Revenues of western European retail banks will grow at a slower pace than other global regions by 2021 as competition and unfavorable regulation outweigh any benefits from interest rate rises, according to Boston Consulting Group.
Average revenues will rise 2.2%, the consultancy said, compared with 8% in Asia-Pacific, where growth will be fueled by increased access to affordable banking for businesses and individuals and the development of digital services, and a 2.8% increase in North America, where rate rises will offset a lack of growth in a mature market.

Compared to global peers, European banks will face the biggest impact from regulation, especially as regulators look at ways of forcing banks to deal with legacy bad loans. They are also now subject to the second European payment services directive, or PSD2, which obliges banks to provide third parties such as financial technology firms with access to customer data.
BCG said the directive could threaten customer relationships and banks' control over data. Meanwhile, new EU rules on data protection, which came into force May 25, will require firms to take measures to protect client data and information on transactions, although banks rank among the most trusted holders of financial data.
These multiple waves of regulation will continue to push up costs, muting the benefit to lenders of Europe's economic recovery and potential interest rate rises.
"Once we put all that in the equation, there is going to be a small rise in revenues, but that risks being eaten up by a rise in costs," said Axel Reinaud, senior partner at BCG. French banks, in particular, will see slow growth, with retail revenues rising just 1% by 2021, he predicted in an interview, largely due to a competitive market and their dependence on credit.
Fintech, recession pose obstacles
Fintech will pose a particular threat to western European banks' transaction revenues, as startups target business in payment services, with earnings also undermined by caps imposed on bank card payment fees by the EU in 2015, the report said.
It also said the prospects of a new recession in western Europe, although unlikely, could not be ruled out, potentially impeding the region's rebound. However, an upturn in consumer confidence — at its highest in 15 years — and improving economic growth will most likely lead to a doubling of loan volume growth, which stood at around 1% between 2011 and 2016.
In contrast to their western European peers, eastern European banks will see revenues rise more in line with global averages, at 5.1%, the report said, boosted by significant growth in Russian banks' services and fees as the country moves to noncash payments and more Russians gain access to banking. But the report said Russian loans will be "sluggish" with low margins, and that Polish banks will suffer from the same problems.
Russian banks are also likely to face margin pressure in savings, and given that Russia accounts for more than 70% of the region's savings revenue, the overall eastern European outlook will be corresponding affected.
Personalization push
Over the longer term, BCG predicted, banks will increasingly digitize their banking products and offer more personalized retail services. These could boost sales by 30% to 40% and reduce customer attrition by 10% to 30%.
Reinaud said banks would continue to develop digital options in the last two years of the current decade, but that "personalization will be the big subject of the 2020s." Banks that succeed in the former will be well-placed to come out ahead in the personalized services race, he added.
"Digital will be the light at the end of the tunnel on condition that banks carry it out properly," Reinaud said.
