Ups and downs in European retail banking

Over the last ten years, Europe’s retail banks have confronted numerous economic headwinds. One might assume that COVID-19 has added to these challenges. Yet overall, private customer wallets analyzed by zeb in ten major European markets have shown some resilience. Between 2010 and 2020, these markets exhibited a positive secular trend with a moderate compound annual growth rate of 0.5 percent. It has nonetheless been a bumpy ride. Looking ahead and beyond the current COVID-related downward pressure, zeb research indicates a return to growth of between 1 and 2 percent until 2025, depending on the severity of the pandemic’s continuing economic impact. 

A look below the income top line of private customer wallets

There is more disruption in terms of market structure, if one looks below the aggregate income top line. The low interest rate environment has significantly reduced the overall share of revenues from everyday retail banking from almost 50 percent in 2010 to less than 30 percent today. On the other hand, we forecast that credit income’s share of total EU retail banking revenues will roughly double between 2010 and 2025 reaching 60 percent at the end of the period. With everyday banking margin compression leveling off, credit is also the main factor driving the return to growth at the overall European level. The structural trends differ across Europe, meaning that there are both ups and downs for European retail banks. Understanding these differences is crucial when deciding upon a retail bank’s business portfolio actions.