The future belongs to the courageous
After more than a decade of a challenging low-interest environment for retail banks in Europe, three forces are coming together: Interest rate hikes (and margin expansion), the fruits of cost transformation programs, and the adoption of digital service models. 2022 has been another good year overall for European retail banks, with topline increasing by an impressive 8%, while costs lagged behind and increased slightly by 2%. The branch network transformation is progressing, with an average network reduction of ~15% in Europe in the last two years, albeit with considerable differences in progress between individual countries.
A tale of two lands emerges as we dive deeper into the success trajectory of recent years. Banks have embarked on a journey to transform their business and operating models. Fueled by the first fruits of this journey, around four in five of banking players in our sample have moved to the land of improving profits. Meanwhile the remaining fifth stayed in (or moved to) a smaller land with shrinking profits, looking at their performance over the last five years. Those who have been courageous in the past will need to remain bold to stay ahead in the future. Two priorities are emerging as key differentiators in the near term:
- Reinventing Sales
- Reinventing Products
Beyond these immediate priorities, our scenarios for retail banking in 2025 remain relevant, with areas and players to watch out for – embedded finance keeps eating into banks’ revenue pools, and big tech/fintech players continue to drive innovation, price competition, and the quest for customer interaction.
