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Jim Young and Dallas Wells discuss a few recent and relevant articles that uncover what automation will do to banking jobs. You'll learn the effect automation will have on the industry and how you can succeed despite the rise of machines.
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Pandit Says 30% of Bank Jobs May Disappear in Next Five Years
Dimon Says JPMorgan Headcount to Keep Rising Despite Automation
Managing the Bots That Are Managing the Business
Jim Young: Hi, and welcome to the Purposeful Banker, the podcast brought to you by Precision Lender, where we discuss the big topics on the minds of today's best bankers. I'm your host, Jim Young, director of communications at Precision Lender. I'm joined today by PrecisionLender EVP of Client Development, Dallas Wells.
Today, we're going to talk about a couple of articles that address a very hot topic in banking. What effect does automation going to have on jobs in this industry? Dallas, we'll start first with an interview that Vikram Pandit, former CEO of Citigroup gave to Bloomberg in which he said he expected banking to shed 30% of its jobs in the next five years. Before we get into the specifics, did that number raise your eyebrows at all?
Dallas Wells: Yeah, I think actually both parts of that are a little shocking. Number one, 30%, just when you think of the size of the banking industry, some of the very largest banks have a couple hundred thousand employees. This is not peanuts we're talking about. I think maybe I was more surprised by the five years. I don't know that anything happens in banking in five years, much less a giant industry shift like that. So yeah, a little taken aback by both those numbers.
Jim Young: That's a very good point. Banking is never been known as a rapid event industry. Well, okay, let's take a look at this through lens of self-interest, both for us and for our clients. Will this impact be felt as much on the commercial side? Are we talking mostly about back of the bank jobs?
Dallas Wells: Yeah. I think specifically what Pandit was talking about was mostly a lot of those back office operational type jobs. I think there's also this idea, which is not a new one, but this idea from banks that the retail side of the business will be dramatically changed. It has been changed.
If you walk into a typical retail branch, there's usually a giant, long row of teller windows and nine-tenth of them are empty. Much of the banking retail business has already been transformed by technology. Now that, to the first part of your question, that's been much slower to make its way over to the commercial side. It's not as commoditized, the things don't fit as neatly into a box that can be handled by a bot, or an ATM, or whatever the case may be.
The transactions, the deals themselves, all seem to be a little bit more complex. That day may come, but I don't think we're quite there yet. It is a combination of back office jobs and I think continued shrinking of branch networks. If you look around at a lot of what's happening and what's coming, you can see kind of around the corner where it is coming from the commercial side of the bank as well.
Jim Young: Yeah and you used a phrase, "When you walk into your branch ..." and I thought to myself, "When is the last time I walked into a branch?" It's been a long, long time for me.
Is this a case ... is what Pandit's saying, is this a sounding the alarm, we've got to do something about this? Or, is this more, this is the new reality and we need to adjust to it?
Dallas Wells: Well, I think much of this is reality. I think, again, the numbers, the sheer size of it, I think that may be a bit alarmist, I don't think we're talking about that, at least not in that short of a timeframe. I think much of what's coming is, is reality and that a lot of the functions that people are handling, the human beings are handling right now, can actually better be handled by technology.
That doesn't necessarily mean that those people are just out of a job and they pack up and go home. I think what banks will have to ... What they should be thinking about already is, when that happens, when we come across technology that can replace decent chunks of our workforce, what do we do about that? Do we hand out pink slips or do we find something else for those people to do?
That something else I think is what will really start differentiate within the banking industry. You'll see some that are going to use this as another chance to hunker down and cut cost, and just get as lean as they can. And then, you will see others that will look at this as a chance to invest in something new, a new service to offer, a better way to serve their existing customers.
I think what it gets down to is, is a phrase that our CEO Carl, that I like, he uses a lot, which is, talking about what we do, our job is to make sure we do what computers do really well, so that humans can do what they do really well. People are really good at relationships with each other and conversations with each other, and that emotional intelligence that we are a long ways from teaching a machine how to handle those things.
