For individual mass market the big driver is loan margins, both for home mortgages and various short-term loans.

But the improvement in payments was mostly driven by legislation (e.g. the Payment Services Directive from 2007 with most of implementation at 2012) without which banks were quite happy to offer payments as slow and expensive as they could as it was too profitable for the industry to voluntarily agree to disrupt this, especially since most payments are cross-bank and so a single "defecting" institution can't simply offer cheap&fast payments if others don't want to play ball.

So I don't think that there's any way how USA financial industry might get to a similar point if gov't doesn't decide to force them (which might be taboo for many USA politicians) - I'm certainly convinced that European financial institutions would not have reached this point currently if they weren't forced to do so despite all the lobbying.

With 1.6% interest rates for mortgages... I don't know how dutch banks make money.

They sell insurance and offer consumer investment accounts -- which are not permitted for us citizens!

I don't know anything particular about the Dutch market, but some rough estimates:

Current 3m euribor is -0.4% so 1.6% interest rate means 2% margin. Assuming that your initial costs of selling/assessing/processing the mortgage are covered with fees, something like 0.5% would be enough to cover the main (non-systemic) risks and expenses for decent quality mortgages, so you get 1.5% of pure profit; for every billion in your portfolio you'd get 15 million profit each year; Dutch banks have 500B of housing loans so that's a capacity of something like 7-8 billion of profit per year from housing loans alone.

And various short-term loans have lower volumes, but much higher interest rates and room for profitability.

Looking at the stats in https://www.statista.com/topics/3442/the-banking-sector-in-t... it's clear that the net interest income dominates, it's something like 5x the fee income.

Banks usually add a flat percentage fee on top of the current interest rate. Lower interest rates mean people are willing to borrow more so low interest rates are beneficial to banks.

With the pile of cash they hold for clients.

I'm sure they do in North America too, and make orders of magnitude more from it than for charging monthly or transaction fees. But if everyone else charges those, why not make that bit extra too?

It just needs some 'disruptor' to do it for free and drive the rest of them down, as is happening both there and here in Europe with trading accounts (where most money is made from order flow, but traditionally, why not make a bit extra from commission too?).