Introduction

The global banking industry has delivered another year of exceptional financial performance. According to McKinsey’s Global Banking Annual Review 2026, net income reached $1.3 trillion in 2025, a 7 percent increase over the previous year’s record. Yet beneath this veneer of prosperity lie structural shifts that are redefining the very nature of banking. For European banks, these changes are particularly acute, as they face a unique combination of regulatory pressures, market fragmentation, and the rise of agile digital competitors.

This article synthesizes the key insights from the report, places them in a European context, and explores the strategic responses that will determine the winners and losers in the years ahead.

Main Analysis

Record Profits, Yet Persistent Skepticism

McKinsey reports that global banking revenues before risk costs rose from $6.1 trillion in 2024 to $6.4 trillion in 2025, while profits increased to $1.3 trillion. Margins remained relatively stable, with net interest margins (NIM) declining only slightly from 1.65 percent to 1.63 percent globally. However, this stability masks divergent regional trends: US, Japanese, and UK banks improved their NIMs, while emerging markets experienced compression, with Brazil suffering a dramatic drop from 3.55 percent to 2.93 percent.

Despite these strong results, investor confidence remains tepid. Banking’s price-to-book (P/B) and price-to-earnings (P/E) ratios continue to lag all other industries. The report notes that return on tangible equity (ROTE) decreased from 12.4 percent in 2024 to 11.8 percent in 2025, a far cry from the 20 percent levels achieved in the pre-financial-crisis era. This suggests that investors are rewarding banks for current performance but doubt their ability to sustain long-term growth in a digitized, disintermediated future.

The Customer Ownership Tipping Point

A central theme of McKinsey’s review is the escalating threat to banks’ most valuable asset: the customer relationship. Fintechs, which were once viewed as minor irritants, have matured into formidable competitors. By one measure, they now claim 17 percent of industry revenues. Neobanks such as Revolut and Nubank have crossed the growth/performance frontier, rewriting expectations for convenience and user experience.

More critically, customer attitudes are reaching a tipping point. Consumers are not only preferring but also trusting new entrants for everyday banking services. This shift is accelerated by agentic AI and digital assets like stablecoins, which enable banking without traditional banks. The report argues that banks can no longer rely on their previous advantage of servicing older, more loyal customers who adopt technology slowly. AI adoption is occurring at unprecedented speed across all demographics, compressing the time banks have to adapt.

The Rise of Multispeed Organizations

McKinsey’s 2025 report introduced the concept of “precision strategies” to replace the outdated macro-driven, scale-focused approaches. The 2026 review adds a critical dimension: velocity. Banks must not only be precise in their strategic targeting but also execute with much greater speed to match the pace of AI development. This requires becoming “multispeed organizations” capable of operating at different velocities simultaneously – maintaining the stability of core systems while rapidly innovating in customer-facing and AI-driven services.

The report also highlights the emergence of distinct regional business models. As macroeconomic conditions diverge, banks in different parts of the world are adopting tailored strategies. This regionalism, combined with scalable technology, is creating new opportunities for cross-border expansion and specialization.

Business Impact

Implications for European Banks

European banks face a particularly challenging environment. The region’s banking sector is characterized by fragmentation, with numerous national champions operating within the Single Market. This has historically hindered the emergence of pan-European digital leaders, leaving space for fintechs like Revolut to exploit cross-border opportunities.

The report’s findings underscore the urgency for European banks to consolidate and invest in digital capabilities. The improvement in UK banks’ NIMs, for instance, suggests that post-Brexit restructuring and a focus on domestic retail banking are yielding positive results. Meanwhile, euro-area banks, constrained by low interest rates in the past and now navigating the ECB’s monetary tightening cycle, must carefully manage margin pressures while funding the green transition.

The Fintech Threat and Strategic Response

The 17 percent revenue share captured by fintechs is a wake-up call. European neobanks have been particularly successful in capturing younger, digitally native customers. Incumbent banks must respond by enhancing their own digital offerings, forging partnerships, or acquiring innovative fintechs. However, as the report warns, waiting out the threat is no longer a viable strategy. The speed at which AI is being adopted means that banks that fail to transform quickly will find themselves relegated to low-margin, commoditized roles.

