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The blessings of another strong year for European retail banks
As the saying goes, good things often come in threes. In 2024, the ongoing interest-rate tailwind continues to significantly boost retail banking income, following strong performances in both 2022 and 2023. In addition to rising interest rates, a few retail banks are reaping the rewards of their cost transformation initiatives and the successful adoption of digital service models. Overall, 2024 has proven to be another positive year for European retail banks, with topline increasing by 3% and profits by 4%.
Over the past decade, neobanks and challenger banks have made a noticeable impact on the retail banking landscape. They are approaching a tipping point where they could begin to capture a significant share of income from traditional incumbents. Our analysis has identified ten key attributes that vary in presence among both larger and smaller challengers. In response, some incumbent banks have launched in-house ventures and initiatives aimed at competing with these emerging players.
Looking ahead, we anticipate that challengers will evolve in different directions: some may pursue a strategy for global scale, while others might focus on profitability within regional markets. Meanwhile, incumbents are likely to concentrate on building digital models that incorporate physical branches, developing an innovation portfolio compliant with regulatory requirements, and effectively managing their balance sheet capacity.
Robust retail banking income growth across our global sample
KPIs of the European retail banking market in 2024
In Europe, while retail banking income has slightly increased, progress in other areas has stalled, most notably in terms of fee and commission income growth. Cost have increased in line with income. The sustained interest-rate tailwind offers an extended opportunity for retail banks to resolve these challenges.
Global retail banking income remains strong in 2024
In 2024, retail banks worldwide have maintained high income levels, primarily fueled by ongoing tailwinds from interest income. Many customers continue to keep substantial amounts of their funds in current or low-interest savings accounts, allowing banks to reap significant margin benefits.
In Europe, overall topline has remained stable at a high level, but the share of fee and commission income per customer has stagnated at 27%. There still exists an opportunity for growth in interest income.
However, a potential shift in interest rate policy - possibly influenced by upcoming U.S. trade barriers - could impact this advantage, prompting a renewed focus on fee generation and cost management. In a challenging scenario, such as the implementation of universal tariffs of 10%, interest rates might be reduced toward zero to mitigate the economic fallout and support the EU’s growth trajectory in key markets.
Income breakdown over years per customer (rounded)
Net interest income
Net fee and commission income
Other income
Note: Operating income and cost per customer based on constant 2024 FX rates
Source: Strategy& Retail Banking Monitor 2025
Source: Strategy& Retail Banking Monitor 2025
Five priorities for European retail banks
To remain competitive in a rapidly evolving market with a strongly growing customer base among challenger banks, traditional retail banks must focus on achieving a sales transformation and radically simplifying their operating models. Here are five key priorities:
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Customer acquisitionTraditional banks need to innovate to enhance their efficiency and attract the digital-savvy customer base that challenger banks are increasingly capturing.
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Product innovationIncumbent banks must expand their offerings to include lifestyle products, ensuring they stay relevant and competitive in the marketplace.
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Balance sheet managementTraditional retail banks should reconsider their balance sheet strategies, exploring balance-sheet-light models to optimize profitability.
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Monetization strategiesTo address declining interest margins, traditional banks need to boost their fee and commission income through enhanced monetization strategies.
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Segment focusIncumbent banks should leverage their scale and established trust to effectively meet the diverse demands of the market.
Dominik Berner, Ramon Papavlassopoulos, Christian Mesisca, Carolin Eiting and Antonia Düx also contributed to this report.
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