To calculate digital value, Cisco conducted a comprehensive economic analysis involving 16 industries including financial services. The analysis was rooted in customer engagements and evaluation of 350 private sector digital use cases. Cisco's analysis estimated that digital innovation in retail banking would drive $405 billion in digital value from 2015 to 2018.

"It outlines what really isn't new news, all the challenges banks and credit unions are facing around the fintech startups, competition, and regulatory pressures," Jim Henschel, Cisco banking and wealth management practice manager, U.S. enterprise business transformation, said. "Fintech startups are really starting to chip away at what that value is to the financial institution, both in terms of potential cost reductions and revenue increases."

Due to increasing pressure from nimble competitors, such as fintech startups Wealthfront and Moven, or bigger participants like Apple, Microsoft, and Google, financial institutions need to compete to capture the revenue opportunity at hand.

"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," Jason Bettinger, director of financial services for Cisco's business transformation group, said.

The research also revealed financial services is already digitized more than most other industries, and many financial institutions are in a good position to gain new digital capabilities. However, financial services still captured only 29% of the potential value at stake in 2015.

Retail financial institutions must accelerate digitization or risk extinction. Fintech startups are disrupting credit unions and banks by digitizing offerings and unbundling products and services. This allows them to seize the most profitable business while avoiding barriers that naturally come with being a full-service banking organization.

According to a 2015 study by the Global Center for Digital Business Transformation, an IMD Business School and Cisco initiative, digital disruption could displace 40% of the top 10 retail financial institutions in the next three years. However, only 27% are taking a proactive approach by disrupting their own businesses.

Cybersecurity weakness is slowing digital innovation in retail banking: despite the tremendous opportunity and competitive pressures. A recent Cisco study, "Cybersecurity as a Growth Advantage" surveyed 1,014 senior finance and line-of-business executives globally and found that 71% agreed that cybersecurity risks and threats hinder digital innovation in their organizations. Another 39% of respondents said they halted mission-critical initiatives due to these concerns and 60% admitted perceived risk fueled their organizations' reluctance to innovate in digital products and services.

Among the specific digital initiatives potentially delayed are mobile banking, mobile payment and omnichannel capabilities, wealth management and asset transfers, and self-service and virtualized delivery models.

Cisco's economic analysis estimated by not digitizing more fully, incumbent retail banks missed $144 billion globally from 2011 to 2015.

The research suggested cybersecurity concerns do not need to be a hindrance to digital innovation. Retail banks can convert cybersecurity from a liability into an asset that supports customer trust, innovation, and growth. All of these digital solutions depend on a vigorous cybersecurity underpinning.