The study says digital innovation allows banks to offer better and more personalised services to clients as well as cutting costs. However, it warns that there is a risk that technology giants and innovative new start-ups will “cherry pick” key products and services from banks.

The 'Digital Disruption' report urges regulators to ensure that all organisations offering banking services are regulated in the same way to give consumers certainty that they are properly protected wherever they choose to bank.

Policymakers must also be minded to the threat posed to financial stability from providers of banking services not covered by existing regulation, says the BBA, while taking care not to hamper either innovation or competition.

Whereas the BBA’s previous Way We Bank Now reports have focussed on the uptake of consumer-friendly banking technology, the new study focuses on what this innovation means for the banking industry.

The scale of the challenge is enormous. A recent study by Goldman Sachs suggested that $4 trillion in addressable revenues and $470 billion in profit at traditional financial services companies is at risk of being disrupted by new technology-enabled entrants

To meet the looming threat, and meet rising customer expectations, the BBA says that banks will need to significantly increase the speed of innovation and adapt a more agile internal culture.

John Maskery, managing director at Accenture believes that banks will have no option but to simplify the complexity of their legacy systems if they are to survive and prosper.

"This will be driven by business demands with some banks needing a two-speed IT system that blends fast and agile digital delivery with their traditional 'complex waterfall' core platforms," he says. "The banks that grasp the nettle will gain significant customer and digital advantages.”

In particular, banks need to fast-track the use of state-of-the-art technology, including big data, biometric security features and wearable devices, and collaborate more with organisations outside the financial industry.

Anthony Thompson, founder and chairman of digital challenger Atom Bank, has no such legacy baggage to shed. He says: “We are building technology so that we can use customers’ data to allow us to offer dynamic and predictive monthly statements - not ones that just showed last month’s outgoings. This way we can show the customer what they are likely to spend next month and potentially tailor savings and credit products to match their upcoming needs… Our vision is to become the first ‘telepathic bank’.”

Commenting on the report, BBA Chief Anthony Browne, says: “This is a tipping point for the banking world. On the one hand this is a time of great opportunity for our industry, as new types of technology allow us to serve our customers better and more efficiently than ever before.

“But this change poses challenges too. Technology is breaking down the traditional banking model and new entrants are changing our perceptions about what we consider a bank to be. More choice is good news for all, but it’s vital that regulators provide a level playing field giving customers the same robust protection wherever they choose to bank."

Brown's assessment is supported by Barnaby Davis, director of group retail strategy at Nationwide: "The banking industry seems willing to wait and watch for the ‘Uber’ tipping point. We need to be much more ambitious and demanding of technology and innovation to make banking much easier and much more transparent.”

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