Up to 30 percent of employees in the banking industry might lose their jobs to new technologies in the next 10 years, according to new projections from Citigroup Inc.
A 112-page report, Digital Disruption, released on Wednesday, said that the number of employees at US banks would drop to 1.8 million people in the year 2025, down from 2.6 million last year and 2.9 million before the financial crisis. An even sharper drop of 37 percent is predicted for European banks.
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.
The report from Citigroup is the latest analysis pointing to big changes ahead for the financial industry as a result of the wave of new financial start-ups broadly going by the term “fintech.”
Last fall, former Barclays PLC chief executive Antony Jenkins said in a speech that banking was facing a series of “Uber moments,” in which the number of jobs in the industry could be cut in half.
In addition to the new fintech start-ups, banks are being forced to cut jobs and automate their operations amid the volatile markets and new regulations that have become the norm since the financial crisis.
The Citigroup analysts pointed to the inherent danger of projecting cutbacks for the financial industry.
Microsoft Corp founder Bill Gates said in the 1990s that banks were “dinosaurs” that would be replaced by new software — a prediction that ended up being wrong, in no small part because of the regulatory restrictions on new entrants to the financial industry.
However, the report said that the sector had attracted record investment over the past five years. Last year, there was US$19 billion in new investments, up from US$1.8 billion in 2010.
The report said that new technologies had taken off the fastest in Asia, particularly in China, where technologically powered financial players have already become dominant.
A majority of online payments in China are handled by non-bank players like Tenpay (財付通) and Alipay (支付寶).
The Citigroup report said that Alipay had 3.3 times as much payment volume last year as the most prominent US player, PayPal.
So-called peer-to-peer lending — loans happening outside the banking industry — has also exploded in China. These lenders gave out four times more loans in China last year than similar companies in the US, according to the report.
New financial technologies have been much slower to gain traction in the US, where services like Apple Pay have been more of a curiosity than a disruptive force.
However, the Citigroup report said the slow adoption so far showed signs of speeding up and gave the new entrants more room for growth.
The analysts estimated that in personal lending, digital payments and wealth management, new players are likely to take 13 percent of the business in the next five years.
“Incumbent financial institutions still have the upper hand in terms of scale and we have not yet reached the tipping point of digital disruption in either the US or Europe,” Citigroup GPS managing editor Kathleen Boyle wrote in the introduction of the report. “Given the growth in fintech investment, this isn’t likely to continue for long.”
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