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Banks (Finance)

Banking Sector Faces Reversion to Mean, Mounting Pressure on Profitability

Strategic Insights

— 2 min read

The banking sector, which has experienced growth in the past few years, may be entering a phase of slower growth and increasing pressure on profitability, according to a report by McKinsey & Company. The report, McKinsey's Global Banking Annual Review 2025, highlights the need for banks to shift from traditional approaches to precision strategies, focusing on technologies like agentic AI and GenAI, individualization, micro-level balance sheet discipline, and targeted M&A. Banks must adapt their business models to thrive in this era, or risk facing a decline in profit pools globally by $170 billion or 9% over the next decade.

Key Takeaways:

  • The banking sector may experience a reversion to the mean, with slower growth and mounting pressure on profitability, according to McKinsey's Global Banking Annual Review 2025.
  • Banks spend about $600 billion a year on technology, but productivity remains low, and new modern solutions are needed to thrive in this era.
  • The "Precision Toolbox" works across four key segments: technology, the new consumer, capital efficiency, and targeted M&A.
  • By 2024, funds intermediated by the global banking system grew significantly faster than global GDP (7.0% a year, on average, versus 4.8%).
  • Over the next decade, bank profit pools globally could decline by $170 billion or 9% if banks don't reposition their business models to adapt.
  • AI is shaking up the way of interaction between bank and customers, with technology raising expectations for seamless, hyperpersonalized experiences.
  • More than half of consumers now use Gen AI tools, and they are eager for banks to offer such tools as well.
  • The Consumer Decision Journey (CDJ) for banking purchases has changed substantially, with only 4% of new credit card applicants choosing their existing bank without first exploring alternatives.
  • Mobile has become the most widely used channel in the banking sector, and its role will increase in the future as generative AI is embedded in every financial operation.

Statistics:

  • $600 billion: The amount banks spend annually on technology.
  • 7.0%: The average annual growth of funds intermediated by the global banking system between 2019 and 2024.
  • 4.8%: The average annual growth of global GDP between 2019 and 2024.
  • $170 billion: The projected decline in bank profit pools globally over the next decade if banks don't adapt to changing market conditions.
  • 9%: The projected decline in bank profit pools globally over the next decade.
  • 50%: The percentage of consumers who use Gen AI tools.
  • 4%: The percentage of new credit card applicants who choose their existing bank without first exploring alternatives.
  • 25%: The percentage of openings that came from the loyalty loop in 2018, compared to 4% in the US.

Sources:

  • McKinsey's Global Banking Annual Review 2025
  • McKinsey Panorama Data

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