PwC Report: Traditional European Banks Face Increasing Pressure from Expanding Neobanks Amidst Shifting Interest Rate Dynamics

Traditional European banks are facing increasing challenges due to the expansion of neobanks, according to a report by PwC's strategic consulting division. The report identifies two key challenges: weakening support from higher interest rates and growing pressure from digital-only rivals like neobanks, which often lack physical branches. While European banks' profits grew by 4% in 2024 due to higher interest rates, their costs also increased by 3%, suggesting the interest rate-driven momentum is nearing its end. Digital competitors continue to expand, with some fintech companies becoming major international players. Sweden's Klarna, for example, holds a banking license and serves 93 million customers across 26 countries. Strategy& expects major neobanks to continue growing and increasing pressure on traditional banks. However, traditional banks remain more profitable, with the most successful neobank earning €208 per client last year, compared to €668 per client for German banks in the retail segment.