Retail banking in Europe has reached a crossroads. After a decade of strong profits, rising shareholder value, and consolidation in most countries, the sector is in danger of running out of steam. Management teams urgently need to find strategies for growth, either domestic or foreign.

Opportunities abound, but the challenges are considerable. Europe's banks, powered by falling interest rates, healthy economic growth, and strong equity markets, have enjoyed a brisk following wind in recent years, but these advantages are now largely in the past. Meanwhile, the regulatory environment is becoming more turbulent, and consumers are pressuring governments to make banks widen access to their services or even to impose price controls. Furthermore, the possibilities for restructuring through M&A are narrowing. Although some recent mergers—as well as recent Dutch and Spanish moves to bid for banks in Italy—have created strong interest across all European markets, there is no guarantee of a wave of value-creating cross-border mergers.

Interviews with leading bankers, plus an analysis of a range of industry scenarios, suggest that European banks looking for faster growth should concentrate on three areas where they are weak: execution, product innovation, and managing regulation.