The McKinsey Podcast

Episode: What's Next for Global Banking?

Date: December 18, 2025
Host: Lucia Rahilly & Roberta Fassaro (McKinsey & Company)
Guests: Pradeep Patiya (Senior Partner, Head of Global Digital Financial Services), Klaus Dalarip (Senior Partner)

Episode Overview

In this episode, Lucia Rahilly and Roberta Fassaro lead a timely conversation with McKinsey senior partners Pradeep Patiya and Klaus Dalarip. Drawing from the just-released McKinsey Global Banking Review, they examine banking’s extraordinary financial performance, the puzzling stagnation in productivity despite massive technology investments, and the industry’s competitive dynamics. The conversation covers digitization, the enduring role of the bank branch, competitive threats from fintech and big tech, and what “escape velocity” looks like for successful banks in an era of rising global volatility.

Key Discussion Points and Insights

1. Banking’s Current Success: A Superficially ‘Rocking’ Industry

• [02:14] Pradeep Patiya: Lauds banking as "extraordinarily important, critical, and on the surface, successful," highlighting banking’s status as the world’s largest profit-generating industry ($400T in assets, $7T revenue, $1.25T net income).

  • Quote: "Banking is an extraordinarily important, critical and on the surface, successful industry, and those are three important words." — Pradeep [02:14]

• [03:07] Klaus Dalarip: Notes improved interest rate margins and de-risked balance sheets contribute to the sector’s robust financial health.

  • Quote: “Banks are to a large extent healthier than ever in many dimensions. And that is seen in the financial performance of them.” — Klaus [03:25]

2. The Productivity Paradox

• [04:06] Pradeep Patiya: Surprised by labor productivity decline in banking versus significant gains in other sectors despite heavy tech investment ($600B annually).

  • Professionals & technical services: +25% productivity;
  • Non-farm businesses: +15%;
  • Banking: –4%
  • Quote: “Relative to nearly every other major industry, banking is the one industry where labor productivity ... has declined versus increased.” — Pradeep [04:06]

• [05:29] Klaus Dalarip: Attributes lag to deep legacy tech and inability to fully replace physical with digital—"escalating ‘ands’ rather than ‘ors.’"

  • Quote: "Most banks have been built 30, 40, 50, 70, 100 years ago. So their legacy is very deep." — Klaus [05:29]

• [06:01] Pradeep: Digital services seldom replace old ones, leading to duplicated costs (e.g. ATMs didn’t eliminate branches).

3. The Persistent Role of Branches

• [07:17] Klaus: Predicts branches will not disappear soon due to persistent customer demand for human touch, though the branch’s format may evolve.

  • Quote: “Predicting the death of the branch is probably not what we want to do. Human touch and feel is still very important for humanity.” — Klaus [07:17]

• [07:54] Pradeep: The “prisoner’s dilemma” in the US banking sector (9,600 banks): no one dares be first or last to close branches.

4. Competition from Fintechs & Big Tech

• [09:35] Klaus: Regulation deters big tech from deep entry, while fintechs innovate on user experience but typically only with slimmed-down offerings and not the full banking suite.

  • Quote: “If you are a big tech, you will always think about am I equipped to going into a highly, highly regulated space like this?” — Klaus [09:35]

• [10:59] Pradeep: Banks are “the ultimate fintechs” (capital F, small t), but the real threat is tech giants leveraging their platforms to cherry-pick profitable financial services.

  • Quote: “Banks are the ultimate fintechs except it's with a capital F small t ... the actors that you might be more worried about is small F capital T ... the large tech giants.” — Pradeep [10:59]

5. Internal Competition & Value Migration

• [12:10] Pradeep: Most profitable banking lines—wealth management, payments, ratings—are increasingly ceded to nimbler players due to regulation and inertia.

6. Achieving “Escape Velocity”: Winning Strategies

• [13:05] Klaus: Success means purposely targeting scale, profitable geographies, and affluent customer segments (private, affluent banking).

  • Paradox: Banks with scalable infrastructures (e.g., payments) achieve highest valuations due to cross-market reach.

