Retail Banking Monitor

Executive summary

European retail banks had another strong year in 2025 and delivered positive headline numbers with topline growth at +3%, operating profits up by +6%, and relatively stable operating costs at +1%
Much of this strength remains cyclical as net interest income remains the dominant income driver, while structural forces reshaping the requirements for European retail banking
The next phase of value creation will depend on building more resilient fees and commissions through brokerage, subscription models, or bancassurance
At the same time, AI can unlock meaningful productivity gains while laggards face a widening cost disadvantage. Agentic AI increases the risk that banks lose the primary interface for saving, investing, and borrowing to third-party platforms
We have outlined a strategic blueprint for European retail banks for 2030 building on five anchors: Income diversification, digital-led sales transformation, scaled AI adoption, ownership of the financial agent, capital efficiency and asset-light models

1 Introduction

European retail banking outlook 2026: Strong results open the window to act now

European retail banks closed 2025 with another strong performance. The last phase of high interest rates continued to support income, while many banks also benefited from disciplined cost management and the gradual impact of digital transformation. Across our sample, deposits rose by 4%, loans by 3%, topline by 3%, and operating profit by 6%, with costs increasing by just 1%.

But the current strength is not the same as long-term resilience. Much of the recent performance still rests on favorable interest-rate dynamics rather than fully transformed business models. At the same time, competitive and structural pressures are intensifying: challengers are winning new customer relationships, core investment products are migrating to new players, and AI is beginning to separate leaders from laggards.

Looking ahead, the key question is no longer whether banks need to adapt, but whether they will do it while conditions remain favorable. The retail banks that use today’s income to diversify fees and commissions, modernize distribution, scale AI, and improve capital efficiency will be better positioned for the next phase of retail banking.

2 Competitive landscape

How AI and challengers are reshaping European retail banking

The operating environment for European retail banks has shifted: interest rates are normalizing, geopolitical volatility is elevated and sovereign refinancing is tightening. These conditions shape the operating environment, but they are not what will determine who wins European retail banking over the next five years. The decisive forces are competitive, and they are already in motion:

Neobanks are winning new customers. Challenger banks are capturing a growing share of first customer relationships across Europe, while incumbent customer growth has remained broadly flat. The institution that wins the first account wins the starting point for lifetime value.
Investment products are migrating to new players. Mobile trading platforms and low-cost ETF providers are taking share in the investment use cases that traditional banks once owned by default. Their transparent, low-cost propositions are repricing incumbent fee models through customer choice rather than regulation.
AI is dividing the industry. A performance gap is emerging between retail banks that deploy AI at scale across functions and customer journeys, and those still running isolated pilots. Leading institutions estimate more than 15 percentage points of cost-to-income improvement at advanced AI maturity. The gap, once it opens, will be expensive to close.
Agentic AI is changing the interaction model. Autonomous financial agents are beginning to manage liquidity, transactions, investments, and credit decisions on behalf of customers. The key question for retail bank is who will own the financial agent. If technology platforms are providing the interface, retail banks are risking to become the infrastructure behind someone else's interface.

3 Performance overview

Strong 2025 performance masks growing structural pressure

The 2025 performance data tells a story of strength under pressure. European retail banks delivered strong headline results.

Deposits

+4%

…deposit volume

Loans

+3%

…loan volume

Topline

+3%

…topline

Cost

+1%

…operating costs

Profit

+6%

…operating profit

Since 2021, operating income per customer has grown by 27.2%, while operating costs rose by just 6.1%. The top-performing banks (top 10% in sample) achieved cost-income ratios of 36%, compared to the 51% industry average. This widening spread reflects how much of the performance story rests on income growth rather than structural cost improvement.

Where are the risks?

Deposit and loan volume growth has plateaued at 3–4%, with limited structural drivers ahead
Consumer lending NPLs are edging upward in several markets
The combination of rising credit losses and declining rate support would put significant pressure on banks that have not diversified their income base

What does the outlook suggest?

The window to diversify income, scale AI, and accelerate operational transformation is narrowing. Banks that wait for deterioration to confirm the need for action will be responding on a lag they cannot afford.

4 Conclusion

Five priorities for European retail banks

To remain competitive through 2030 and position for the next phase in European retail banking, retail banks must act on five interconnected priorities:

Income diversification

Reduce dependence on net interest income by building stronger fee and commission businesses - through online brokerage, subscription-based account packaging, and bancassurance.
Branch reduction and sales transformation

Manage the customer relationship and sales capability while reducing branch density. The objective for retail banks is to maintain access to critical services while lowering the cost of branch networks.
Scaled AI adoption

Move beyond isolated AI pilots to deploy AI as a horizontal productivity layer across operations, customer journeys, compliance, and technology. Scattered use cases do not change the cost structure.
Ownership of the financial interface

Develop a clear strategy for the agentic AI era. When autonomous financial agents manage liquidity, route transactions, and rebalance investments on behalf of customers, the bank must remain the trusted interface; not invisible infrastructure behind a third-party platform.
Capital efficiency and asset-light models

Explore originate-to-distribute approaches and significant risk transfers to improve equity efficiency and support growth without balance-sheet constraints. In the next consolidation cycle, capital flexibility will determine who acquires and who is acquired.

Dominik Berner, Ramon Papavlassopoulos, Federico Croppi, Christian Mesisca, Carolin Eiting, Antonia Düx, Michael Donisch, Jana Meister and Zhiyi He also contributed to this report.