Updated: 2016-08-20 02:16
By ALFRED ROMANN and HAKY MOON(China Daily USA)
Technology is transforming the financial landscape and making some jobs redundant but systems and services still need the human touch
Amid the whirlwind of change driven by the ongoing financial technology (fintech) boom, concerns are growing about the potential for massive layoffs in financial institutions. While these fears are not groundless, the reality is that financial innovation is not as big a job killer as many believe.
With that said, there are already places and areas where technology is doing away with old-fashioned manual labor. A case in point is the job of bank tellers, which could soon disappear in places like Hong Kong or Singapore in the next few years.
Middle and back office jobs are also on the line as more financial institutions adopt new technology as integral parts of their operations.
But while some worry about the potential job losses that fintech may cause, others see a number of positive side effects.
"Fintech for sure can have an impact on the job market, but we've had technology for a long time and it hasn't really replaced workers. What it has done is shift the jobs and changed what the jobs are like," says Astrid Raetze, a partner at law firm Baker & McKenzie.
"If fintech has an impact on the way people work, it should mean that we'll have more time and enjoy life," she says.
"Fintech is doing away with jobs that are mind-numbing for humans. Every technology needs people to manage it," says Jennifer Carver, chief information officer at Nest, a Hong Kong-based startup incubator.
"What fintech is doing is helping move people up the ladder into positions that are more interesting and challenging instead of doing mundane tasks that can be done electronically," says Carver.
The wave of technological evolution in transactional activities could render many jobs redundant, much like what happened during the industrial revolution 150 years ago.
Currently, some 60 to 70 percent of retail banking employees do manual process-driven jobs but fintech could be an agent of change that leads to the elimination of those roles.
After all, almost everything in the financial sector is about transactional efficiency and banks that can deliver transactions quickly and efficiently are set to win. Headcount reduction can happen quickly for banks that lead in digitization of data.
In the United States in particular, customers are increasingly being served by fintech portfolio-management platforms that cut down on the need for financial advisers and relationship managers. Two of these "robo advisory" leaders, Betterment and Wealthfront, have more than $2.6 billion and $3 billion in assets under management, respectively.
According to Digital Disruption, a recent report by Citigroup, the number of tellers at US bank branches has declined 15 percent since its peak in 2007 and job losses could accelerate as more jobs are automated.
Citi further predicted that the fintech boom could lead to European and US banks cutting about 1.7 million jobs by 2025, or around 30 percent of bank staff.
For now, globally speaking, layoffs due to fintech will take time. While new peer-to-peer (P2P) lending companies have brought in a lot of venture capital, it still only accounts for 1 percent of global loans.
Similarly, new business models have displaced just 2 to 3 percent of consumer banking revenues in the US and even less in corporate banking. Nevertheless, technological disruption leading to job loss is a matter of when, not if.
"Incumbent financial institutions still have the upper hand in terms of scale and we have not yet reached the tipping point of digital disruption in either the US or Europe," says Kathleen Boyle, managing editor at Citi Global Perspectives & Solutions, in the report. "Given the growth in fintech investment, this isn't likely to continue for long."
Many of the concerns are confined to certain regions in the world that already have robust banking structures but face the real need to innovate, such as the US and Europe.
For the most part, experts are not terribly worried about the job losses that fintech could cause in Asia-Pacific, in part because the banking industry in the region is growing and may even skip the entire process of hiring armies of tellers.
Instead, most of the developing Asian countries have jumped straight into mobile technology that enables hassle-free payments.
For countries like China — with a large population without bank accounts and a banking infrastructure that is growing quickly — this digital leap means that fears of job losses due to technological evolution may be irrelevant.
"Fintech is playing a key role in the development of financial services across Asia. People want convenience at their fingertips and this includes their financial transactions and reporting," says Carver at Nest.
This is evidenced by a transition underway in China from physical to digital financial flows, which has been "breathtaking" with 96 percent of e-commerce sales done without the involvement of a bank, according to the Digital Disruption report.
China also has the largest P2P lending market in the world, according to the same report, which pointed out that "if we were to extrapolate the recent growth rate out to end-2018, the Chinese P2P market would be about 9 percent of total retail loans".
Other Asian countries also have large unbanked populations. India, Indonesia and the Philippines alone have some 400 million people without bank accounts that could benefit from fintech. In the Philippines, for example, there are more people with Facebook accounts than bank accounts.
Mobile payments could help these people access basic financial services and policy leaders in these countries view fintech favorably.
With the incredibly high mobile penetration rate in Asia, banks are quick to collaborate with fintech companies without the need to reduce staff count.
"We are keeping more or less the same number of staff. As a management team we are trying to embrace fintech. The majority of our staff receive training courses — we are looking into doing things in a different way," says Glendy Chu, DBS Bank's head of group strategic marketing and communication.
Carver says that many banks are working with fintech startups to integrate new technologies into their existing systems to help improve their customer experience.
"We are running accelerator programs with DBS in Hong Kong and OCBC in Singapore to help them find those startups that are most suited to assisting the bank to be more efficient internally and provide a better customer experience externally," she adds.
The DBS Accelerator is a joint initiative that kicked off last August between the Singaporean bank and Nest, the startup incubator. The DBS Accelerator aims to reshape banking and finance in Asia by selecting a pool of startups to work with the bank.
Last year, 10 startups participated in the initiative: TofuPay, Currenxie, Apvera, Creditable, Dollar$mart, Monexo, Fund Innovation, Xfers, Closir and Super Fluid.
"We have chosen to actively participate in the creation of the fintech ecosystem. The new competition is good for our industry and will ultimately help us to deliver better service to our customers," said Gigi Wong, manager at the marketing and communications department of DBS.
"Startups need banks. Many of them seek to sell their fintech solutions to existing players. Banks also need startups. There's always opportunity that comes with any threat," Wong says.
"We have been growing the number of developers, data scientists and designers at the bank. We're running hackathons, partnering with universities," she says. At a hackathon, programmers collaborate to create software or applications.
"Parts of the bank feel more like a tech company now," Wong adds.
In the long run, although digital disruption is likely to cause some job losses, there are still areas in finance that need human interaction now and for the foreseeable future.
While customers may stop visiting bank branches for transaction-related services, when they need to handle complicated issues associated with life-changing events, such as mortgage loans, they are likely to still prefer human contact.
Hence, the positive news for large banks is that customer behavior does not change overnight and not all customers are digitally competent.
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