think you made a very good point that 20% today, it's very different than 20% at that time, which we were 14%. The domestic interest rates are at 6.5%, as opposed to 14.5% back in 2015. The second point is also related that Brazil has never seen rates at 6.5% for a prolonged time. The last time Brazil had rates under 6% was in 1950.
We haven't really seen yet the potential benefits of a prolonged, low interest rate environment and low inflation environment. Hopefully, this will definitely yield into growth, particularly in a country that certainly has a lot of opportunities, both at middle class level, but also at the base of the pyramid from a social point of view. What's ahead of us? We've made a number of progresses in consumer finance. I think has been mentioned here also. We should be growing market share profitably. Car market has, not only the car, but the whole mobility space in Brazil has moved quite dramatically from where we were. Car sales have gone up over 20% already when you compare to the last 12 months.
We are seeing at least unemployment has stabilized. I think we should not see big surprises as of yet, although things can always change very rapidly. I would say in terms of opportunities for us, it's going to be a variety of fronts, but we are well-positioned to grow profitably in the marketplace. For those who are not following Brazil that closely, 50% of the Brazilian market is in the hands of public banks, two public banks. I think if you look at the new government direction, where they do see the private sector taking a more significant role in what happens from a finance point of view in the marketplace, I think the private banks, we're not alone, far from it, we have phenomenal competitors.
The private banks should benefit in a marketplace that politically and economically is looking at private banks to take a bigger role.
It is a great growth story yet to come. Dirk, welcome to your first Santander Investor Day as our Global Head of IT & Ops. You just started, and we announced some IT and ops incremental cost efficiency, right? Of around EUR 700 million. Although José Antonio and Ana explained where most of the bulk of these savings efficiencies are coming from, more detail and the breakdown between Popular and non-Popular, will be great for the analysts and investors.
Thank you. I think in general, you would think cutting costs and on the other side becoming more digital is a contradiction. In reality, it's not. We are saving EUR 180 million as part of the Popular integration. We are pretty much turning off the whole IT infrastructure of Popular as part of the process. I think this is showing the strength of our business teams, the strength of the TNO teams, but as well the strength of the technology platform we have in place to be able to really totally migrate and decommission a full-blown complex bank. Now let's look at the EUR 550 million. The EUR 550 million are coming from us modernizing the technology and operations teams, and it is as well about scale. If we look at scale, just in Europe, we have a unique footprint all the way from the Nordics down to Spain.
We have all the means and ability and the vision to say we have the means and ambition to be very cost-effective. Let me now look at this one. Let us first look at operations. Operations, it is all about investing in digital tools, process re-engineering, automation. This lowers cost, but not only, because at the end of the day, it lowers operational risk and it improves as well customer service. What are good examples? We already have more than 1,500 robots in the group. No, it is massive, and it saves us money and improves the service as well. Another contribution in that aspect, as well, is our global scale. We see today that the global process is between 25%-30% cheaper than if we operate the same process locally. An example, we are today globalizing the SWIFT service.
You know SWIFT is an important one for us. There are savings in it, but it is a lot about resiliency, and it is a lot about our ability to defend on the cyber side as well. It is much easier to defend one global service than a fragmented service. It is very important. Now, stepping back on the technology side, we are not reducing capability, we are increasing capability by investing very clearly in the relevant customer touch points, but as well in the relevant processes. There are five key themes around which we are transforming our technology teams. First, it is continuation of adoption of agile. Really small teams that are fully lined up with the business. Very important. The second one, it is about cloud, mainly public cloud, which is a relatively new theme we are introducing.
If you combine at the end the best of class technology you have in public cloud with agile teams, we see today efficiencies of around 30% we can drive from that. It is a very important efficiency, but as well speed and innovation driver for us as technology and operations. We are as well evolving our core systems. As I said, we have very solid ones, and with Openbank, we even have a great secondary optionalities. I am very happy with the foundations on which we can build. Clearly the business need is changing, and over time we are as well changing and transforming our core systems. The fourth point is that we believe that technology and technology skills matter today and even more in the future. It is about us having the right experts in-house, not always relying on third parties.
We are investing heavily into training our people and as well hiring the relevant talent for us to be world-class in artificial intelligence, in robotics, in blockchain, and other relevant technologies. Then the last key pillar of the strategy is data. Data matters. Data is a transformational engine for the group. It is something we are investing heavily and we have a lot of focus on. As such, stepping a bit back, it is about integration, it is about modernization, it is about scale and joint innovation as well with our frontline leadership like Sérgio truly making a difference to our customers.
