How Serious is the Threat of a Growing FinTech Industry?

Up to 30 percent of the current employees in the banking industry may lose their jobs to new technologies in the next 10 years, according to new projections from Citigroup.

This is how yet another article begins, musings of those who seem giddy at the thought of a receding banking industry. Unfortunately, this sentiment is starting to become commonplace. It seems every time SoFi goes through another round of financing, or another fintech start-up finds some backers, the pundits come out to welcome the end of banking as we know it.

However, there is a clear distinction which should be made when talking about this disruption of industry, the distinction between "banking," which as reported includes mainly the operations and activities of a standard retail bank, versus the investment-banking, equity research, and S&T functions which many of us (want to) work in. It seems those jobs, at least for the next... century or two, seem safe from these job-stealing robots. The same thought is subtly echoed in the article, as they make note of where the focus of these start-ups have been:

The report, written by a team of seven Citi analysts and strategists, said that jobs would be lost to start-ups taking aim at many different parts of the financial industry. So far, though, much of the activity has come from lending start-ups like SoFi and payments companies like PayPal and their counterparts from the rest of the world.

So, monkeys, anybody scared for their job yet?

 

FinTech is immensely broad, and so is the "Financial Industry". Complex transactions carried about PE funds are "Financial Industry", and so is me transferring $20 for beer money to my mate. I do not understand the technicals, but as far as I understand currently payments are very complex for no real reason; it should be Person A-->Bank A-->Bank B-->Person B's account. Instead there are dozens of intermediaries that can all be cut out, at least that's what a friend at PayPal told me. I think that a lot of the simple stuff can and will be replaced by lean FinTech start-ups.

However, I also think that the advisory and capital markets experience and expertise that the big players have (BB's, EB's and maybe MM's) is not going to get replaced by a bunch of former 2nd year analysts with flip flops and a beard. A lot of the appeal of these institutions is the fact that they are such old, renowned players and that they have long standing relationships with other players in the industry/investors. As many monkeys here work in Product Groups or Industry groups, I don't think they will be effected directly in the next few years. Very interested in what the rest has to say though.

 
Best Response

I think the areas most vulnerable are those that are over-intermediated given what they are selling. As @DatesExcelModels says, I expect less fintech in-roads into areas where experience/expertise/know-how is required.

More fin tech in-roads where the industry is highly intermediated ie where you have brokers who are charging fees to grant you access to products, while not offering much value add on top of that access.

Historic examples:

Some wealth management advisers who would offer access to mutual funds and other investment products not otherwise available to retail investors. ETFs were an earlier innovation wave that eroded the comfy market share these advisers used to have. Roboadvisers/Betterment represent the next wave.

Insurance brokers selling commoditised insurance products (eg personal car insurance). Carriers using direct online channels have bypassed a lot of these brokers to sell to customers who don't need bespoke/tailored insurance or bells and whistles. Admittedly there's still a large section of the insurance market that does still need front line skills/expertise/human assessment (eg a lot of commercial P&C) and its still cheaper for carriers to sell via insurance brokers rather than building their own direct channels. However, you can see clear in-roads from online direct channels over the last 10 years.

Fintech is innovating in different micro patterns to the examples above, but the macro pattern is the same - ie disintermediation & less middle men collecting fees.

If you want to go even more macro, you could link this disintermediation with the broad historic movement in the West to disintermediation. Examples of this include the the printing press and vernacular versions of the bible + Protestant revolution removing the intermediation of priests between believers and the Christian god, democratic elections, the rise of consumer capitalism, reality television, narcissistic psychopathology.

Those who can, do. Those who can't, post threads about how to do it on WSO.
 

S&T safe? For the next century? The rise of electronic trading in the last 10 years has already ensured if you were in cash equities or another liquid product like futures, you were jobless. All of the easily priced and standardized products are algorithmically traded now, and that trend is moving to fixed income.

BlackRock is pushing to make an electronic bond trading platform, and the top HFTs are already pushing major weight around the treasury markets. The only safe assets from this would be the exotic and incredibly illiquid products, which you would still need to be extremely quantitative as well to price and trade. There won't be a lot of room left in S&T for those with more bark than bite, except for the select handful of salespeople who have to sell said execution platforms.

Banking and equity research will probably be safe for a while like you said.

 

I suspect that in the intermediate term say the next 5-10 years most fintech innovation will focus on consumer banking. It's high volume and highly routinized. Think of the stuff you do most regularly with you bank account, invariably it is simple stuff like deposits, withdraws, transfers. The trend has already been moving away from branch banking I see fintech accelerating that trend. The other area where I see fintech is in highly liquid markets, whether you consider quant/algo to be fintech is another discussion, but it is another area seeing a rise of the nerds.

 

FinTech, in the broadest sense, relates to any technology applied to financial services. Depending how you slice and dice it this includes:

Banking & Payments: Contactless Payments; Money Management; Digitally native consumer products etc.

Credit & Lending: Your P2P; P2B and crowdfunding platforms.

Insurance & Risk: Self explanatory.

Retail Investments & Pensions: Robo-advisors; ETF's etc.

Investment Management, Wholesale Banking & Capital Markets: WSO's classic 'Banking & Buyside'.

