The Future Models of Banking in Europe
European banks continue to be subject to a wide range of pressures, from the persistent low interest environment to evolving customer preferences, from the development of entirely new types of competitors to regulatory concerns. How can they adapt to these pressures and take advantage of new opportunities in this environment?
What are the key sources of pressure affecting the European banking sector today?
- Significant erosion of net interest margins as a result of the negative interestrate environment
Interest margins of European banks have been meaningfully compressed since 2008 as a result of the low interest-rate environment. They have not seen meaningful recovery thus far.
- Increasing costs due to a more complex regulatory environment
Following the financial crisis of 2008, banks need to manage their balance sheets to fit a wider set of potentially conflicting regulatory ratios, pay closer attention to their risks, improve their governance structures, and comply with an increasingly vast body of consumer protection regulation. This has had a meaningful impact on all banks, but has particularly hit the smaller players that lack the economies of scale necessary to be able to absorb the impact of regulation.
- Evolving consumer preferences and the rise of competition
Customers are becoming increasingly well-informed and therefore more demanding in terms of pricing, convenience, and quality of service. Some of the barriers to switching providers are also disappearing with the shift to online channels and the advent of new regulation such as the Revised Payment Services Directive (PSD2) opening up access to customer data.
Inside magazine issue 15, June 2017
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