Citibank Warning – 30% of jobs at US and European banks at risk from the FinTech Boom
A Citibank report predicts that continued growth in FinTech will result in 30% of workers at US and European banks losing their jobs to start-up ventures over the next 10 years.
In recent years many banks have started to employ the latest technological advances such as block chains and artificial intelligence to improve their efficiency and enhance the customer experience. At the same time banks in the US and Europe have also been closing branches and reducing headcount, leading to increased concerns around “machines taking jobs from people”.
Last year the Bank of America conducted similar analysis and warned that within the next 20 years increased automation in the finance industry would result in the loss of 25 million jobs.
Chinese eCommerce – 96% of transactions don’t use bank settlement and both Europe and the US are moving in the same direction
On 26 March 2016 Citibank Global Perspectives and Solutions (Citi GPS) released a report noting that the hottest areas of FinTech include payment platforms and lending services – areas that have traditionally been monopolised by the banks. Last year $19bn was invested in FinTech firms, representing a tenfold increase over the last 5 years. Out of this total 46% funded lending services start-ups while 23% went to payment platform start-ups.
The steady advance of digital finance in Asia is creating an unprecedented level of disruption. This is particularly noticeable in China where a reported $67bn of P2P lending transactions have occurred and where 96% of online sales utilise non-bank payment platforms.
By contrast, in the US, where the majority of transactions in the finance industry are conducted by banks, FinTech start-ups only account for 1.1% of industry profits of $850bn. However by 2023 this share of industry profits is expected to grow to 17%.
Citibank believes that as the US and Europe start to follow the lead of China, the global FinTech market will grow to be gigantic. During this period of rapid change, banks will be under a huge amount of pressure to use the latest technology in order to compete and survive. They will invest huge sums in technology and will be forced to cut headcount.
In North Europe and Holland the number of bank branches has already reduced by half from their peak. Norway’s largest commercial bank DNB is already operating at its lowest ever number of branches and plans to reduce headcount further this year. In addition, Spain’s largest bank Santander recently announced that it plans to close between 425 and 450 branches out of its network of 3,467 branches.
Citibank conclude their report by noting that that once FinTech reaches its peak in the US and Europe, the market power of incumbent financial institutions will be significantly eroded. They further note that given the growth in FinTech this tipping point is not far away.