Global Banking 2026: Precision, Speed, and the Fight for Customer Relevance

Executive Summary

The global banking industry enters 2026 in a paradox: record profitability alongside persistent undervaluation. According to McKinsey & Company's Global Banking Annual Review 2026, net income reached $1.3 trillion in 2025, up 7% year-on-year, while balances grew 6.5% to $406 trillion. Yet the industry's price-to-book and price-to-earnings ratios remain the lowest of any sector, and return on tangible equity slipped to 11.8% from 12.4%.

More fundamentally, the review warns that four converging trends—mature fintechs, neobanks, agentic AI, digital assets, and changing customer attitudes—threaten to wrest control of the customer relationship away from incumbents. Banks are being told to abandon broad-brush, scale-driven strategies in favor of precision and speed.

This article examines the financial and strategic findings of the review, their implications for corporate finance and governance, and the long-term reshaping of banking business models.

Introduction

McKinsey's annual assessment of global banking paints a picture of an industry that has delivered exceptional short-term results but has yet to convince markets that it has built a durable foundation for future growth. The numbers are strong: $1.3 trillion in net income, a seventh consecutive year of growth, and a 7% improvement over 2024. But beneath the surface, structural shifts are underway.

Banking's share of the global financial system's $468 trillion in intermediated funds declined from 44% in 2022 to 40% in 2025. Revenue from traditional balance-sheet activities now accounts for only 53% of banking revenues, while transaction banking and distribution—areas exposed to fintech competition—have grown to 47% of revenues and 57% of profits.

For CFOs, auditors, and corporate governance professionals, these trends raise important questions about how banks measure risk, allocate capital, and report performance in an environment where intangible factors like customer trust and technology adoption are becoming material to financial outcomes.

Financial Context

The 2025 results continued a record-setting period for global banking. Net income rose to $1.3 trillion, driven by 6.5% growth in balances to $406 trillion. Net interest margins (NIM) declined globally from 1.65% to 1.63%, but diverged sharply by region. US banks improved NIM by 9 basis points, Japan by 7, and the UK by 6, while Brazilian banks suffered a 62-basis-point drop to 2.93%.

Revenue margins after risk costs eased from 0.97% to 0.94% of balances. Cost ratios improved, with costs dropping from 1.31% to 1.23% of assets. Banks generated $853 billion in surplus free cash flow to equity, continuing the trend begun in 2022, though at a lower level than previous years.

Investors benefited from higher dividends and buybacks. Western European bank shares recovered sharply, with total shareholder returns surging 62.9 basis points in 2025. Yet industry valuation multiples remain depressed, and return on tangible equity has begun to fall again—a signal that the peak of the recent cycle may be passing.

McKinsey's analysis identifies two structural shifts driving the divergence. First, regional business models are aligning less with geography and more with the degree of disintermediation and fee-based income. North American banks, benefiting from deeper capital markets, continue to expand wealth management and asset management businesses. European banks improved their returns through operational efficiency rather than balance-sheet growth. Emerging markets face greater margin pressure as funding costs rise and competition intensifies.

Second, the importance of the balance sheet itself is declining. As private capital, capital markets, and non-bank intermediaries absorb a growing share of global wealth, banks are increasingly earning revenues from distribution, transaction services, and advice rather than from interest spreads. This structural change has profound implications for how banks are valued and supervised.

Main Analysis

McKinsey identifies four challenges to banks' most valuable asset: the customer relationship.

1. Mature fintechs

Fintechs were once dismissed as niche irritants. By 2025, they had evolved. McKinsey estimates that a new breed of mature fintechs now captures 17% of industry revenues. These firms have scale, trust, and regulatory experience, and they are expanding into lending, deposits, and wealth management. Unlike earlier challengers, they no longer rely on regulatory arbitrage or narrow product niches.

2. Neobanks

Neobanks such as Revolut and Nubank have broken through what McKinsey calls the "growth/performance frontier." They have demonstrated that digital-only banks can achieve both high growth and profitability. Their success has reset customer expectations and forced incumbents to justify legacy branches, systems, and processes.

3. Agentic AI and digital assets

Agentic AI—AI systems that can autonomously execute financial tasks—and digital assets such as stablecoins are creating ways for retail and corporate customers to transact without traditional banks. This disintermediation is still nascent, but its acceleration is unprecedented. AI adoption is the fastest in history, and unlike past technology waves, age is not a barrier: younger and older customers are adopting at similar rates.

4. Customer attitudes

The review notes that customers not only favor new entrants but increasingly trust them for everyday banking services. This is a tipping point. Banks were previously protected by customer inertia, particularly among older, wealthier clients. That protection is eroding. The authors warn that banks have less time to adapt than they did during the internet or smartphone transitions because AI compresses adoption cycles.

Business & Market Impact

The findings have direct implications for corporate finance and institutional investors.