Going back to Latin America, Sérgio, we touched on Brazil, but a bit more with a broader scope. We have top franchises in Argentina and Chile, Mexico, et cetera. Can you share with us what are the structural growth opportunities for Santander in LatAm?
First of all, we are the really only regional franchise in a continent that has been growing up and down. It hasn't been linear, but it has been in one direction, which is good growth over time. The uniqueness of being one and the only regional franchise with scale, I don't think we have optimized yet. We've done and we still do a number of things on the back of cash for local and not local companies. If you look, for example, consumer finance, which Argentina is just starting a new effort, where we have already a very solid presence in Chile, where we have a very solid presence in Uruguay, and also small businesses in Colombia and Peru, and in Brazil, where we have a market share of 27%, I think there's quite a bit that we can do.
I'm sure Mexico will embark on the same. Just the consumer finance space for us in LatAm, which is not just about vehicles, but vehicles too, can be a very significant growth opportunity, not yet fully exploited. Just to give one concrete example, not to expand more than that.
Thanks. Dirk, a follow-up on one of the key issues that are the questions that we get from investors and analysts is how the group makes better to the different subsidiaries. How the IT and ops from Madrid improve the different subsidiaries. What is the value add from you guys?
I am based in Madrid, and I have to say it's a beautiful city. Joke aside, I think at the end, it's a global team. It's a global team which delivers global services, and we as well are one team with the local TNO team. I think that's very important. As well, it's important to understand we do not have a central or decentral operating model. We have a mix. We are a decentral organization with very strong central components, which gives us the best out of two worlds. We are agile, we are humble, we are fast on the ground, but we still can deliver significant savings coming from the group. Today, as Ana mentioned, we have over EUR 400 million in benefits driven by group teams driving or delivering services towards countries. What are examples of those services?
The first one that comes to my mind is on the cyber side. Cyber is a global threat, and we are globally jointly investing into defending against that threat. Not a single entity, not even Brazil as a very large entity, could afford the same level of protection or investment on their own. I think it's a very important one to show that the group really is creating value between us. A second one is more on the skill side. We have been able to attract some of the best talents in artificial intelligence in Madrid in the group, and they're jointly working with Lindsey and myself. That team is able to make, in a way, artificial intelligence machine learning simple and helps countries to apply those ones towards the use cases in countries. Again, a very good lever.
The more traditional savings, let's be honest, mainframe consolidations, data center consolidation. There are many areas where the group can create a lot of value. Jointly with the teams in the countries, we are now accelerating that further. You've seen the challenges or the ambitions we have, and clearly as one team, we can achieve much more than we can individually.
Let's open now the Q&A to the audience. I'm sure there are plenty of questions. Alvaro? Mike?
Hi. Alvaro Serrano from Morgan Stanley. Maybe a question for Dirk. Back in the days with José María Olavarrieta , it was all very centralized, and that gave you a lot of cost discipline, but maybe slower transformation. When Ana arrived, that was decentralized, and now it sounds like there is more flexible model. Can you talk us how the model has evolved over the last few years of how you manage it? Has that created some divisions not executing on budget? Obviously if you have one centralized, you can play around with development budgets much better than if you have it localized. Is some of the cost overruns in the group related to that decentralization of development? Thank you.
We need to recognize that the world has changed. In the past, let's say 20 years ago, it was all about scale coming just from the group at the center. If you look at cloud, you get scale on a different magnitude, which we can then help or which we can use in countries to really innovate with the frontline leadership. In a way, we are coming from a world where it was all about repeatability costs, like a factory model, a factory world, which was the best-in-class model five or 10 years ago. Today it is much more about speed, innovation, as well, security by design and cost. To combine all of that one, the model is much more about deep skills in the group. Like cloud, we do not have 1,000 people in cloud in the head office.
We have the best experts that help Sérgio's team to properly use the cloud in that sense. From a control perspective, we still have a very good visibility on budget. It is not that the group has not had visibility. We are very strong on cost control still in technology operations. We understand the investments going on locally. We as well acknowledge that the local leadership understands the local market better, and we help them to succeed and jointly innovate. The mixture we have is the best value-creating one. I do not believe that central is right. I do not believe that decentral is right. Both have too many weaknesses. If you find that middle ground, you can be very powerful around what you do towards success of the business while still having control, cost discipline, speed, and innovation.
It is a question to Sérgio. Sérgio, on the Brazil, when your chairman was asked about the local subsidiaries and the listing, she said, "It is where we are." My question to you is that when we look, Santander has six listed subsidiaries, four in Brazil, and of course, Santander Brazil accounts for EUR 38 billion of that. It means that if we add the holdings of all the listed subsidiaries, the non-listed part is just worth EUR 10 billion, which, even for a value investor like me, sounds quite cheap, if we consider that there is business like Spain and Portugal and of course, U.K. My question to you is that on the last 20 years, I never saw the spread between Santander Brazil and Santander holding company at this level. 2.7 X tangible book value in Santander Brazil versus one time for the holding company.
