Retail banks have the potential to realize $405.3 Billion in value from 2015 to 2017 from the smart application of digital transformation. The figures are contained in a new research from Cisco Research titled “Roadmap to Digital Value in the Retail Banking Industry”.
Yet, in 2015, financial services as a whole captured just 29 per cent of that opportunity. Of the challenges that slow growth and innovation, weakness to cybersecurity is at the forefront. Cybersecurity concerns have prevented retail banks from adopting digital technologies and business models. This has contributed to them missing out on more than 70 per cent of the potential revenue opportunity.
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“With the pressing realities of agile ‘fintech’ disruptors, digital consumer demands, and complex regulatory hurdles, the question of how retail banks can compete and capture the revenue opportunity at hand has come to the fore,” said Mike Weston, VP, Cisco Middle East. “As the largest segment of financial services, retail banks play a critical role in any economy. The ability for digital technologies to create and drive new revenue opportunities, combined with the ability to lower operational costs through digitized business processes, brings tremendous opportunity. But, too many banks are moving slowly or not at all. By waiting to digitize their businesses, or by delaying new technology initiatives, banks risk not only missing out on the potential Value at Stake, but are actually at risk for being put out of business altogether.”
The new research, “Roadmap to Digital Value in the Retail Banking Industry”, outlined the Digital Value at Stake for retail banking which Cisco pegs at over $US 400B. The study revealed digital use cases that drive the fastest value and return on investment for retail banks. With the right technology investments such as analytics, mobility, video, and virtualized delivery models – and with a plan for navigating security risks – retail banks can create a blueprint for capturing their share of the hundreds of billions in Digital Value at Stake.
Retail Banks Must Accelerate Digitization or Risk Extinction
“Fintech” startups are disrupting retail banks by unbundling their products and services. By doing this, they’re able to seize a share of the banks’ most profitable business while avoiding the barriers to entry that naturally come with being a full-service bank. These start-ups are digitizing their offerings. Retail banks that fail to drive their digital transformation may be put out of business completely.
According to a 2015 study by the Global Center for Digital Business Transformation (DBT Center), an IMD Business School and Cisco initiative, 4 out of the top 10 retail banks will be displaced by digital disruption in the next three years. However, only 27 per cent are taking a proactive approach by disrupting their own businesses. Cisco’s research identified key digital use cases in the retail banking industry that drive more than 90 per cent of the $405.3 billion opportunity. These digital solutions include video-based advisors, workforce transformation, mobile payments, virtual tellers, information-based consulting, white-label services, connected ads, marketing, and more. A critical foundational element across all the use cases? Cybersecurity.
Cybersecurity Weakness is Slowing Digital Innovation in Retail Banking
Despite the tremendous opportunity and competitive pressures that come with digital transformation, retail banks are still slow to digitize. A recent Cisco study, “Cybersecurity as a Growth Advantage” surveyed 1,014 senior finance and line-of-business executives globally and found that 71 per cent agreed that cybersecurity risks and threats hinder digital innovation in their organizations. Another 39 percent of respondents said they’ve halted mission-critical initiatives due to these concerns. Sixty percent admitted their organizations are reluctant to innovate in areas such as digital products and services because of the perceived risks. Specific digital initiatives delayed potentially include omnichannel capabilities, wealth management and asset transfers, mobile banking and mobile payment capabilities, self-service and virtualized delivery models. Cisco’s economic analysis estimates that by not digitizing more fully, incumbent retail banks missed out on $144 billion globally from 2011 to 2015.
Bottom line – cybersecurity concerns do not need to be a hindrance to digital innovation. Retail banks can transform cybersecurity from a liability into an asset that supports customer trust, innovation, and growth. All of these digital solutions depend on a robust cybersecurity foundation.
“By assessing, adopting and combining the right digital use cases for their needs, and doing it securely, retail banks will capture their share of the Value at Stake and be in a position to operate more agilely and compete. By innovating and driving relevant new products and experiences to the market quickly, they can be the new disruptors,” Weston said.
To calculate Digital Value at Stake, Cisco conducted the industry’s most comprehensive economic analysis. Spanning across the private sector, it includes 16 industries – financial services being one. The analysis is rooted in customer engagements and evaluation of 350 private sector digital use cases. Thirty of those are focused on financial services. Read the full report, including the key digital use cases recommended for retail banks.