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Digitalization and Artificial Intelligence Reduces Job Opportunities in Banking Industry

The banking industry which was among the big job creators along with the information technology industry is at an inflection point where technology is enhancing efficiency at a faster pace than what humans could do. Traditional jobs like passbook updating, cash deposit, verification of know-your-customer details, salary uploads are also going digital increasing job redundancies.

The Indian banking industry has been witnessing a slow transition from people-driven to machines controlled in the past few years. In the coming years even the position of the teller, who is fast being replaced by sophisticated automated teller machines, and much more jobs going away as computing makes it possible to do more with less heads at the branches. 

India is experiencing what banks in advanced countries have been doing for the past many years. A few years ago, Barclays chairman Anthony Jenkins warned of the Uber moment for banks and that is coming true.

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The likes of Axis BankICICI Bank and HDFC Bank are pushing the boundaries of technology by implementing robotics to centralize operations and for quicker turnarounds in things like loan processing and selling financial products to customers. There is increased automation within branches. This is reducing the need for a manual worker at the back end.

The technological development, which has made banking easier, has also led to a slowdown in the hiring of staff at banks. Although there have been hiring but the nature of skill sets required is changing with a lot more focus on the front end talent. The rate of growth of new jobs in the banking sector is coming down. Low-end back office jobs like data entries will no longer be required in the next three years.

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Low-skillset workers do not have a bright future in banking sector, either they will have to re-skill themselves or perish. A sign of things to come is being witnessed at the country’s most valuable lender and the most expensive one among top lenders, HDFC Bank. The bank has not only been slowing branch expansion and hirings, but also been reducing overall headcount. 

HDFC saw staff strength fall for two-quarters in a row. The employee count fell by 6,096, or 7 per cent from 90,421 in December 2016 to 84,325 in the quarter ended March 2017. At the same time, it has expanded its network to 4,715 branches, from 4,520 a year earlier, ATMs to 12,260 from 12,000. 

But the decline in bank jobs started even before the digital wave hit the banking industry. Indian banks employed nearly 13 lakh people at the end of March 2015, out of which state-run banks alone employ nearly 8.6 lakh people, while private sector banks employed 3.2 lakh people, a paltry growth of 3 per cent over March 2014, data from RBI shows.

The human skills, which were considered imperative for basic banking may not be required in near future. Analytics and artificial intelligence are already being used by some banks to do jobs once considered sacred, like underwriting loans.

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A real estate consultant, Jones Lang Lasalle said “The number of bank branches in the United States will shrink by as much as 20 per cent in five years and if it trimmed the number of branches and downsized the average bank branch from 5,000 to 3,000 square feet that could save as much as $8.3 billion annually”. 

The return on having a physical network is diminishing. Branches and associated staff costs make up for about 65 per cent of the total retail cost base of a larger bank and a lot of these costs can be removed via automation.

Citigroup has also forecast that nearly a third of the jobs in the banking industry could be lost in the decade between 2015 and 2025. “The future of branches in banking is about focusing on advisory and consultation rather than transactions,” writes Jonathan Larsen, global head of retail and mortgages at Citi

Changing face of Banking Industry

While Indian banks haven’t started trimming the bank branches, the growth in the number and the size of branches has definitely come down. The growth rate of branch network in India halved at the end of 2016 to 5 per cent from 2010. Likewise, ATM additions which were growing at over 40 per cent in 2010, grew at 9 per cent in 2016.

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After the demonetisation drive started in November 2016, and an initiative by Prime Minister Narendra Modi to opt for digital transactions through their mobile phones and move towards a “less cash” economy, number of customers visiting banks for their normal transactions is getting down. The infrastructure of digital payments in India is expected to increase three-fold by the end of 2017 with almost five million electronic point of sale (PoS) machines, the Ministry of Electronics and IT (MeitY) said on Wednesday.

New Banks With New Technology

Smaller and newer banks have taken the lead in pushing the government’s digital economy drive, rolling out a slew of innovative digital banking products much faster than traditional banks to expand their footprints. 

ICICI Bank has already helped 100 villages to adopt digital transaction in the last 100 days and now plans to add 500 more to the list, its CEO Chanda Kochhar said on Tuesday, at a function inaugurated by finance minister Arun Jaitley in New Delhi.

The entry of new banks like small finance banks like Au Financiers, Equitas or Ujjivan would require an army of people as they expand to rural areas. Boots on the ground may be the mantra for these new banks which will have to marry technology with the human touch.

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“All people (customers) are still not comfortable with digital banking. They need to see branches and go and ask questions. It will take time for digital banking to fully take shape. More is needed to be done,” said Chandra Shekhar Ghosh, founder and MD at Microfinance turned-universal bank Bandhan, which has 68 per cent of its branches in rural areas. 

Financial services will continue to create jobs particularly at the front end but the rate of growth of that job creation will slow down, that is for sure. Automation (Digitalization) does not necessarily mean that there would no more be banking jobs, but they will be at a different level. Banks need to approach customers and educate them about financial products that are in the market.

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(Image Credit: LinkedIn)

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