Two parts of the question. Do you think that makes sense for Santander just to have 90% of the listing when in other geographies in Latin America, I believe that you have between two-thirds and 75. Is there any merit of doing incremental placement on Brazil? If you were to do, where would you deploy capital in the group? If theoretically Santander would sell Brazil at 2.7 X tangible book, where do you think that capital could be deployed in the group?
Certainly, it's a question for the shareholder, not for management locally. What I would say is two things. One, we are where we should have always been. We have underperformed as an organization in Brazil historically. The fact that we are two times seven, two times five, whatever it is, what the price book is relative to our local competition. That's point number one. I think we are in the right range with the best-performing banks in Brazil. That's good. Second, I think you made a point around the other pieces of the bank. Remember, we got to be careful that Brazil it is what it is in relation to the portfolio of the bank, but interest rates in Europe are what they are.
Over time, we're going to have a completely different, hopefully, interest rate environment in Europe, which will trigger a different outlook from a portfolio point of view. Third, I don't have a point of view on how much should the controlling company have in terms of stake. I guess as we are performing, more is better as opposed to less. I don't think we take a pure trading view on a particular portfolio. I don't think it has been the way we look at it. We continue to build the business. We have sufficient capital to grow, because that's important. We have a core Tier 1 in Brazil around 12% ,12.5% . That's in line with the rest of the industry. We are not under any capital constraint. We can certainly deploy capital more intelligently each and every day.
Overall, from a growth perspective, we're well-positioned.
Ignacio.
Hi, it's Ignacio Ulargui from Deutsche Bank. Question for Sérgio. Could you help us just to understand what the chairman said before, the fact that the bank is a bit more than a bank, that is an ecosystem of companies, how that is integrated within the Getnet and all the other subsidiaries that you have, how that adds value in Santander Brazil?
I think what we have. First of all, we look at the infrastructure in Brazil as a combination of different businesses. They have identity, they have a very undivided focus what they have to do, but they are interconnected. I think the challenge of large companies is always how do you connect them horizontally in a smart way that actually adds value as opposed to bureaucracy, committees, and nonsense. In Brazil, what we have done reasonably well has been to ensure that an acquiring business is not only serving the market, but it's serving fundamentally SMEs of the bank, very interconnected. When you look at, for example, the CIB product infrastructure, they're actually serving the bank overall. They're not serving segments. Challenges in big companies is that they tend to behave according to their organizational charts.
What we have to do is we got to deconstruct organizational charts and serve customers. Beautiful, sad, difficult to be executed. We've been so far good at doing that horizontally very well. We look at ourselves as a bunch of wild dogs. We hunt together collectively, and we can certainly kill big preys. We're not the biggest in town, doesn't have to be, but we certainly should be the ones moving faster and more intelligently than competition. That what we have done so far on average, okay.
Second row.
Hi, it's Mario from Fidentiis again. One question is, before it has been mentioned about EUR 20 billion investments in IT, digitalization, and maybe, Dirk, you can comment on some of the main blocks. On cloud banking or the migration to the cloud, I wanted to hear your views on what is easier. Is it easier to move to the cloud the existing bank or to work on the already digital platforms you have, like Openbank, and then migrating the customers over there? In this sense, what is the preferred thing to do going forward?
Let's first look at the EUR 20 billion. I think it's a joint exercise between Lindsey and myself. This is a joint investment pool of the EUR 20 billion. EUR 2 billion per year going into the digital transformation. You see some of the good examples outside where the money is going with real progress in that space. What is true as well, what I see is that the joint innovation we are doing and the progress we do jointly with the business locally is key for me. I'm not claiming, like probably was more the case in the previous time to know better what the Brazilian business needs. We make sure that when we deliver, we deliver fast, agile, with the right performance, I would call it, behind it.
We make sure that from a technology operations perspective, we are the best, fastest executors on behalf of the leadership and the vision we have in the group with the group businesses like what we have in GMS and GTS, but as well what we have with Sérgio. We are investing in all of our multi-channel capabilities. Everything you can imagine is happening, and we look where benefits are to do that jointly. It's very clear that there is a delivery strategy, very strong, to make sure we are the best executors. On the business strategy, we very closely align with the global leadership for the global business and with the local leadership for the local business. I think that was the first point.
