Banking: The cost of fintech
Headcounts might fall as banks prepare for the digital future, but those whizz kids building apps don’t come cheap.
Lloyds Banking Group said in October it would cut as many as 9,000 jobs as it “reshapes for the digital age”. And while Lloyds’ shareholders might appreciate the cost improvements of cutting headcount by 10%, it’s not certain that the group will manage to achieve its target.
The wider point, though, is that technology has allowed customers to guide themselves; there is a clear trend of individuals wanting to have investment and retirement advice automated and online. They want to choose what to do with their money, be it simply moving sums from one account to another, or buying funds, investing in small businesses, or lending to peers.
Online lenders, investment platforms, banks and money transfer companies make the bank branch appear redundant; the role of the bank teller or personal adviser seems doomed to history books. Thousands of jobs could be lost.
And it’s not just in banking. The service sector as a whole has witnessed an overhaul through automation and online information: technology is carving up the jobs that employ many low- to middle-income earners. MIT academics Andrew McAfee and Eric Brynjolfsson say that the result will be a stagnation of median income and a growth in inequality – even though productivity is rising.
Where jobs are being created in the banking system, they are in technology however. In Goldman Sachs’ third-quarter earnings report, CFO Harvey Schwartz pointed out the firm has 8,000 people employed in tech, compared with just 3,000 in 1999 – close to a quarter of its employees. Visa is reportedly hiring 2,000 technology employees around the world next year.
HSBC chairman Douglas Flint warned this month that the new regulations on bank pay were harming the industry’s ability to hire the cream of the tech crop. As he rightly pointed out, those people are not receiving offers from Google, IBM or Apple which tell them that large amounts of their compensation will be deferred for several years, or may be clawed back.
Across a bank’s infrastructure, tech specialists are likely to be a more expensive proposition for banks and financial services companies than paying for customer-service representatives.
The average bank teller in the US earns $25,000. A personal banker around $35,000. A phone-bank supervisor earns $55,000. Medium-skilled tech jobs on the other hand pay between $50,000 and $100,000.
Add to this the fact that banks will need to find the best and brightest of the limited pool of talent if they want to compete against the non-banks, and the notion that bank payrolls are going to fall seems unlikely.