McKinsey: How the Next Banking Revolution Will Be Won

Core Insights - Global banking has reached unprecedented profitability with earnings of 1.2 trillion dollars, but faces vulnerabilities as market confidence declines [1][2] - Size alone is no longer a guarantee of success; precision in capital, technology, and talent deployment is essential for future growth [3][11] Profitability and Market Confidence - In 2024, banks generated more profits than any other industry, yet valuations lag behind other sectors by nearly 70%, indicating skepticism about the sustainability of these profits [2] - The surge in profits was driven by high interest rates, inflated wealth cycles, and low-risk costs, which are now diminishing [2] Shift in Strategy - The traditional belief that larger scale equates to safety is being challenged; macro-driven growth and digitalization are no longer sufficient [3] - Future success will depend on banks' ability to deploy resources with precision rather than simply increasing size [3] AI and Cost Reduction - AI is transforming the banking sector, with potential gross cost reductions of up to 70% in certain areas, leading to a net decrease in total expenses of 15-20% [4] - The benefits of AI will largely be passed on to customers as competition intensifies [5] Profit Pool Disruption - Banks that do not adapt to AI could see a reduction in global profit pools by 170 billion dollars, approximately 9%, risking their cost of capital [6] - Early adopters of AI could enhance return on tangible equity by up to 4 percentage points [6] Changing Customer Expectations - Customer loyalty is declining, with only 4% of new checking-account customers remaining with their bank without exploring alternatives, down from 25% in 2018 [7] - Younger generations demand seamless, mobile-first interactions, necessitating banks to integrate personalized insights into customer journeys [7] Precision in Operations - Investment should focus on measurable impacts, particularly in agentic and generative AI, while cutting back on less impactful areas [9] - Each client should be treated as a "segment of one" with hyperpersonalized, data-driven offerings [9] Capital and M&A Strategy - Banks should adopt micro-level balance sheet discipline instead of broad reallocations to enhance capital efficiency [9] - Successful banks in 2024 combined tight capital discipline with targeted M&A, with only 15% of publicly traded banks creating value [10] Future Landscape - The next decade will distinguish leaders from followers, with leaders embedding AI into their operations and mastering capital precision [11] - The banking giants of the future will be defined by their sharpness and precision rather than size [11]