Bruce Whitfield: Machines promise a ‘golden age’ for banking – and that is very bad news for bank employees

Business Insider SA


Photo by Erol Ahmed on Unsplash
Photo by Erol Ahmed on Unsplash
  • A new report forecasts that 200,000 banking jobs will be lost to automation in the United States, as banks spend record sums on AI.
  • South African banks have yet to fully calculate the impact on their headcount – but it won't be small.
  • The advertising business can also expect trouble from new, smart product offer systems.
  • For more go to Business Insider.  

As the South African finance union Sasbo considers its next move after being blocked from striking against job cuts at banks, a new report from the US is suggesting the bloodbath is just beginning.

A 225-page report from Wells Fargo & Co forecasts that banks in the United States will see their biggest headcount reduction ever as they introduce more robots, with 200,000 jobs threatened in the next decade by artificial intelligence (AI) and other machines.

In South Africa, we have – so far – seen a gradual decline in staff numbers at banks as they have either closed or modernised branches into leaner shops rather than the staff-heavy personal-service outfits of the past. While the impact of the past 40 years of computerisation is showing, the industry is yet to fully calculate the impact of technology.

In the US banks are spending $150 billion – the equivalent of R2.3 trillion – a year on developing new technology. That is more than any other sector in that market.

It’s anticipated that the use of AI could cut as much as 20% off the cost of mortgage processing, an expensive process, while the use of data analysis will better enable banks to advertise services directly to clients, creating “surgical” marketing opportunities.

There is a growing body of evidence that better analytics of our money habits and transaction patterns will allow providers to offer us exactly the right financial products. That has the potential of a devastating impact on traditional media and advertising in the future.

Senior Wells Fargo analyst Mike Mayo told the Financial Times the relationship between banking and advancing technology had been rocky for 25 years, but is finally getting on course for what he describes as the “golden age of banking efficiency”.

Included in bank results is an efficiency ratio which neatly shows just how much money a bank has to spend to earn money.

South African banks tend to operate in the mid-to-high 50s. A cost-to-income ratio of 58, for example, means that it costs the bank 58c to earn every Rand in generates. The chance to reduce that cost is a very powerful incentive for executives to reduce costs, particularly in a South African environment where sluggish economic growth makes growing loans and other services very difficult to achieve.

The Wells Fargo study warns it will be staff in increasingly defunct branches, those who do mundane back office functions, call centre operators and corporate employees, who are most at risk of serious cutbacks.

With pay making up half of some banks overall costs in the US – and a big proportion too of costs in South Africa – the report says it is inevitable that the ever-advancing banking technology revolution is going to have a serious human consequence. 

Bruce Whitfield is a multi-platform award-winning financial journalist and broadcaster.

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