The banks that find a way to invest in that, with the people that are now freed from doing the things that computers can do, I think those are the banks that will really thrive rather than just, let's cut costs long enough to survive another quarter.
Jim Young: Yeah, you know, I thought about this in terms of actually ... My hometown's Greenville, South Carolina, when I was growing up it was called the textile capital of the world. Which can tell you, yeah, you laugh, because everybody knows what happened to the textile industry in the United States.
Now I always tell people, "Man, my hometown is so much nicer now than it was when I grew up there." Because they adjusted, and they found different ways to create jobs. Now, they did it in an entirely different industries, they didn't reinvent textiles. I think the challenge here is not to tell people, hey, even if you're going to lose your job in banking, you can get a job in this other industry. But rather, how does banking adjust and find opportunities within those technologies in the way that, look, we got an entire industry around the cell phone, which did not exist as a concept, 15, 20 years ago.
I want to segway that into another article, which Jamie Diamond, head of JP Morgan said he anticipates a rise in head count at JP Morgan. Now, is that just a story of, hey, JP Morgan is a growing bank or is there something there to JP Morgan that is perhaps a blueprint that other banks can follow?
Dallas Wells: Well, I think what you see there is kind of a dichotomy between those two banks and Pandit's no longer at Citigroup. He was there for a very long time and grew up in that bank. Citigroup is always approached things of how can we just make this thing giant and then try to get more efficient with it? They weren't always that successful with it, but that was the mindset.
JP Morgan has been much more about, let's find a new business to conquer. Something else that we can enter and be really good at. If you look at what JP Morgan's doing, I think the number they've spouted is, they spend something like $3 billion dollars a year writing code. They're hiring engineers, and programmers, and software people with those newfound dollars from those new efficiencies.
It is a shift within the types of people that they are hiring, but then also creates a big space for people who understand banking and can find the best ways to apply all this new technology. Some of those old dogs will have to learn new tricks. There's plenty to be done and I think back to your Greenville, South Carolina example, within banking, those jobs won't be exactly the same, but there are still plenty of things to do.
The financial universe that can be served by a bank and if you think even down to a community bank, we don't have to talk about the JP Morgans of the world. If you're a community bank, much of what they've been focused on is the real, just basics of a checking account and a home loan, maybe a small business loan.
There is a huge, wide swath of financial dealings that your customers have that banks aren't really touching, that somebody else is handling. I think the good banks will use this as an opportunity to get deeper relationships with those customers and find what other ways they can serve them because they have the efficiency to do so now.
Jim Young: Yeah. That really gets to what I was ... My next question was, if I'm a banker, should I just be applying to JP Morgan and crossing my fingers? Or, should I be going to Iron Yard and learning how to code?
I think what you're saying is, it's not necessarily a complete reinvention for people and I'm thinking of people that are career bankers in their 40s and 50s. It doesn't necessarily require a complete reinvention, but rather a sort of rethinking of, okay, here are the skills that I have, how can I adjust them, essentially to meet what the needs are for humans at my bank.
Dallas Wells: Yeah. I reminds me of an article that we came across and talked about here at PrecisionLender a few weeks ago. We'll dig it up and include it in the show notes for this episode. It was talking about how basically, all employees will become managers in the coming years. What they will become managers of is the technology. If you think about some of those new skills, you don't necessarily have to know how to write code to survive, and thrive, and do well in this new world.
You do have to learn to work along-side of technology and you have to learn how to take some of those mundane things that you've been doing and assign them to a piece of technology, and have that technology do that, so that you can free yourself to do something of a higher value. People who can figure that out, without coding skills, but just kind of shepherding resources, will do really well in banking or in any industry really.
Jim Young: All right. Well, that will do it for us today. Thanks for listening. If you'd like to learn more, visit our resource page at explorer.precisionlender.com. If you like what you been hearing, make sure to subscribe to the feed in iTune, SoundCloud, Google Player, Stitcher. We love to get ratings and feedback on any of those platforms. Thanks for listening and until next time, this has been Jim Young with Dallas Wells and you been listening to Purposeful Banker.
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