On the cloud topic, which is more a question of core systems. We do have very strong core systems from the times where the group was very centralized. They are still maintained, they work, there's no burning platform for us like some other banks might be having. Are those systems in five years, as they stand today, the perfect platform for business? Probably not. What our strategy is, we evolve those systems. They're well-architected, and sometimes most of the system serves very well the purpose, and we just need to modernize a specific piece, which is important towards the business. We do not need to do five-year type of big transformation programs and replace core systems as a sense of urgency, I would call it.
We can evolve jointly with leaders like Rami in Spain or like Sérgio in Brazil, and serve the business very well with what we have. Now, looking at what we have today with Openbank, it gives us optionalities for specific use cases. If you look at core system migration per se, it takes a long time and distracts the business for a long time. It's not an option you do without real steep sense of urgency. Sometimes a specific segment can be very well-served by the technology. We can go easier with that technology into new markets. We are looking always carefully in our core systems as our core strength, optionality coming from Openbank.
We always look case by case which of the two options make sense, as I said, we do not have this sense of urgency to replace systems because they're obsolete, they can't be operated anymore. They are solid. They run every day in a very stable, solid fashion. Now, what we do in public cloud. It's very important. Public cloud gives us a global platform, and I think that one is important. Every investment we are doing jointly between Lindsey and ourselves, like on Global Merchant Services, Global Trade Services, we want to somewhere develop and then reuse globally. For us, public cloud is almost a reusability platform. Yes, it's cost-efficient, it gives us innovation and speed. The more important one, it's global.
As such, all of our scale benefits we get from the group, we can leverage much better in public cloud than what we can do on our own footprint. I would say public cloud is a real engine for reusability, for value coming from the group. Our core system strategy, as I said, segmented carefully, looked at case by case, there is no sense of urgency, which I have to say, I feel quite lucky about that, I think core system replacement projects are not very value-creating if you can avoid them.
Carlos?
Carlos from Société Générale. Just a quick follow-up on the IT budget. Could you, roughly, but could you break down the EUR 5 billion per annum that you invest between what you need to use for updating the IT infrastructure of the bank, modernize it, and how much is left for you to invest in new AI projects and more innovative projects? Do you have a lot of room for maneuver there, or that is still like a secondary priority for you?
I think when we look at it, we normally, as an IT person, you distinguish the business as usual part from the investment part. Your question is very relevant. We have today is we have EUR 2 billion in digital investments. That's really room for maneuver, and that one is shared between Lindsey and myself, overlapping by EUR 1.3 billion between us. EUR 1.3 billion of the EUR 2 billion is part of the IT budget, but jointly driven based on the strategies coming from her and coming from the frontline leadership. We then have something like, I would say, business as usual is normally the ratio is 60/40 in other companies I worked before. We are a bit better. We are probably around 55% around change capacity, 55% or so around the business as usual.
We are in a good space around the split between running the bank and changing the bank. I think this is a healthy ratio, and I feel very confident around that. If not, I would have been very much more careful around any of the commitments given today.
A question for Dirk from Stefan at Citi. Openbank runs on Temenos, as far as I know, and just wanted to get some color on how did you choose to go with Temenos rather than run Openbank on your own existing core banking systems? You just made the comment that your existing systems are good, they're stable, they allow you to do whatever you want to do. Why go with Temenos and not put Openbank on your existing systems?
I think there's first one step to be taken, that Temenos is not, in a way, the platform for Openbank. Openbank is based on Amazon Web Services today, has a very modern architecture around modules and reusability of APIs in a sense. It has Temenos for some of the functionality and many other components as part of it. It's a very modern architecture, I would say, for a bank. Now, the same architecture we are deploying in all the other banks as well. It's not like the other banks will remain on-premise and not having those type of flexible architecture. I would say the Openbank architecture on the technology side is similar or the same architecture from the principle perspective we are implementing in Spain, we are implementing in Brazil.
Now that comes back to the one part of that architecture, which is the core banking system. I think the Temenos banking system is quite nicely tailored towards what we want to do in Openbank. It gives us the ability to deploy quickly in additional countries. It's a good building block, I would call it. Our existing Parthenon system is used today in Openbank, so it does work. It would be more costly and less flexible for us to bring, for example, this Parthenon as the foundation to launch in additional countries. In a sense, it is a bit more smaller. It's a bit, I would say, simplified, versus what we have.
