Banks are not keeping up with Big Tech and FinTech firms, in terms of either income growth or market cap. Bank innovation over the last decade has been largely reactive and, although moderately successful, essentially defensive. Moreover, there is superficial evidence that analysts and - - ultimately more important - - markets aren’t recognizing and seeing value in bank innovation efforts.
But banks collectively may be overlooking an innovation opportunity that could fundamentally change that perception. And that reality.
Banks can assert a powerful leadership position in an emerging field of great importance: Digital Identity.
By collaborating to underpin and lead a society-wide digital identity scheme, banks can fulfil four crucial goals:
- Anchor their collective defense against further encroachment by Big Techs and FinTechs
- Strengthen their bond with customers by putting themselves back at the center of their daily lives
- Provide themselves with powerful cost-savings and efficiency gains to enhance margins in their traditional banking businesses
- Generate strong incremental revenue and profit growth by offering identity authentication services across multiple use-cases
We estimate the economic value of these use cases at a minimum of 2 percent of US GDP, or at least $400 billion per year. How much of that amount could actually accrue to banks under such a scheme, either as cost-savings or revenue additions is, of course, hard to determine. But for perspective, $400 billion is more than the combined pre-pandemic annual net profit of US banks.
In addition to the potential economic gains - - revenues and profits - - the impact on user experience could be enormous. Banks can reestablish their position at the center of consumers’ lives and revalidate the trust that consumers place in their bank.