APRIL 1, 2016
Many bank customers can’t even reel off the name of a financial technology company.
But the threat from fintech companies is set to get very real for banks and their workers in the next decade as 30 per cent of jobs are cut to slice costs, according to a major report by US giant Citi.
“Fintech is changing the world of finance. In the US and Europe, we are at a tipping point, especially in consumer banking,” the global report said.
It noted that fintech companies in China had already surpassed banks and had both scale and innovation.
“To remain competitive, banks need to get innovation before the fintech companies get scale.”
Signalling investors’ greater interest in fintech disruption, Citi’s analysts digested the growing trend, claiming that from last year to 2025, bank staff numbers would slide 3 per cent a year, up from the present rate of 2 per cent.
The job losses, including about 800,000 in the US and 1.07 million in Europe, would result in a 40-45 per cent decline across the industry from pre-GFC peak levels, with branch workers heavily affected as stores shut and shrank, Citi predicted. In Australia, similar trends have been quietly playing out. Commonwealth Bank, the nation’s largest lender and widely recognised technology leader, cut 1.6 per cent of fulltime staff, or 727 jobs, in the six months to December 31. The losses added to 2912 jobs shed across ANZ, Westpac and Macquarie Group in the six months to September 30. ANZ cut a further 2.5 per cent, or 1250 jobs, in the quarter to December 31.
“We are at an inflection point for retail banking, driven by automation and digitalisation. As banks reduce the number of branches, naturally the number of transaction-based employees such as branch tellers will decline,” Citi said, noting US bank tellers had slumped 15 per cent from 2007.
Investments in private fintech companies had soared from $US1.8 billion ($2.3bn) in 2010 to $US19bn last year, mostly in the consumer space in payments where “banks are seeing the most competition with new entrants”, Citi said.
Other areas, such as online lender targeting small businesses, are also ramping up their scale.
The number of fintech companies in Australia has soared in recent years, attracted to the banks’ high profit margins and the population’s strong technology adoption. Australia is now the biggest fintech market in Asia for small business lending, according to a recent study by KPMG.
The study said marketplace/peer-to-peer consumer lending — typically personal loans — had grown from $US2 million in loans in 2013 to $US43m last year.
Antony Jenkins, the former CEO of Barclays, last year made headlines by claiming banks were facing an “Uber moment”, leading to automation that would slice branches and people by as much as 50 per cent in coming years.
“The incumbents risk becoming merely capital-providing utilities that operate in a highly regulated, less profitable environment, a situation unlikely to be tolerated by shareholders,” he reportedly said.
Citing how Nordic and Dutch banks had cut total branch levels about 50 per cent from recent peaks, Citi’s analysts predicted developed market banks could cut branch numbers by another 30-50 per cent from 2013 levels.
While not undertaking a “sledgehammer approach” as in the 1990s, Australia’s banks have been slowly reducing branch numbers, but focusing on cutting the physical size of stores.
“Yes, branch numbers will continue to come down, but the real productivity opportunity is in ... smaller average sites that have a lower cost ... and more revenue generation,” Westpac chief Brian Hartzer said in September as he resisted calls to shrink his 1100-odd branch network.
The Citi report conceded staff levels in Asia and Latin America would grow as the banking system expanded with economic growth. Markets that escaped the brutal fallout from the GFC would also reduce staff “much slower”.
But the temptation to cut costs may be too hard to ignore. “The push factor or catalyst for further headcount cuts could come from the need to increase profitability as interest rates and growth stay lower for longer. It could also come from competitive pressures from fintech entrants,” Citi said.
Jobs in investment banking — where Australia has not been immune despite their not being a focus of the major banks and the economy faring relatively well from the GFC — are also in the firing line. The report noted thousands of jobs being chopped at Standard Chartered, Deutsche Bank, Credit Suisse and Barclays as banks strived to “recover profitability damaged by the aftershocks of the recent financial crisis and the new regulatory regime” that has sapped returns.
Barclays in January exited Australia amid sliding corporate activity this quarter.