Today, running a bank like Spain on Parthenon, which is our own self-developed one, I'm very comfortable with the same volumes we have in Brazil and the scale we have in Brazil with our core systems. We do very well on this. I would say for me, same architecture between Openbank and the rest. Yes, there's a building block called core system, which either way gets smaller and smaller over time in the new architecture world of modularization. Yes, for Openbank specifically, Temenos is a good choice for a number of banking services in that context, helping us to be a bit faster, more flexible, and a bit more cost-effective around what we do in that space.
There's no driver, for example, migrate Spain, which works very well, but you can have the same architecture, the same feeling, the same digitalization way as the heart of this one.
We'd run out of time, I'm afraid. Thanks, Dirk and Sergio. Now we have to move to the second fireside chat. Thanks very much for your contribution.
Thank you.
Thanks, Lindsey and Ezequiel Szafir. Lindsey is our Chief Digital and Innovation Officer. Ezequiel Szafir is our Openbank CEO. Both of them, thank you for sharing your views. Openbank has been mentioned this morning quite a few times. What is really what Openbank adds to the group?
That's a very good question. Actually, I think Openbank adds to the group in different areas, and the questions asked a little bit go in that direction. The first one is when we talk about a platform. Openbank is developing a full banking platform that is based on the new paradigms of machine learning. One single data lake for everything is cloud-based. The core banking is new and modular. One of the modules, as Dirk Marzluf said, is Temenos, but it's like 42 modules, and that's a bit the seed of the future for the group. It's somehow for Lindsey and Dirk Marzluf, also a partner to develop the know-how and the R&D that we will be applying at the group.
If you would be a car company living on diesel sales every quarter, you want to have your own electric car built and properly done in-house that runs the right number of miles, and that can charge in less than four hours. That's what we are doing. We're like the Tesla for the group in that sense. Besides the technology, I think another very important thing we do is there is this art of doing what others do without branches, right? If you think about it, for example, somehow Amazon does what Tesla does, what Walmart does, but without stores. We are kind of doing what banks do without branches, and that means that we should be able to attract customers, engage them, and retain them in a full digital way without branches.
That's probably a lot how the future will look like, and having within the group a bank that is doing that every day with already 1.2 million customers and 38% engaged with a resulting in EUR 9.5 billion in deposits. That's, I think, a big added value.
Thanks, Lindsey, one of the pushbacks that every now and then when I meet with investors we have on the speedboats is that the speedboats as such is a very nice concept, but in the bigger scheme of things for the group, they don't make the difference, right? What can we tell to the audience on that? How long should we expect until these speedboats make a difference for the group?
Well, you're right, Sergio. Today, the speedboats relative to the core business are relatively small because they're fairly early-stage. However, we think that there's huge potential. One of the ways that we prioritize the speedboats is we pick very large problem spaces that we feel are ripe for drastic improvement or disruption that we feel we're uniquely placed to solve. As you heard Ana talk about them, we see in the midterm, we actually expect that we'll have 15 million active customers using these services. Most of those we anticipate to be new to the franchise. Again, if we think about driving customer growth, that's pretty significant to the bank. Very importantly, though, is we don't just look at it in terms of acquiring new customers. We look very methodically at making sure that those are active customers. They're getting value from the service.
They're transacting with that solution, as a result, that they are not only getting value themselves, but it's delivering value for Santander as well. That's very important and very different than many of the startups you see today, which are just chasing user numbers, and Ana mentioned that a few times. The last thing I'll say is, of course, it takes time to build a very large scalable digital business, but in the interim, as the technology comes online, we're taking some of those services and applying them to our core business. One Pay FX is an excellent example. We invested in the infrastructure and modern technology and modern services, and we put the One Pay FX, the international transfer capability, into the Spain mobile banking app, for example. Since we launched that, there has been 120% incremental transactions in cross-border payments, right?
While we're incubating a standalone digital business that will allow us to acquire new customers, the core business is also benefiting as well.
If investors and analysts tell me or tell us that most banks have some kind of a digital online platform. The first question is, what does Openbank make different? Why Openbank is different versus other European competitors? The second one is, how does Openbank create or will create value to the group shareholders?
Let me answer. The first question, I think it's more fun because it's a question I get asked a lot. What's the difference between Openbank and other digital banks that we have across Europe? I think first, there are a lot of similarities. If you see European large digital banks, we have a lot of similarities. We are fully digital. We are razor-sharp focused on customer service and support. We have a beautifully looking app. We have a double-digit growth on mostly every KPI. Probably they end there. The two big differences are, on the one hand, the product portfolio. Most digital banks would stop having one app and a current account, probably a debit card or a credit card. Openbank has everything that your bank doesn't have, we have the same. You have a great-looking app.
