Fintech’s Impact on Traditional Banking
Today I went grocery shopping from my couch. This isn’t really a big deal. I routinely order shoes on Amazon, music on iTunes, and even my razors arrive like magic. You probably do these things too. E-commerce is as normal as a trip to the store used to be. It’s exciting times, but many store employees are profoundly and negatively impacted by the switch from brick and mortar shopping to online retail.
According to a Credit Suisse report, e-commerce is the leading cause of significant layoffs by brick and mortar stores, and the Chicago Tribune reports that 37,000 employees can expect to lose their jobs this year as a result of this trend. This is a painful but standard economic transition, and commerce isn’t the only industry being impacted.
Banks, with their war chests of cash, imposing buildings, and branches on every corner would seem like an unlikely victim of the changing times. However, the emergence of the financial technology (FinTech) sector appears to be changing the industry’s prospects. Consulting firm Accenture notes that “between 2010 and 2015, global investment in FinTech ventures rose from $1.8 billion to $22.8 billion.” FinTech is definitely making an impression, and we can expect to see those changes impacting the jobs and opportunities for banks and bankers. The New York Times believes that “up to 30 percent of the current employees in the banking industry may lose their jobs to new technologies in the next 10 years.” A Citigroup report indicates that although FinTech is comprising a small fraction of banking transactions, it has “targeted the most profitable areas of global banking.” Thus, as The Economist grimly notes, “If FinTech doesn’t kill the banks, it might instead sap the sector’s profitability.”
Ironically, this bad news for the banks may actually turn out to be the opportunity that saves them from eventual irrelevancy. FinTech isn’t the only threat to traditional banking jobs as automation and other digital trends sap the need for workers as banks strive for profitability amidst changing times. Already, banks are beginning to invest in FinTech startups developing an early strategy of collaboration and cooperation rather than competition and disruption. Accenture addresses this awkward relationship by concluding “digital disruption has the potential to shrink the role and relevance of today’s banks, and simultaneously help them create better, fast, cheaper services that make them an even more essential part of everyday life for institutions and individuals.” By choosing collaboration, banks may find themselves more relevant than ever because FinTech isn’t the only force changing the banking industry. Emerging technologies are altering everything from regulatory oversight to the structure of bank branches. Interestingly, the Bank Administration Institute discovered that bank branch locations remain the most important factor for all generations when selecting a bank. Therefore, while bank branches are likely to survive, the human roles inside those branches will shift dramatically.
Part of this collaboration involves investing in existing FinTech startups, but an additional component will involve training and retraining existing staff to participate and proliferate the new financial services made available through this transformation. Just as brick and mortar stores continue to exist but are staffed by fewer salespeople, so will traditional banking institutions continue to have a profound presence. However, financial institutions will thrive as they maximize their human capital to best participate in the new expressions of banking, and this retraining is no small task.