Some would split out accounting (a la Xero) as a separate group too.

As you can imagine the above grouping captures virtually every purchase/allocation decision that an entity (individual or corporate) can make. Despite this massive (all-encompassing?) market FinTech is still nascent and hasn't grown in parity (Insurance Vs. P2P, for example)... I've seen figures ranging from £12B to £40B for 2015 - if you think of a single sub-section of the above, there is clearly road to run. Until now a lot of emergent FinTech has been niche and focussed on a single vertical. This is changing as incumbents are seeing emergent enterprises change their revenue and business model.

Specifically for banking there are massive efficiency gains to be made in mid-back office functions. If I was going to point to an area where there are 30% efficiency gains to be made, that would be it. There will still be a demand for advice on M&A, innovative research and, as long as there is a person on the other side, someone to sell these products.

 

I don't think it's fair to say that the layoffs will be only driven by Fintech's emergence in the financial services industry. On the retail side of banking (consumer banking), technology advances (i.e. mobile banking, mobile payments, etc) are already driving customers out of conventional retail bank branches. Fewer people are going to the bank to withdraw and deposit money and the trend is drastic. Banks are already thinking of ''cashless'' branches where there would be no safe and no tellers, just a couple of advisors selling banking products to customers. Right there you will have important lay-offs, and those wouldn't be driven by Fintech's threat, but rather by the ''going digital'' trend that is currently affecting an enormous amount of industries.

 
Drive:

I don't think it's fair to say that the layoffs will be only driven by Fintech's emergence in the financial services industry. On the retail side of banking (consumer banking), technology advances (i.e. mobile banking, mobile payments, etc) are already driving customers out of conventional retail bank branches. Fewer people are going to the bank to withdraw and deposit money and the trend is drastic. Banks are already thinking of ''cashless'' branches where there would be no safe and no tellers, just a couple of advisers selling banking products to customers. Right there you will have important lay-offs, and those wouldn't be driven by Fintech's threat, but rather by the ''going digital'' trend that is currently affecting an enormous amount of industries.

Sorry to bring this thread back from the dead, I finally had time to get caught up with some reading. I feel compelled to chime in due to the fact that I transitioned from wealth management to cyber security...fin tech was one of the main reasons and I will explain why. As of 6 months ago I was making 120k / year (peanuts for some but a huge bump for me) as a "junior portfolio manager" at a well known retail bank, in beautiful Miami, Florida. I quit my job, moved to another state and started my MSF in Cyber Security degree (sitting for CFA lvl II also). Two reasons why:

1) My former CEO said that over the next 2-5 years they would invest $500 Million dollars in IT and Cyber Security (network defense mostly). 2) My bank already started experimenting with "bankless" branches....5 screens, one IT manager...there is a demo store in Washington DC..google it 3) My former Ivy league educated colleague with 30+ years portfolio management experience saw his salary go from 400k base + commissions to 150K in 7 years.....Did I mention Ivy league, 2 master's and CFA? 4) No financial institutions wants to pay you more...plain and simple, they are constantly looking for ways to pay you less and automate your job..in the world of portfolio management and trading; machines already beat us...this is now...not some future utopia. 5) 35% of Goldman Sachs employees are IT employees...yes the GS were many of us have applied to (myself included) 6) Artificial Intelligence is the newest thing..starting salaries at 200k, I read a PH.D student got a $ 1 MM year (yes 1 million dollars) salary offer...this is salary, she is not CFO, CEO, CIO ...salary for artificial intelligence...(the economist silicon valley fights talent universities)

7) I am currently working for the department of defense making 100k plus benefits...my goal is to get some experience and go corporate...at this stage in my life I am looking for stability and loooong term security (I am 32 yrs old) my "trying to break into IB" days are long gone, I'd rather learn a new skill set

Again this is just what I have experienced myself, not heard about, but actually went through...hope this helps. I don't want to say all is doom and gloom, but it is scary

 

I think by the time I get out of the military in 10 years.... most I banking will be non existent. The hiring needs are already not even there right now. Hopefully consulting is still hiring.... and if not, I plan to sell/ market the poison eating up all the jobs in every industry by working in tech haha.

 

If you have the stats & horsepower to get a job working for a investment bank, it wont be difficult learn new skills for a different job.

Stop reading stupid articles, read your text books to get good grades. If you're in college join a few clubs, volunteer for a couple different events or clubs, and make meaningful connections with classmates & faculty.

 

I wouldn't worry about it. Look at the article below from THE FIG investment banker, Christopher Flowers. With the exception of a few fintech companies, most are making the mistake of approaching finance the way tech companies approach tech: massive market expansion first, customer quality second. That doesn't work in finance.

http://www.wsj.com/articles/fintech-will-mostly-end-in-tears-christophe…

EDIT: It appears the link requires a WSJ subscription. If you Google the article's title, it will pull up a free article.

 

TFW work in a commodities trading firm that specializes in renewable fuels.... there is a reason I'm jumping ship to the military. Since we are a middle man, no one wants to deal with us. Things might different if margins were doing better, where no one cares about the 1-2 pennies..... but now people are cramping down.

 

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