Why the Biggest Banks May Lose Next—and the Most Precise Ones Will Win
Banking just delivered its most profitable year ever. Yet investors aren’t convinced the party will last. In 2024, global banks generated an unprecedented $1.2 trillion in net income, outperforming every other industry. And still, the sector trades at a nearly 70% valuation discount compared with the broader market. That contradiction sits at the heart of banking’s next inflection point—and it explains why precision, not size, will define the future.
The Paradox: Record Profits, Record Skepticism
On paper, banking looks unstoppable. Funds intermediated by the global banking system reached $426 trillion, almost four times global GDP. Revenues climbed to $5.5 trillion, capital ratios strengthened, and return on equity hit a 20-year high of 10.3%.
Yet markets remain unconvinced. Banks’ price-to-book ratio hovers around 1.0, versus 3.0 for other industries. The reason is simple but uncomfortable: much of this performance is driven by temporary tailwinds—high interest rates, peak wealth levels, and unusually low risk costs—rather than durable business-model innovation .
As those tailwinds fade, banks face a likely reversion to the mean, with margin compression, rising risk costs, and intensifying competition from fintechs, private credit, wealth managers, and big tech.
Why Scale No Longer Saves You
For decades, banks relied on scale: bigger balance sheets, broader customer segments, larger M&A deals. That playbook is breaking down.
Despite spending roughly $600 billion annually on technology, productivity gains have been elusive. Broad digitalization programs and generic customer segmentation have produced “average” outcomes at best. Chasing size for its own sake has failed to close capability gaps or unlock sustainable growth.
The report’s conclusion is blunt: macro-focused, scale-driven strategies no longer work. What separates leaders from laggards now is the ability to allocate resources with surgical focus.
Enter the Precision Toolbox
McKinsey defines precision as being data-driven, hypergranular, targeted, and real-time—not just “tailored,” but optimized down to the level where value is actually created. This precision toolbox spans four dimensions:
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Technology Precision means investing selectively in AI—especially agentic AI—where it measurably improves workflows, customer engagement, or economics, while cutting back on unfocused initiatives. The goal is not more AI, but the right AI.
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The New Consumer Traditional segments like “mass” or “affluent” are losing relevance. Consumers are more digital, less loyal, and more deliberate. Precision shifts banks toward a “segment of one” model: hyperpersonalized products, pricing, servicing, and risk decisions built on data and trust.
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Capital Efficiency Instead of sweeping reallocations, leading banks are applying line-by-line balance-sheet discipline—optimizing capital product by product, client by client, even asset by asset. AI agents can continuously simulate scenarios and free up trapped capital.
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Targeted M&A Scale for scale’s sake is out. Precision M&A focuses on filling specific gaps—capabilities, micromarkets, or geographies—with disciplined integration tailored to local realities .
AI: The Opportunity—and the Trap
AI is the most powerful enabler of precision, but also its biggest risk. Implemented well, AI could reduce certain cost categories by up to 70%, translating into a 15–20% net reduction in banks’ aggregate cost base after higher tech spending. Early adopters could see ROTE increase by up to four percentage points.
But the advantage won’t last forever. As AI diffuses, competitive pressure will pass most of the gains to customers. Worse, third-party AI agents could erode customer inertia by automatically optimizing deposits, payments, and credit. If banks fail to adapt, global profit pools could shrink by $170 billion (9%) over the next decade, pushing many banks below their cost of capital.
The Real Battle: Mind Share, Not Market Share
The report is clear: winning the next era of banking means winning consumer mind share early. In the US, only 4% of new checking account customers now choose their existing bank without first shopping around—down from 25% in 2018. Mobile has become the dominant channel, and consumers increasingly expect AI-powered insights blended with human connection.
Banks that embed AI into mobile-first journeys, personalize at scale, and earn trust in an era of fading loyalty will pull ahead. Those that hesitate will find that size offers no protection.
Final Reflection
Banking’s future will not be decided by who is biggest, but by who is most focused. Precision is the great equalizer: it allows even smaller banks to punch above their weight in the age of AI.
The message from the data is unmistakable. The era of blunt instruments is over. In the next growth curve, leadership is not about heft—it’s about intent, accuracy, and speed .
Glossary
Agentic AI AI systems capable of acting autonomously to complete tasks, make decisions, and optimize outcomes on behalf of users.
Precision strategy A data-driven, hypergranular approach that allocates resources exactly where they generate the highest value, often in real time.
Return on Tangible Equity (ROTE) A profitability metric measuring net income relative to tangible shareholders’ equity.
Customer inertia The tendency of customers to stay with existing providers due to friction or effort required to switch.
Source McKinsey & Company, Why precision, not heft, defines the future of banking – Global Banking Annual Review 2025 https://www.mckinsey.com/industries/financial-services/our-insights/global-banking-annual-review