• [14:05] Pradeep:

  1. Don't ignore growth geographies.
  2. Don’t ignore demographic shifts (wealth transfer as populations age).
  3. Be deliberate about business mix—choose where to compete and allocate resources accordingly.
  • Quote: "Being a lot more purposeful has been a key factor in determining the 14% of banks ... that really did better and outperformed." — Pradeep [14:45]

7. Execution Excellence: The 'Management Quotient'

• [15:24] Pradeep: High-performing banks (top 14%) excel due to management quotient (or 'MQ'):
  1. Strategic focus (where to compete)
  2. High metabolic rate of execution (agility and discipline)
  3. Fee-driven business models (e.g., payments, wealth)
  4. Focused, effective tech investment
  • Only ~20% of banks working in truly agile ways across the org.

8. Talent as a Strategic Imperative

• [17:09] Lucia: Asks about the impact of talent/skills scarcity.

• [17:26] Klaus: Banks have always needed top tech and business talent, but slow progress in transformation can undermine excitement, making it harder to compete with sexier tech/payments/wealth employers.

  • Quote: "You need to have those that can both think strategically. You need to have those that can both execute. ... that's the battlefield." — Klaus [17:26]

• [18:20] Pradeep: Jokes that banking only needs to “outrun the other chap, not the bear” due to relative, not absolute, competition for talent and innovation.

9. Navigating Global Volatility and Risks

• [19:30] Pradeep: Global banks must treat geopolitical, macro, and tech risks as board-level priorities:

  • Are we moving from global to multi-local?
  • New business opportunities in newly regulated sectors (e.g., crypto, cannabis)
  • Central bank digital currency (CBDC) as both threat and opportunity
  • Emerging tech risks: AI, quantum computing, cybersecurity
  • Quote: “Banks that ignore the macro environment, the geopolitical environment, the risks ... do so at their own peril.” — Pradeep [19:30]

• [21:21] Klaus: New banks can be built at half the cost of incumbents, requiring constant adaptation by established players.

10. The Crypto Conundrum

• [22:03] Pradeep: Sees promise in blockchain and digital exchanges, but highlights ongoing debate on the actual value and use of crypto assets versus the utility of their underlying technology.

11. Future Investor and Customer Expectations

• [23:27] Klaus:
  • Customers: Demand hyper-personalization (e.g., proactive advice, customized services), both for individuals and corporates.
  • Investors: Value scalable, capital-light, cross-market business models that boost top-line growth without proportional cost increases.
  • Quote: “There’s no doubt ... we will increasingly so expect personalization.” — Klaus [23:27]

Notable Quotes & Memorable Moments

• "If it's not fine, it's not the end." — Citing Oscar Wilde, Lucia [01:30]
• “Banking has generally been the recipient of good talent ... The problem is that in the more recent times, the competitors have changed.” — Pradeep [18:20]
• "You don't have to outrun the bear." — Pradeep, explaining the dynamics of banking competition [18:20]
• “Now you look at some of the variables in play. Are we retreating from more global to more multi-local or even national? Does that create opportunities for certain kinds of banks?” — Pradeep [19:30]

Timestamps for Important Segments

• 02:14 – Why banking is riding high
• 04:06 – Disturbing labor productivity stats
• 07:17 – The future of bank branches
• 09:35 – Fintech/big tech as competitors
• 13:05 – What’s working: “Escape velocity” strategies
• 15:24 – Management quotient: How the top banks win
• 17:26 – Talent and transformation challenges
• 19:30 – Risk management amid macro/geopolitical turmoil
• 22:03 – Cryptocurrency’s potential for disruption
• 23:27 – What customers and investors will value in the next decade

Conclusion

This episode paints a nuanced portrait of a thriving industry grappling with daunting productivity paradoxes, legacy hurdles, and a rapidly shifting landscape shaped by digital challengers, customer expectations, and macro risk. Patiya and Dalarip advocate for deliberate, focused, and agile leadership; rigor in technology investment; and keeping a sharp eye on global and demographic trends. The future, they argue, will belong to banks with management discipline, strategic clarity, and the courage to adapt—before the bear catches up.