By Ryan Weeks on 28th June 2018
Ricky Knox speaks to AltFi about the role of digitisation on job losses at the big banks.
Last week we learned that Lloyds Banking Group would be cutting another 450 jobs in its latest digitisation effort. All told, the company has slimmed down by more than 30,000 jobs since Antonio Horta-Osório took charge in 2011.
I’ve written before about what I termed the ‘job creation contradiction’ in fintech. Take Funding Circle as an example. The leading marketplace lender recently released the results of its first ever global economic impact report, authored by Oxford Economics. The study found that the platform's loans created 75,000 jobs globally in 2017 alone, in addition to contributing £4bn in Gross Value Added to the global economy during that time period.
The contradiction is that Funding Circle and others like it are also at the forefront of the digitisation of financial services – part of a sweeping trend that is gradually changing customer expectations, bringing business online, automating processes, and killing jobs.
Digital banks are another part of that movement, but unlike Funding Circle they cannot claim to be simultaneously creating a shed-load of jobs through lending to small businesses (although perhaps they will be able to in time).
It is difficult, therefore, to argue that digital banks are anything but a drain on the economy in terms of jobs creation. Irrespective of how much value they have to offer their customers, how much investment they attract and their overall impact on financial services, facts are facts: they employ a fraction of the people employed by old-school banks and their presence in the market is causing old-school banks to slim down too.
What do digital banks themselves make of this trend? Do they bear some degree of corporate responsibility? Could or should they play an active role in helping people re-train to remain useful in the new world of online banking? Is this issue even being considered?
“The contract between employee and company has changed pretty fundamentally in the last several years,” he said, in an interview with AltFi.
For Knox, the contract is no longer a life-long agreement in which the employee is trained by the employer. It is now more of a reciprocal teaching relationship between the worker and company. He says that this implies a ‘continuous’ retraining process.
He also acknowledged the aforementioned ‘leanness’ of digital banks: “We try very hard not to over-hire, and indeed to solve problems with technology whenever we can. So I’m not going to be creating 40,000 jobs any time soon sadly.”
But for Knox, the real problem has been the banks themselves, which he says have been allowed to become ‘unbelievably overweight’ while operating in a monopolistic system.
“As competition comes to banking you will see some sort of compulsory slimming down,” he said.
He went further, calling the process a ‘systemic readjustment’, required because banks have historically hired people where no other company would have been able to.
Knox’s argument is that unemployment isn’t created by banks shedding jobs, per se. Instead, he sees unemployment as the inevitable result of the wrong people with the wrong skills being hired in the wrong places.
If you buy Knox’s version of events, job cuts in banking are an inevitability brought about primarily by the irresponsible hiring practices of the banks themselves. Technological disruption is just the catalyst for an ultimately unavoidable down-sizing.
Knox sees hope, however, in the evolving shape of the world of work. He referenced entrepreneurialism, self-employment and flexible contracts as growing trends.
“We are the economy and the economy is the sum of our work,” he said.
Now in its sixth year, the AltFi London Summit returns on 18th March 2019 to 155 Bishopsgate. Last year proved to be a crucial turning point for the key players building the future of finance. Leading platforms launched oversubscribed IPOs, digital banks proliferated and mainstream financial institutions started their own disruptive propositions. With 2019 certain to be another landmark year, more questions will be asked by regulators with investor interest in disruption also poised for more rapid growth.