Welcome to the machine: Citi foresees 30% reduction in employees in financial institutions due to automation

Multi-million dollar investments in the research and development of blockchain to automate banking ledger systems, automated customer engagement solutions, digital and electronic marketing software which targets specific potential and existing customers efficiently.

These are just some fintech initiatives that currently grace the conversations in boardrooms of banks wishing to remain at the ultra-modern cutting edge of the corporate world, government officials whose offices are ensconsed within London’s financial center such as British Chancellor of the Exchequer George Osborne who wishes to turn London into a fintech capital for the world, and a consumer base which is now so sophisticated that retail customers demand and expect the latest mobile applications, charting packages, and even automated interaction with their financial services provider without picking up the telephone.

FinanceFeeds has spoken at length with a number of FX technology and brokerage solutions companies, all of which have highlighted a common focus with regard to the development of their systems. One particular example being Leverate, which is automating the sales process to enable brokerages to reduce their staff headcount, therefore saving money on rental of office space to house several employees, salaries, and the inefficiency that results from buying leads and making telephone calls to generate conversions.

It is widely acknowledged that it costs approximately $1000 to acquire a retail customer, largely due to the obsolescence of the sales model which exists in many large institutions and retail firms alike.

The development of automated and intelligent systems which collect big data and use it for the purposes of automating sales and retention practices, customer service, and the method by which operations within banks and to and from other banks are conducted is all very well, however where does the squidgy organic component that sits between the chair and the computer fit in?

According to research by Citigroup which has been published today, the answer to that is that the human factor is becoming less critical, and indeed the casualty of the development of such efficient systems will result in a 30% reduction in the staff of traditional banks within the next decade compared to today.

Citigroup uses terminology which is equally modern in order to describe its findings, saying that the banking industry on both sides of the Atlantic is reaching an “automation tipping point” and an “Uber moment” is imminent. It will be of interest to see whether these terms will appear on Lake Superior University’s famous Banished Words List as nominations for over-describing a currently much-discussed phenomenon.

Citigroup issued a notice about “digital disruption” stating that investment in fintech by institutions has grown from $1.8 billion in 2010 (a lifetime ago in terms of the development cycles in fintech these days) to an astonishing $19 billion in 2015.

The report predicts that within the next ten years, 1.8 million positions of employment will become redundant purely due to the automation of retail banking.

“The Uber moment will mean a disintermediation of bank branches rather than the banks themselves and a shift to mobile distribution being the main channel of interaction between customers and the bank” said the report.

Even within head offices of firms and regional branches there is so much less demand for back office and support staff. When I began my career in this industry in 1991, every company had its own internal server farms, giant middleware systems, on-site databases and each department had to ‘circularize’ documentation from one division of the company to another, requiring vast technical support, administration and procedural resources.

Today, with cloud-hosted solutions and connectivity which can be leased and established via a single API, there is absolutely no need for any such resource-hungry operations. Indeed, most FX firms or banks today do not have any onsite technology at all – it is long since obsolete.

Concluding, the CItigroup report stated “The return of having a physical branch network is diminishing. The concept of retail banking profitability equaling outlet profitability will no longer be valid. Branches will be only one of the distribution channels. They will still play an important albeit diminishing role.”

Perhaps rather less in keeping with George Orwell’s 1949 prediction that by the year 1984 we would all be completely subservient to a government-developed super-computer which purvades every aspect of our daily lives and removes freedom, stunts thought process and does away with opportunity, instead we, the people, have perhaps created an ecosystem that may cause us to be victims of our own intelligence.