Capital allocation: Banks are generating large free cash flows but reinvesting them in ways that have not historically raised valuation multiples. Precision strategies—targeted, data-driven rather than scale-driven—may improve capital allocation, but the speed of execution will be critical.
Revenue mix and profitability: The shift toward off-balance-sheet activities means that banks' revenue quality and risk profiles are changing. Transaction banking and distribution generate fees, but they also face competition from non-banks. Margins in these areas are generally thinner and more volatile.
M&A and consolidation: The review suggests that regional gaps in performance and business models may drive further consolidation, particularly where banks lack scale in technology or distribution. US banks are best positioned due to stronger capital market links.
Risk management: Digital assets and agentic AI introduce new operational, cyber, and regulatory risks. Banks that fail to adopt robust governance frameworks will be exposed. The speed of AI adoption also implies faster model risk and compliance challenges.
Investor confidence: Despite record profits, the market is not rewarding banks with higher multiples. Investors appear skeptical about long-term value creation. This is a governance challenge: banks need to articulate credible transformation strategies and demonstrate execution.

Governance Insights

The review's findings reinforce several governance imperatives.

Board oversight of technology: AI and digital assets are no longer back-office concerns. They are central to strategy, risk, and customer relationships. Boards must ensure they have sufficient digital literacy and that management accountability for AI adoption is clearly defined.
Transparency and disclosure: As banks shift to fee-based income, accounting standards and disclosure practices need to evolve to give investors a clearer picture of revenue sustainability and risk. The decline in NIM and shifts in revenue mix are material issues that audit committees should probe.
Regulatory agility: Regulators are still calibrating frameworks for digital assets and AI. Banks that engage proactively with supervisors and adopt self-regulatory best practices may face fewer disruptions. Governance frameworks should include AI ethics, model risk management, and stablecoin compliance.
Performance metrics: Traditional metrics such as ROTE and NIM may not fully capture value creation in a disintermediated banking model. Boards should consider metrics that measure customer franchise value, technology adoption, and operational resilience.
Risk of complacency: The review emphasizes that banks have successfully waited out past threats. That strategy is no longer viable. Governance processes must be redesigned to accelerate decision-making and break down silos that slow digital transformation.

Future Outlook

Over the next three to ten years, the global banking landscape will likely be defined by the pace of technology adoption and the ability of incumbents to execute precision strategies.

1. Accelerated disintermediation: The share of financial assets held off balance sheets will continue to grow. Banks that fail to develop competitive fee-based businesses will see revenue and profit erosion. The lines between banking, capital markets, and other financial services will blur further.

2. Artificial intelligence: Agentic AI will transform everything from credit underwriting to wealth management. Banks that embed AI into core processes may see significant cost advantages. But this will also require substantial investment in data infrastructure and governance.

3. Digital assets: Stablecoins and other tokenised instruments will gradually enter mainstream corporate treasury and transaction banking. Their regulatory treatment is still evolving. Banks that position themselves as trusted custodians or issuers could benefit, while those that ignore the trend risk disintermediation.

4. Customer loyalty: Customer acquisition costs will rise, and retention will depend on seamless digital experiences and trust. Trust itself will be a competitive differentiator, especially as AI introduces new risks of bias, fraud, and operational failure.

5. Regional alignment: The emergence of "model-based" banking systems, rather than purely geographic ones, may lead to a new world map of banking. Banks in different regions will increasingly adopt similar operating models based on their degree of disintermediation, creating opportunities for cross-border partnerships.

6. Regulatory and accounting evolution: Expect continued development of ESG and digital asset accounting standards, as well as AI risk-management frameworks. The need for real-time reporting and integrated financial/operational data will grow, putting pressure on legacy finance functions.

The overall strategic implication is that banks must now move at the speed of software companies. The report's title—"Precision with speed"—captures the need for both sharp strategic focus and rapid execution. For CFOs, accountants, and corporate leaders, understanding these shifts is essential for risk assessment, long-term financial planning, and governance.

Conclusion

The Global Banking Annual Review 2026 presents a clear-eyed assessment of an industry that has delivered impressive profitability but faces an unprecedented convergence of threats to its core customer relationships. Record net income of $1.3 trillion in 2025 shows that banks remain financially powerful. Yet the persistence of low valuation multiples and declining ROTE signals that investors demand more than short-term earnings growth.

Mature fintechs, neobanks, agentic AI, digital assets, and shifting customer trust are not hypothetical risks—they are current realities. Banks must respond with precision and speed, adopting strategies that are data-led, customer-centric, and technology-enabled. Governance frameworks must evolve to ensure accountability in AI adoption, transparency in revenue quality, and rigor in risk management.

The financial community, including auditors, CFOs, and boards, will need to look beyond traditional banking metrics and engage with the deeper structural changes unfolding. The banks that succeed in the next decade will be those that treat this moment not as a cyclical peak but as a permanent reset of the industry's competitive conditions.

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Key Takeaways

Global banking net income reached $1.3 trillion in 2025, up 7%, but valuation multiples remain the lowest of any industry.
Balance-sheet share of global financial assets fell to 40%, while fee-based activities now generate roughly half of revenues and 57% of profits.
Four threats—mature fintechs, neobanks, agentic AI/digital assets, and shifting customer trust—pose a combined challenge to incumbents.
Precision strategies, enabled by data and technology, are essential, but execution speed is a new competitive constraint.
Governance and disclosure frameworks must evolve to reflect the rise of off-balance-sheet activities and AI-driven business models.

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Sources

McKinsey & Company. *Global Banking Annual Review 2026: Precision with speed*. Reference URL