There was a time when mobile email was a thrill. Business people in the early 2000s called their BlackBerry devices “crackberries” because they spent so much time on them. Suddenly, they had a tool—or so it seemed—that really boosted productivity. Technology has moved on since then, and not just thanks to the iPhone. Entire work processes can now be re-engineered, and banks expect to take a lot of cost and drudgery out of many of their businesses. Artificial intelligence, for example, is already being used to answer routine customer questions via chatbots.
This sort of automation is not universally welcomed. One of the main concerns is around job losses, because automation can certainly cut labour costs and boost efficiency. The experience of other industries shows just how dramatic the change can be. In 1965, it took an hour to move 1.7 tonnes on to a cargo ship. Five years later, following the widespread introduction of standard containers in shipping, 30 tonnes could be loaded in an hour, and ship turnaround time shrank—together with the number of staff employed to load cargo. Dockers as the industry had known them for hundreds of years disappeared. The question many ask now is: If technology can do much of the heavy lifting at banks, in the way that cranes do in ports, what will be left for human staff—and will they be able to do it?
Tarja Kallonen, head of financial work and competence at Finance Finland, a Finnish trade body, argues that “service skill” will be what is most important for financial-services staff in a more automated world. Kallonen points out that Finland has form when it comes to downsizing its financial-services workforce. It went through a deep banking crisis in the early 1990s that led to a “cautious” approach to business—including hiring. Finnish banks were run as leanly as possible, and much of the industry’s focus when it came to taking on staff was to support “bookkeeping and record-keeping”. What makes digitalisation different, says Kallonen, is that it will not only mean a reduction in the jobs usually associated with banking, such as being a teller, but demand “new methods of working”.
Customer behaviour is changing, and traditional face-to-face service and online banking are ceding ground to mobile service channels. That demands change in the way the financial-services sector operates. The growth areas, in Kallonen’s view, will be in “personal welfare” and “personal investment funds” (that is the management of people’s own private pensions). She compares such services to having a personal trainer, and she argues that incumbent banks will be more trusted in this role than fintech start-ups. She also believes that banks will need to be a lot more focused. One of the reasons for this, she adds, is that global competitors can offer lower costs and new ways to secure clients.
The upheaval that Kallonen expects in banking jobs is, however, not just driven by technology. As the expectation of growth in pension services suggests, demographic changes may be just as important. In its recent report on the future of jobs, the OECD (Organisation for Economic Co-operation and Development)pointed out that some G20 countries will see a sharp fall in the working-age population over the next decade (for example, Japan -28 percent, Italy -23 percent and China -21 percent), at the same time as others will see sharp growth (Saudi Arabia +41 percent, India +33 percent, and Mexico and Argentina +26 percent). This could lead to a shortage in qualified labour in some regions and is likely to mean a rebalancing of some economies away from consumption of durable goods, such as cars, to demand for services, such as asset management.
The challenge for societies that may be called upon to provide more caring and support services—at the same time as their workforces shrink—will be how best to make machines bridge the gap. Even with excellent digital processes, such societies could still fall short of the level of automation they need. At the other end of the demographic spectrum, in societies in which their workforce is growing, countries will need to make use of the demographic dividend with satisfying and productive jobs that enable everyone to develop his or her potential to the fullest.
When it comes to financial services, there are fears in countries such as India that digitalisation will lead to the loss of millions of jobs just as millions of young people need employment in bank branches. The United Kingdom’s Department for International Development plans to fund a pilot programme to look at some potential educational remedies. There is also a much more optimistic take on the likely developments. After all, those branches will close if people migrate to better, personalised services provided by fintechs. The provision of excellent and customer-centric banking will certainly be underpinned by the automation of routine processes at scale, but it will also require highly tailored customer support that goes beyond traditional teller services. What is coming, in this assessment of the future, will be “creative destruction” of jobs as the industry demands new skills.
What skills will banks look for? Finance Finland believes there are 33 digital skills that are relevant to banking and finance. (The full details will be released on September 19.) Digital skills, of course, can be many different things—from advanced coding to knowing how to use Microsoft Outlook. What individual institutions will require will be driven by the products they can monetise, and they may step away from the cross-subsidisation typical of the universal banking model as fintech competition picks up.
