Traditional European banks under pressure as neobanks expand

Credit: dpa/NAN

Europe’s traditional banks are said to be heading into tougher times, according to a report by Strategy& the strategy consultancy arm of global accounting firm PwC as reported on Thursday.

Analysts cite two main challenges which include the fading boost from higher interest rates and mounting pressure from digital-only challengers like neobanks, modern alternatives to traditional banks which usually have no physical branches.

The study focused solely on retail banking.

Profits at European banks raised another four per cent in 2024, mainly due to higher interest rates.

The costs also increased by three per cent and analysts say the interest-driven momentum is coming to an end.

Meanwhile, digital competitors with no physical branches continued to expand.

Some neobanks and financial technology firms have grown into major international players.

One example is Swedish payments firm Klarna, which holds a banking license and now serves 93 million users in 26 countries.

Strategy& expects the largest neobanks to keep growing and increasing pressure on established banks.

Still, traditional banks remained more profitable, according to the analysis.

The most successful neobank earned 208 euros (229 dollars) per customer last year, compared with 668 euros per customer at Germany’s retail banks.