For example, if somebody here has an Openbank account, you are already probably keeping your passwords and your secret notes within the app. If we keep your money, why can't we keep as a data bank, your data? You probably also are aggregating and seeing the balance of other banks. We're making full use of PSD2. Within our clients, within their app, they can see the balance of any other bank or even of a PayPal, for example. All these goodies that digital banks have, we have, but then we have the proper banking service. You can get a loan, you can finance your payment, your school, kids' tuition right away from your app in two clicks. We have a full broker. The brokerage is open architecture. You can buy and sell stock, futures, warrants, whatever you want. We have robo-advisory combined with micro investing.
This looks like an advertising that I like it. You do have all those services that are not just going to be deployed. They're deployed, they are working. We have already EUR 1.2 billion in assets under management. That's the big difference. This is the big enabler for the other difference, which is the business model. Our business model is banking, retail banking, meaning, we do what other banks do with our branches. The result is that because having all those services, we have, for example, the average customer has about EUR 21,000 as balance, average balance. If you look at other digital banks, they probably are in the GBP 200 one. The other one is about EUR 1,000. It's a real relationship we have with them. We have mortgages. We started the mortgages a few months ago.
We're already over EUR 400 million in mortgages. Mortgages are, on average, less leverage than the market, which is very good. I think it's a big difference to other banks. That is all value that stays in the Group because the whole technology development process is not isolated. Together with the technology group, with the digital group, some stuff that we work at Openbank, for example, I think AML is a big point. If you see what our digital banks are doing, because most of them are owned or by venture capitals or private equity, they're investing in AML. It's very expensive, and you will not get a payback in the next three years. We're a bank. We are regulated bank. We're part of the Group Santander. We do the proper thing, but we're developing in parallel.
Actually, it's Lindsey's team developing for us a whole machine learning base, with artificial intelligence, AML tool. That AML tool was developed by Lindsey's team, deployed first at Openbank as an R&D lab. It was run in parallel, worked really well, and now Dirk's team is rolling it out in three countries, including Europe and America. That's how the value goes from one place to the other.
Thank you. Lindsey, a similar question to the one that I asked before to Adi. How does innovation add value from Madrid, the corporate center to the different subsidiaries?
I think as they just touched on a couple of them, I would say, first of all, in terms of expertise. It doesn't make sense for all of our countries to have deep expertise in data, advanced analytics, artificial intelligence, blockchain, a practice called conversion rate optimization. There are certain disciplines where those expertise are high value-adding. They don't need to be necessarily in country. We have these centers of excellence at the group level. Dirk mentioned a couple on data artificial intelligence, as they just gave one example as well. We basically have 100 data scientists who work very closely with the countries looking for the highest impact use cases. We have a global machine learning platform. We develop the algorithms once, and they get deployed locally, running on that country's data. Again, very high return on investment.
If you think about the improvements we're seeing with 30% churn reduction, 20% improvement in cross-sell, 40% AML, reduction on false positives. There's a number of things, again, where you take that expertise, and we deploy it locally. Similarly, a lot of the tech companies and e-commerce players have a discipline that is well-worn, which is called conversion rate optimization. It is a deep science and a deep practice that has huge implications as more of our customers shop online. Over the last year, we've been working with most of the countries, and now this year, working with all the countries, where we've seen improvements of 2X in the conversion rate, which is driving a lot more of our sales, and again, efficiencies in our sales channel process. The expertise is critical. The second big theme is around shared development.
Ana gave one example earlier of Globa, which is our code name for the mobile banking app. We saw about nine months ago that most of our countries wanted to bring very similar functionality and innovations to their mobile banking experience so that they could have the best experience possible. We see now that an average mobile banking user is accessing and logging in 19 X a month. That's a tremendous opportunity for us to engage and add value in those interactions. In a matter of months, a cross-country team basically built several components and functionality and are now deployed already in the hands of nine million of our mobile customers with very ambitious roadmap for the rest of the year. Again, we're going to see a lot more of the shared development where it makes sense.
All of the new speed boats and the opportunities we talked about in Global Trade Services, Global Merchant Services, they will all be built as global platforms and shared across the countries. That's a big change.
Okay. I guess we can open now the Q&A to the audience if there are some questions. Mario?
Hi. Me again, Mario from Fidentiis. On Openbank, from the figures I have that are publicly disclosed, the loan book is EUR 5 billion in Spain, and the ROT is below mid-single digit. The target is to go to 20% in midterm, three to four years. I guess that the goal or the upside is not coming from efficiency here. Could you please tell us some of the implicit targets embedded in this 20% ROT in terms of volumes and margins? Yep, that's it.
