The digital wave isn't slowing down, and big banks could soon cash in.

According to a note from Goldman Sachs equity research analysts, the largest U.S. banks stand to benefit from the shift to digitization. As they better implement the likes of artificial intelligence, electronic payments and straight-through processing, banks could generate notable scale and efficiency benefits.

Here's how that could change the financial sector.

Who Are the Winners?

"The decreasing importance of a physical distribution network also appears to be driving market share concentration, with the largest banks taking [six percentage points] of deposit market share since 2008. We see these trends accelerating over the next five years and estimate that the largest banks could see 350bps of efficiency improvement increasing to 800bps if revenue growth is factored in," analysts wrote on Tuesday, May 22.

The biggest beneficiaries are likely Wells Fargo & Co. (WFC) , Bank of America Corp. (BAC) and JPMorgan Chase & Co. (JPM) , Goldman said, "given they have the largest legacy branch networks, the largest expense bases to amortize increasing tech costs over and the best ability to gain market share."

The likes of Inc. (AMZN) and other tech companies have started to move into financial services, with an aim to bank the underserved and eliminate friction. But according to Goldman they're better off sticking to the current norm of securing partnerships instead of creating their own ventures.

"Digitization and deregulation clearly provide an opportunity for disruptive innovation, although we think aspirations will be moderated by the prospects of greater regulatory oversight and reluctance over taking on significant levels of credit risk," analysts said.

What Does the Digital Shift Look Like?

The average retail deposit growth since 2011 for the four largest banks in the U.S. by assets - JPMorgan, Bank of America, Wells Fargo and Citigroup Inc. (C) - has totaled 7%, which is double the rate of growth for regional banks. Those top four also account for 46% of new account openings, Goldman found.

The digital shift set to boost those banks has increased in pace in recent years. According to Goldman, there's been a more than seven times increase in branches per capita in the U.S. since 1950, but bank branches per capita have declined 11% since 2008.

Despite the vast share that's underbanked, a great deal of the world's population is overbanked. There are an average of 33 branches per 100,000 people in the U.S., Goldman found, well above the national average of 28 branches and the 16 branches per 100,000 in Nordic countries where digitization is already the norm.

The Nordic countries paint a useful picture for U.S. banks looking to make the digital shift. In those countries, cash-based transactions are about 9% of the total. In the U.S., the share is 34%. At the same time, Nordics have watched return on tangible common equity (ROTCE) grow 140bps in the same period that other developed market bank returns have shrunken 140bps.

"Including moderate revenue growth and credit normalization, we see U.S. banks potentially reaching 18% ROTCEs in 2022 (vs. 12% in 2017 [normalizing for one-time tax reform impacts]). If banks were to reach destination capital levels (using the recent Fed SCB proposal as a guideline) ROTCEs could reach through 21%," Goldman said.

What Does It Mean for Shareholders?

Goldman wrote, "We estimate that digitization could improve efficiency ratios by 350bps (ex. revenue growth) over time, with 50% of the benefit from a potential shift to digital distribution channels, including less reliance on branches and call centers, online bill pay and cashless payments as well as streamlining back office systems through greater use of AI and straight-through processing."

Translation? Cash transactions are expensive and inefficient, even for the largest banks. Goldman said it predicts cash transactions could decline by five percentage points over five years, which would lead to a significant 170bps improvement in efficiency. A more efficient bank is a better performing bank.

The shift to digitization could also mean further consolidation in the industry. Goldman said it sees the top 25 banks could gain market share of three to four percentage points as consumers become increasingly comfortable with "branch lite" banking.

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