Getting the balance right: How European banks can maximize their full potential in retail


Executive Summary

A decade after the financial crisis, many European banks are still struggling in their retail businesses with an environment of low interest rates, a shrinking branch network, stiff competition and high acquisition costs for new customers.

Such pressures have banks focused largely on maintaining a low cost-to-income ratio (CIR) – that is, keeping costs as low as possible while trying to grow market share. This approach has led banks to focus insufficiently on “per customer” performance metrics, which are a better measure of profitable long-term customer relationships with staying power. That is important, because doing higher margin business with existing customers is the most promising path to profitable growth over the long term. Additionally, cross-selling or selling premium products to existing customers is far more efficient and profitable than acquiring new customers through means such as offering cash incentives to open new accounts. That is particularly true at a time when the market and revenue pool for European retail banks is stagnating, competition from digital competitors is fierce and the number of customers switching banks is low.

While CIR remains an important measure of profitability, the time has come for a new approach to improving profitability: banks should spend less on acquiring new customers, but instead should invest in creating and selling products and services to their existing customer base to capture the full potential of each customer relationship – while keeping costs low. Our model shows that this has the potential to boost revenue per customer by as much as €200, from €435-€580 currently. Having a balanced CIR of between 53-65 percent is crucial to achieving this.

The 2019 Strategy& Retail Banking Monitor covers about 50 retail banks and banking groups across Europe, North America and Australia, with a combined 715 million customers and an estimated €17.1 trillion in retail deposit and loan volumes. In this report, we found that the best-performing retail banks were the ones that were most successful in capturing the full potential of each customer. By following the recommendations we make below, banks can make themselves “fit for growth”, generate sustainable profits and be more robustly prepared for a future financial crisis.

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Getting the balance right: How European banks can maximize their full potential in retail

Key findings

  • “Protein for the skinny”: drive top-line income and invest in “good” costs. Banks with a low cost-to-income ratio (CIR) and low operating profit per customer should create top-line growth and spend wisely on good costs to reach their profit potential
  • “Fitness program for the sluggish”: capability-driven strategic transformation. Banks with a balanced CIR that is not translating into high profit per customer should undergo a strategic transformation focusing on their strengths and the capabilities that differentiate them, to tap into their profit potential.
  • “A diet for the overweight”: strategic cost-cutting. Banks with the right overall positioning but a CIR that is above 65 percent should apply a strategic cost-cutting/ efficiency program to get rid of unnecessary spending while protecting good costs.

"Banks should not simply put their strategic focus on cost reductions. The best retail banks in Europe exploit the business potential of their customers in all areas, from account and primary banking relationships to savings and investment products and loans. These institutions generate operating income that is twice to four times higher than that of a highly efficient direct bank. The majority of traditional banks, but also many of the mobile new banks, should therefore urgently 'rebalance' their business model."

Andreas Pratz
Strategy& Germany


Top-line growth and maximizing operating profit per customer offer retail banks the best route towards sustainable growth in the short and long terms. Our analysis shows that spending too little limits banks’ ability to do this, and that a balanced CIR is better than having the lowest.

Wherever a bank is now on this journey, these changes will make it fit for growth and enable it to achieve sustainable industry-leading profit into the future.

The Strategy& Retail Banking Monitor is an analysis of the leading European, North American and Australian retail banks across key performance dimensions. The 2019 edition contains a sample of about 50 retail banks and banking groups across 11 markets using data gleaned from 2018 annual reports. Market share coverage in these markets ranges from close to 50 percent to above 90 percent, and the sample includes traditional branch-based banks as well as direct banks of relevant size and profit and loss account.


Getting the balance right: How European banks can maximize their full potential in retail

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