Actually, the growth does come from efficiencies. The difference that efficiencies in a digital company are the way the cost scales. When you have a digital business, most of the part of the costs are fixed, and the variable is a smaller portion that grows slower than the revenue activity you generate. That's why if you see most digital companies strive for size as the beginning of their growth, because that's what brings, actually, profitability. In the case of Openbank, what we are simply planning is to benefit from that scale from the digital infrastructure. That being said, the other difference is that today, if you look at our cost structure or invest, we are anything but ideal because we are investing a lot on stuff. For example, if you look at Openbank, we started the project about two and a half years ago.
It was just a deposits-only bank. Today we have a lot of services that we have been investing in developing and all those resources that go to develop, for example, I think we have one of probably the best robo-advisors in Europe with micro investing, everything. Those resources you can redeploy, and that becomes more efficient. I think there's two big levers, is that we have already paid for most of what we're building, and the other one is scales by digital, and that's the magic of digital, right? We're going to open other countries, and we need probably, in some countries, one person, a market manager. In other countries, we may need 50, 80 people. That's like a full country. That's how digital business work. Alvaro?
Hi. Alvaro Serrano from Morgan Stanley. Openbank, another question on Openbank. It's existed for a while, I understand there's a lot of development, what are you waiting for to launch globally or in markets like U.K., Europe, which is obviously, it seems the long-term aspiration? Thanks.
It's a good question. Openbank has more than 20 years as a bank. The group has been innovating through Openbank. It was a direct bank, a phone bank, when that was actually super new. The bank we took over was there already. We are turning it into a proper digital financial services platform, as we said. We're not going to wait much to go international. We're going to be careful. We're going to be selective. We're trying to add value to shareholders, not just to add users in different countries that are. We don't want to turn operating losses into customers like other ventures do. We're going to go step by step. We have two different ways to go digital first.
The first one is as an European bank, as you may know already in the news, we applied for a European license, which we got already. We can start expanding in Europe using our European passport. That means that it will be the same team we are in Spain. We are only 146 people. This is a very, very lean team for 1.2 million customers that we have. We can open a market, which we actually are opening as we speak, with a marginal effort. We're going to go first for Germany. As of today, German customers can already go to openbank.de, they will find our website with a waiting list. We already are operating with real customers in Germany in a friends and family way. We'll keep that waiting list open for a while, other European countries will follow soon after Germany.
As for non-European countries, we can operate with our full stack with our local license. We have applied for licenses in several countries already. Some of those applications became public. We have already started assembling a team in Argentina. We hired the Country Manager for Google is now our Country Manager in Argentina. We have a team, already 10 people, we're going to open as well there. It's happening. It's coming.
Stefan?
It's Stefan from Citigroup. A question for Lindsey. Do you see digital as a way to increase fee generation? How could that happen across the different countries? Thank you.
Yeah, I think, of course, depending on the business, what you could see here is with our Speedboat program, we're basically tackling what we think are the most promising spaces for, again, disruption and opportunity. Absolutely, we see that there are, depending on the Speedboat, there's opportunities for new fees. There's also new business models. That's a lot of the disruption that's happening right now. You heard Ana reference a couple of times that because of our scale, as we invest in these global platforms, obviously digital is a scale business. We're not only going to take advantage of that ourselves and operate more cost efficiently, it allows us to go on the offense and serve other people. I do very much believe that there will also be new revenue streams that come out of this as well.
In addition to serving new customers with new revenue streams of additional fees, there are also new revenue streams entirely. Because you think about monetizing, getting the value out of that customer relationship very differently.
Hi, it's Benjie at Jefferies. Just a question on credit risk management. How does that work in terms of the information flow or how that's managed at the group level, between Openbank and the traditional banks within Santander? What implications also does that have in terms of your ability or your willingness to scale up quickly in new markets where the traditional subsidiaries aren't operating?
That's, I think, a very good question. If I may start by a personal reflection, I joined Santander about three years ago. I came from Amazon, and from outside you tend to see banks, these large corporations, not expecting much on the digital side, right, on the technology side. When I came at least to Santander, the surprise is that actually, if you go around countries, you will find extremely strong groups of data scientists working on machine learning algorithms, precisely on credit scoring and risk, in countries like Brazil, Mexico, Argentina, Spain. It's very impressive. The first thing, it's not Openbank, it's the group where the knowledge is as well. Not just Openbank. The truth is that at Openbank, because of the data architecture we have, we are able to move very fast in testing a lot of algorithms.
