According to a McKinsey study published on Thursday, the return on equity (ROE) of the global banking sector reached an average of 12 percent in 2023, the highest level since the outbreak of the global financial crisis in 2008. This compares with an average of 10 percent during the period from 2013 to 2020.

The consultants attribute this to improved net interest margins since 2022, as interest income from loans rose faster than the interest paid on deposits. However, looking ahead, this trend is not expected to continue.

Uncertainty around interest rates, rising cost pressures, and intense competition in retail banking will force banks to adapt their business models.

Competition with fintech companies

Although the fintech sector has not seen the same high influx of investor capital in the past two years, competitors like Revolut and Klarna have established themselves with strong customer numbers and now directly compete with many of the services offered by traditional financial institutions.

In the age of digitalization and artificial intelligence, banks must focus on their relationships with customers. The primary goals are to intensify these relationships and protect margins.

Increasing the value of relationships

Consumer expectations have risen. Building deeper and long-lasting relationships is becoming more important. Customers who maintain close relationships with their main bank not only hold the majority of their deposits there but are also open to additional products and services, which can help banks increase fee income. «If this trend continues, it will become even more important to increase the value of each customer,» the paper states.

Banks must develop clear strategies in their communication with customers. A potential approach combines traditional levers—such as improving branch efficiency—with next-generation capabilities like digitalization, AI, and generative AI (gen AI).

Refining sales channels

According to McKinsey, the landscape of sales channels is currently shifting toward «mobile first.» For a growing majority of consumers in various markets, the mobile phone is now the gateway to everyday banking.

However, branches still play a role in customer acquisition and advisory services. To develop and deepen customer relationships, banks can offer a range of incentives, introduce personalized one-on-one experiences, and refine their sales channel strategies.

Investments must pay off

Technology investments are likely to remain high. However, banks are aware that it will not be easy to achieve significant revenue or cost advantages from these technology investments.

«Successful institutions will focus on protecting their margins through targeted investments in digitalization and AI, including generative AI, to improve pricing, limit losses, control operating costs, and boost productivity.»