“Banks need to be sustainable and profitable and offer a great customer experience,” says Fergus Murphy, group customer value director at CYBG, who spoke at the Digital Banking 2018 conference in London earlier this year. Customers are, of course, used to sleek service from e-commerce sites, and there is no reason to think that they will settle for less in banking. They will also look for the best value, and that could be a bumpy transition for incumbents. One “real prize” for banks in the UK—and one that would be particularly disruptive for the industry, Murphy argues—is streamlining the mortgage market and taking out costs to the benefit of the consumer. CYBG is looking at that, but “has not found the answer yet”, Murphy says.
Given that the UK mortgage market makes up the lion’s share of bank assets, taking out costs would clearly challenge the business model of incumbents. What could they offer customers instead? Murphy expects to see banks focus on three ecosystems through which they can provide valued service: “manage my money”, “own my home”, and “grow my business”. “It needs to be lovable, doable and profitable,” explains Murphy. “If customers go to your app to check the weather, you are winning.” As that suggests, Murphy sees a threat for banks in the ease with which online customers can click to a new provider if they do not identify with the service that a particular firm offers. A successful bank will need to be part of a customer’s daily life.
For bank staff, being important to customers every day comes back around to the question of what they can offer that a machine cannot. Banks lend money, but it is perfectly possible for banks such as CYBG to lend £150,000 to an SME (small or medium-sized enterprise) in “under 10 minutes” without individual human decision-making. “The unsecured lending market is extremely commoditised, extremely price-driven,” according to Murphy.
How do banks move away from commoditised products, and in what direction?
“There is a customer intimacy challenge,” said Edward Lane, a director at customer-relationship manager platform Salesforce, and also a speaker at the Digital Banking 2018 conference. He argued that using artificial intelligence would enable financial-services companies to “sort through the junk yard to data…to get deeper insight into customer needs”. This, ideally, would be the sort of insight that would support expert staff in doing much more for the customer than was possible in the past.
HSBC, in a report on jobs in the future entitled “Human Advantage: The Power of People”, argued that this is the direction the market will take. It believes that what will set people apart from machines in the workforce are curiosity, creativity and communication. Curiosity, it suggested, will enable people to see gaps in data, ask searching questions and find new sources of information. Creativity is what HSBC sees as “a key skill for future humans in the workforce” as it is what drives innovation. Communication skills, HSBC suggests, will not just be about delivering information but about building relationships, about listening and empathy.
None of these skills, however, are fostered and tested as part of formal education programmes in schools and colleges. HSBC believes that there has even been a “shift back” towards rote learning. That puts the pressure for developing and improving those capabilities on individuals and employers.
The human touch
One of the reasons why people have the edge on machines when it comes to skills such as communication is that communicating well is both fuzzy and highly contextual. Empathy, for example, demands understanding of one’s own feelings and the feelings of others, and the ability to stand back and to make appropriate moral judgements. These are not skills that can be easily wrestled down by massive computing power.
Such deep emotional understanding is also fundamental to good education and training. Artificial intelligence can help to mimic “understanding” —one delegate at the conference quoted a user of the Spotify music-steaming service as saying, “It knows me so well if it asked me to marry it, I would”—but it does not replace it. That brings another dimension to the training challenge that banks face in competing with fintechs: how best to educate the large numbers of staff who will need both digital and “soft” skills.
Digitalisation itself is, of course, part of the solution. Cambridge Spark, for example, is to work with the London Institute of Banking & Finance on training data scientists to work in finance. This is part of the institute’s wider plans to develop an online learning programme in digital skills that offers bite-sized, relevant and flexible modules. The programme is being developed in close collaboration with the industry, adopting a digital mindset of launching pilot programmes and prototypes before scaling up. Importantly, the modules are not a tick-box exercise in “information you need to work through” and will include the use of diagnostics. They nudge the learner to improve his or her soft skills and demand thoughtful interaction.
No matter how good a training programme is, however, staff must see its value for it to be effective. For many, their first question will be: What will this mean for my career? HSBC’s report imagines a number of new roles including “mixed reality experience designer”, “algorithm mechanic” and “universal service advisor”. All of these will demand technology skills. They will also be at least as reliant on soft skills. The designer, for example, will need to be able to make complex, three-dimensional interfaces intuitive and appealing. The mechanic will be there to ensure the customer never faces a “computer says no” moment. That will require financial literacy and strong risk management. The advisor will need to understand the products and be able to communicate and empathise. Bank employees already have much of that skill and knowledge. The right training—expert and focused—should make their working lives richer, not poorer, and enable them to transition to a digital environment.
In principle, then, digitalisation should lead to far better outcomes for both staff and customers at banks—when staff are given the chance to develop the technical skills they need and to apply both the sector knowledge and the human touch they already have.