A lot of different machine learning algorithms, to apply not just to a credit risk scoring, to AML, to fraud detection. We have the best of both worlds. The group has a central know-how team for modeling, and we are running in parallel many times the old-fashioned rules-based with the algorithm, the new one. We do testing, we do actual real life testing. We take 2,000 clients, we try and we compare with pilot groups. That can be directly applied into countries, and we work a lot together. The only limitation you have is ensuring data because of the data protection law. Models don't need to share data. An algorithm is actually a pen drive, and you can go and put an algorithm in any data, and then you optimize it, right? It's a joint work.
We are, as we speak, there is a central functional analysis team for machine learning. There is a team of scientists at Openbank, and we work together. It's sharing, actually they met in Madrid last week. It's like a club. They meet and they exchange algorithms, ideas, et cetera. The robot for machine learning development of Openbank is already working in Santander, Argentina, for example.
I have no more questions, I guess. I guess we can leave it here and leave the floor to Ana for the concluding remarks. Thank you.
Thank you very much, everybody, for being with us today. I'll just be very brief so we can all have lunch and have a chance to talk some more. I hope you had enough time for questions, but you will have some more time during lunch. As we have explained during this morning, the customer loyalty and digital strategy is working for us. It has allowed us to deliver on our three-year plan. We have done that leveraging on our strong foundations, which we covered, and really the whole focus, and a lot of the focus going forward, will remain in terms of the network value, the knowledge, the talent, and working more together as a single platform.
This is super important, we believe this is the way to deliver not just today, and this is, as I said in the Q&A, it's finding the balance between delivering today and in the medium term. We're aiming to deliver in growth in profitability and, of course, as a bank, in increased strength as a whole. The focus today has been on how we're going to speed up this transformation of Santander to meet the challenges we face, the digital challenges and the macro and so on. One of the things that I mentioned briefly in response to a question was that organization is one of the key levers that we have to deliver on strategy and deliver on our plans. We will continue to focus on robust governance. This is crucial. We have strengthened our internal governance systems and continue to do that.
We also need clear lines of accountability, this is important, we need really a structure that allows the tough questions and then executes. This is the reason why we are taking this step, which is, for the Santander Group, quite an important one. We need to continue to make the most of our geographical expertise. Our country leaders are hugely important to us. Diversity is hugely important to us. We today operate across three regions where our business can work much better together. We're doing a lot of that, as my colleagues explained a few minutes ago. We need to work in an agile and efficient way, building on each market's strength and innovation.
At the end of the day, we do not need to invent the same widget 10 X, sometimes even 20 X, this is exactly what it is that we are aiming to do. I must say that one of the questions I often get, José Antonio, José, and Sérgio also, one of the questions that really, let's say, I don't get upset because I shouldn't, but I take this on as a constructive challenges, you are a federation of banks. You're a conglomerate. To prove that we do listen, this is also our response. We want to be less of a conglomerate, less of a federation of banks, unlock even more the value that we see that the market has not fully recognized. This is the answer to that. We are going from many different countries managed, I'd say, autonomously.
The reporting line will change, and this is important because we believe this is a more efficient organization. We'll have three groups of countries, Europe as a geography, South America, and North America. Each of the new heads will report to José Antonio, each of the country heads will report to the new group heads. Obviously, one of the key goals, I want to stress this, is that we will not create regional structures. That's not what we're doing. We're going to leverage the group functions, which are very strong, to deliver better for the countries, as my colleagues Dirk and Lindsey explained is we will have certain centers of excellence in different countries. This coordination between countries and the center will be strengthened.
There will be no new functions being put in place. This will be complemented by a new management committee chaired by our CEO, which will have 12 members, I mentioned that already, seven nationalities, very much more business-focused, again, with a very strong continuing strong compliance and risk functions across the group. We believe this is one of the really new things and tools in terms of how we can deliver faster execution. I've been saying that for a while. We have done a lot these three years, we do think Santander has much more potential, a huge opportunity going forward in this digital environment. We believe we will be one of the winners. As a summary, I would like to leave you with our medium-term goals. You've seen that already. We are going to collaborate increasingly in a smart way across the group.
We're aiming to be the best for our customers. There's no other way in today's world. The best customer experience. This will lead us to the profitability and capital efficiency that we're aiming for. Of course, a simplified management structure to accelerate execution. Thank you all again for being with us, and we look forward to talking to you. I hope you agree with me after listening to my colleagues. We have more like them. We have an amazing team. We have an amazing combination of new talent with the traditional Santander bankers. I think Eze, he comes from Amazon, I think his team reflects what you can see in Santander Spain or Brazil or the U.K., which is a very unique combination of traditional bankers with new skills. This is what's going to make us succeed.
It's our team, I would like to say thank you to everybody here. I'm super proud of what you've done, I look forward to even more ahead. Thank you again.