One in 10 European retail banks could vanish in the next five years as margin pressure and competition from financial technology companies intensifies, according to research from A.T. Kearney.
Nearly a quarter of incumbent banks are struggling to keep costs under control, and as a result many will consider merging with a competitor or selling, according to a report from the management consultancy.
Although retail banks have generally come out of the global financial crisis of 2008 "stronger, more resilient and better regulated," in large part due to the European Central Bank's loosened monetary policy, their performance has never truly recovered, according to A.T. Kearney.
"The top line has stagnated, and there have been no tangible improvements in operating costs and efficiency. And although reducing the number of branches is still essential, it is not a sustainable way to improve costs," the report says.
Income per customer has fallen 11% between 2008 and 2018, while some €2.3 billion of retail banking income is "at risk" over the next five years, according to the research, which studied 92 retail banks in 22 European markets.
By virtue of being digital only and not having a branch network, so-called neobanks, which A.T. Kearney defines as low-cost digital firms, have an obvious cost advantage over traditional retail banks and are positioned to grab market share, the report argues.
Neobanks are set to grab an increasing share of the European banking market, with their client base poised to grow from 15.3 million customers at the time of publication of the report to between 50 million and 85 million customers in 2023. Incumbent banks have already lost around 2 million retail customers since 2011, according to A.T. Kearney.
The report comes shortly after news that popular British digital bank Monzo Bank Ltd. had hit the 2 million customer mark less than 18 months after the launch of its first current account in 2017.
"The world of banking is getting more crowded, and banks that continue to adhere to traditional business models are at imminent risk of becoming obsolete," the report said.
One possible direction that banks could take is to become a "lifestyle platform" or "one-stop shop" for the daily needs of customers, ranging from shopping to travel to utilities, according to A.T. Kearney. This could mean banks integrating information from social media platforms for purposes such as applying for a loan for home renovations, or even moving small amounts of money from current account to a savings account every time U.S. President Donald Trump tweets, the report said.