The job creation contradiction in fintech

By Ryan Weeks on 19th May 2017

P2P/Marketplace LendingAlternative Credit

With the election looming, are fintech’s business lenders creating jobs, or killing them?

The job creation contradiction in fintech

With the election looming, are fintech’s business lenders creating jobs, or killing them?

The Evening Standard published a piece by Anthony Hilton yesterday, asking: which party is even remotely ready for the tech revolution? The insightful article paints a picture of a country on the cusp of a technology revolution that will render many of today’s jobs redundant, from linguists to bankers. In the absence of any mention of this tectonic shift in political party manifestos, Hilton concludes that politicians must either be ignoring it, or be ignorant of it.

It got me thinking about the broader impact of fintech lenders in the UK, especially those built to fund businesses. Companies like Funding Circle – the country’s largest marketplace lender for SMEs – regularly reference their impact on job creation in corporate updates. The logic is that the loans that Funding Circle and other platforms like it facilitate help small businesses to grow, and so too to hire more staff.

Leading US firm OnDeck released a report in late 2015 analysing the economic impact of the first $3bn lent through the platform. The report found that OnDeck loans had powered $11bn in business activity, creating 74,000 jobs across the country. Similarly, Funding Circle published findings last summer suggesting that its lending had supported the creation of 40,000 jobs in the UK since 2010, boosting the economy by £2.7bn.

These sorts of surveys are commonplace across the fintech lending sector globally. And they make sense. But there’s another side to the story.

Funding Circle, OnDeck and others like them are at the forefront of technological innovation. Their reliance on cutting-edge technology (big data, machine learning, , etc.), make them more efficient, nimbler, and, crucially, leaner. They contribute to and are a part of the disintermediation revolution: cutting out middlemen wherever they can be replaced by computers.

In this way, they are unquestionably killing jobs, as well as creating them – but nobody ever talks about that. The disruption they effect is dressed up as an overwhelming force for good: a means of making the world fairer and faster for customers. But with the election looming, it might be time to acknowledge that disruption also means destruction.

It’s almost impossible to measure the net impact of fintech lenders on job creation. Arguably they do more good than they do bad, for now. But the trail they’ve blazed has had a marked impact on the way people interact with money, and so it is also beginning to change the way that high street banks operate.

Barely a month goes by without news of a fresh round of bank branch closures. In March, for example, we learnt that RBS and NatWest would be cutting 158 branches and 400 jobs across the country.

Funding Circle, a billion dollar company with a presence in the UK, US and Europe, employs just 700 people globally (380 in the UK).

It is simply an unavoidable truth that the future giants of finance will employ significantly less people than they do today. What is also true is that the workers who are displaced by bank branch closures may find themselves ill-equipped to contribute to the financial services sector of the future.

Hilton is quite right to flag the fact that politicians are failing to address the prospect of wide-ranging technological advancement. But when they finally do turn their oil-tanker-attentions to it, whenever that may be, one wonders what the result will be.

Will the focus be on long-term solutions for a world with less jobs in it? Or will some political parties begin to go cold on fintech and technology more generally, in favour of defending the interests of workers?

Something to ponder for all of us (politicians included). 


Roger Portnoy

20 May 2017 02:41pm

I believe there is a risk of amuch bleaker future in which AI inspired automation not only displaces jobs but also places a substantial cap on income growth - if fintech does not deliver a positive impact on money velocity while reducing cost there will not br enough job creation - at the moment its impact on money velocity is small while the displacement threat is real!

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