AI and the Future of Banking Operations

Agentic AI – AI that can autonomously execute tasks – is poised to transform banking operations, from customer service to risk management. The report emphasizes that banks must integrate AI across their value chains to achieve cost efficiencies and personalized services. For European banks, this presents an opportunity to leapfrog legacy systems, particularly in markets like Germany and Italy where traditional branch-based banking remains prevalent.

European Perspective

Policy and Regulatory Considerations

The European Union’s regulatory framework plays a pivotal role in shaping banking strategy. The Digital Operational Resilience Act (DORA) and the Markets in Crypto-Assets Regulation (MiCA) are examples of policies that aim to foster innovation while managing risk. The potential introduction of a digital euro could further alter the competitive dynamics, providing a state-backed alternative to private digital currencies.

European banks also face the challenge of financing the Green Deal and the energy transition. This requires significant capital investment, which may strain balance sheets. The report’s emphasis on precision strategies suggests that banks must carefully allocate capital to areas with the highest returns, balancing sustainability goals with profitability.

Cross-Border Cooperation and the Single Market

A key opportunity for European banks lies in leveraging the Single Market to achieve scale. Cross-border mergers and acquisitions have been rare due to political and regulatory hurdles, but the competitive pressure from fintechs may force a rethink. The report’s observation that regional models are becoming more pronounced suggests that banks should position themselves to serve specific regional value pools, possibly expanding into neighboring markets to build critical mass.

The Nordic and CEE Advantage

Nordic banks have long been digital front-runners, with high adoption of mobile banking and a consolidated market. They are well-positioned to lead in AI-powered services. Conversely, banks in Central and Eastern Europe (CEE) enjoy higher growth rates and lower costs, but face greater macroeconomic volatility. Tailored strategies, as recommended by McKinsey, are essential for these diverse markets.

Future Outlook

The Next 3–5 Years

Over the next five years, we can expect the following trends to intensify:

• AI-driven transformation: Banks will increasingly deploy agentic AI for back-office automation, personalized financial advice, and real-time risk management. European banks that invest now will gain a competitive edge.
• Consolidation: The need for scale will drive M&A activity, both within national borders and potentially across borders once regulatory obstacles are eased.
• Fintech and bank convergence: Partnerships and acquisitions will blur the line between traditional banks and fintechs. We may see the emergence of full-stack digital banks across Europe.
• Digital assets and stablecoins: Regulatory clarity from MiCA will encourage the development of euro-denominated stablecoins, which could challenge the dominance of dollar-backed alternatives.
• Customer ownership battles: The competition for primary banking relationships will intensify, with banks using data and AI to deliver hyper-personalized services that lock in customers.

Policy Implications for the EU

European policymakers must balance fostering innovation with ensuring financial stability. The ECB and national regulators should consider facilitating cross-border consolidation while maintaining robust consumer protections. Additionally, investing in digital infrastructure and AI research will be crucial to supporting the banking sector’s transformation.

Conclusion

McKinsey’s Global Banking Annual Review 2026 delivers a clear message: the banking industry is flourishing, but its future is far from assured. European banks, in particular, must heed the call for precision and speed. The rise of fintechs, the accelerating adoption of AI, and shifting customer preferences demand a strategic transformation that cannot be delayed. By embracing multispeed operating models, targeting specific customer segments with tailored solutions, and leveraging the Single Market’s potential, European banks can turn these challenges into opportunities. The time to act is now.

Key Takeaways

• Global banking profits reached $1.3 trillion in 2025, but investor valuations remain low, signaling doubts about long-term growth.
• Fintechs now capture 17% of industry revenues, and neobanks are reaching a tipping point in customer ownership.
• European banks must accelerate their digital transformation and consider consolidation to compete effectively in the Single Market.
• Agentic AI and digital assets are reshaping banking operations and customer expectations.
• Policy frameworks like MiCA and the digital euro will shape the competitive landscape in Europe.

Sources

• McKinsey & Company, Global Banking Annual Review 2026: Precision with speed, May 21, 2026. Link