We missed this Financial Times op-ed last week but it’s worth noting for its on-the-whole plausible prediction that the banks of the future – and, this being the FT, by “banks” we are talking broadly about investment banks and global diversified institutions like HSBC – will employ a lot fewer people.
“In the future, improved technology will reduce the number of human beings needed to allocate capital, as it has done in other service industries,” writes law professor Frank Partnoy, who assembled exotic derivatives while working at Morgan Stanley in the 1990s. “People will also play a smaller role in dealmaking and trading, just as they do when we board a plane or shop for clothes.” He notes that social-networking firms like Facebook perform “an allocative function, just as banks do, except they help people move content instead of capital.” Yet Facebook employs a skeleton crew compared to the pinstriped hordes toiling on Wall Street (not to mention the armies of golf-shirted tellers on Main Street). Partnoy concludes by suggesting we may soon witness the demise of the B.S.D. (no, we can’t spell that out, there are children in the room; just Google it or reread Liar’s Poker.) “As banks expanded,” Partnoy writes, “employees extracted most of the gains, like professional athletes demanding their teams’ profits and leaving owners with paltry returns, or even losses. Sports owners will suffer such indignities in exchange for glamour value. But owning a bank isn’t very much fun and future owners are going to play fewer games with smaller teams.”
In the online comments, some FT readers complain that Partnoy mixes apples and oranges – and here’s where that loosey-goosey use of the word “bank” (a misdemeanor that he is hardly alone in committing) becomes a little problematic. For instance, one commenter notes that HSBC is also a retail bank, which unlike Google (or Goldman Sachs for that matter) needs lots of branches and front-line staff to interact with customers. A second commenter put it more bluntly: “lumping bank tellers and your local branch manager with traders or the product specialists who created CDOs who work for investment banks is ludicrous.” Another recurring complaint in the thread is that Partnoy ignores the growing regulatory burden on financial institutions, which one community banker says have offset efficiencies gained from the shift to electronic transactions (and which presumably might argue for larger staffs, at least in compliance departments).
Still, Partnoy’s in good company when he forecasts leaner payrolls, even at retail banks – see our friend Andrew Kahr’s latest column. And Chris Skinner at the Finanser blog (whom we thank for flagging the Partnoy article) offers a more constructive critique, one that answers the real-banks-have-branches objection.
“Like book retailers, music retailers, … and more, financial retailers will start to feel the full force of the technology shift of consumers to remote banking via mobile internet,” Skinner writes. But that doesn’t mean “all of the world’s banks can move to being pure development shops” a la Google, as Partnoy implies. No, Skinner says, “the more salient model for a bank to emulate, and most banks agree, is Apple. Apple has stores. They have cool stores. They have genius bars for advice. They have great staff and highly automated point of sale. They are engaging in store and online. Their user experience is second to none.”
Bank branches that look (and, more importantly, function) like Apple stores? Sure sounds like a loftier goal to us than just slashing costs while maintaining the DMV service levels and Draculoid fee strategies that typify retail banking in this country today.