PARIS (Reuters) - BNP Paribas will unveil new investments in its retail banking business when it presents a new plan early next year, the head of the unit said as France's biggest bank aims to turn its sprawling European network into a more Internet-driven service.

New regulations since the financial crisis, volatile markets and low interest rates have dented banks' profitability, forcing them to step up cost-cutting efforts and revamp retail operations to invest in online and mobile services.

"We have three, four, five years to carry out (the transformation)... by making investments and by delivering every quarter a qualitative transformation for our clients as part of a plan to be announced," said Thierry Laborde, BNP Paribas' Deputy Chief Operating Officer and Head of Domestic Markets told Reuters.

"That is the biggest issue. Our profitability depends on it, not vice versa".

Following a reduction in retail branches over the last few years, BNP Paribas now plans to increase the share of sales in retail banking that come through digital channels, such as its online bank Hello Bank!, to 50 percent in 2020 versus 15 percent currently.

Lenders are trying to come up with alternatives even as they close branches in a bid to bring in customer deposit without a costly bricks-and-mortar branch network which weighs on profitability.

"We have an integrated model, we offer all kinds of products, and now it's necessary to put them together in order to produce solutions for our clients," Laborde said.

BNP Paribas shook up senior management this week at its retail banking and services division, naming Sophie Heller, the former head of retail at Dutch lender ING's <ING.AS> ING Direct, as chief operating officer.

ING Direct is the leading mobile bank in France with more than 1 million clients. Hello Bank!, launched in late 2013, had 257,000 clients in France as of end-March 2016 and 2.5 million clients overall in Germany, Belgium, France, Italy and Austria.

Last year Hello Bank! acquired 400,000 new clients in the five countries it operates in and the service should see a similar trend this year, Laborde said, adding that the online bank was profitable.

"We are going to continue to develop our Hello Bank! model, but we will also transform traditional banking in a very serious way," Laborde said.

Banks and insurers are seeing their business models challenged by "fintech" start-ups and non-bank players such as Apple, which are reshaping what consumers and businesses expect from financial services.

"We had to open ourselves up ... it means to open up for fintechs, for partnerships with internet giants, with big industrials in our sector," Laborde said.

BNP Paribas works in cooperation with French retailer Carrefour on an application which allows customers to pay for purchases with their mobile phones, while combining standard services with the payment options. More retailers could join them, Laborde said.

(Reporting by Maya Nikolaeva; Editing by Leigh Thomas)