Technology is redefining the financial industry, making it essential for anyone in a finance career to understand the evolving role of technology in financial services.
How does technology impact your finance career?
There are two kinds of people in the workforce today. One is a generation of workforce who doesn’t know a world without Internet and second is a generation of workforce who don’t know beyond the world of TV, typewriter and radio. Amidst the growing adoption of technology in financial services, there is a schism, a divide emerging between these two kinds, and financial institutions like investment banks are facing a tough challenge to find a middle path, to synchronize the experience of an older generation with the Internet-friendly generation.
A major observation here is technological automation. In a May 2014 speaking event at The American Enterprise Institute think-tank, Bill Gates commented that within the next two decades, many manual jobs will be replaced by software automation; highlighting the fact that governments and businesses aren’t capable yet to understand the repercussions of this transition. In The Future Work Skills 2020 report prepared by the Institute for the Future, working for the University of Phoenix Research Institute, it is predicted that smart machines and new media will reshape demand of manual skills.
Take the case of North America. By 2020, the number of Americans above 60 years will increase by 70%, which means a growth of employment opportunities but also focuses on the need to rearrange our perception towards education and career. The report implies that technology will become an intrinsic part of our professional life. A similar situation will arise in every country, in every part of the world.
Like other industries, the finance industry too is moving towards a platform where Internet is the epicenter of information and finance or investment software is aiding finance career people to grow. In 2014, investment banks focused largely on technology, setting up multi-million dollar funds to hire and nurture “fintech” talent. Every core aspect of banking is touched by technology. Is it possible that technological automation will steal your livelihood? If so, why are we adopting technology? If not, how do we create the perfect balance between technological dependence and human skills?
These are some questions which you need to consider, especially if you’re in the starting phase of a finance career. You need to understand emerging skill-sets and equip yourself with the same to remain an active participant in the finance workforce. The Future Work Skills 2020 report claims that individuals, in the next decade, need to demonstrate flexibility to adapt into a rapidly changing work environment.
5 Ways Technology Will Shape Your Finance Career in 2019
Are you ready for the change?
1) The Rise of CDO
The need of Chief Digital Officer (CDO) has seen a significant growth since 2005. According to the CDO Club 2014 report, there will be 1000 more CDO’s by the end of 2014. The role of a CDO is to strategize and monitor other market players and engage the fintech ecosystem, create social solutions for investment clients; in short, observe the digital world closely and its impact to the finance industry.
A CDO is typically a professional leader and a well-seasoned business builder with experience in corporate management, and possesses an entrepreneurial vein to gain buy-ins from stakeholders. The Media and Financial Services sectors are the top CDO hirers, with salaries ranging between six to seven figure sums. According to their report, most CDO professionals are males, aged between 30 and 49, with salaries within the $250,000 to $750,000 range.
Here is a list of top CDO hiring countries, segregated by raw numbers and per capita.
Some prominent CDO hires in 2014 are Andrew Brem at Aviva Life Insurance, Rob Casper at GE Capital, Linda Avery at Federal Reserve Bank (New York) and Harvey Goldhersz at Analytics GroupM.
Accenture rightly notes that –
“Technology continues to deconstruct the walls that once surrounded capital markets and former powerhouses’ dominant access to information, price, and liquidity” (Source).
2) Cloud Banking
The growth of cloud banking is certainly slow, even though the need for people to manage cloud infrastructure is growing. There is considerable debate over whether banking should migrate to a ‘cloud infrastructure’ because it will mean the death of various financial jobs but experts say debates are only slowing down the inevitable.
Between 2013 and 2017, IDC research firms predict that the public IT cloud services will increase from $47.4 billion to $107 billion, and a 23.5% compounded growth rate is predicted for the whole IT industry. Data proves that C-suite executives are demanding more from IT. IDC also predicts that 40% of the digital information will be on cloud infrastructure by 2020.
Even though slowly, financial institutions are adopting cloud technology. In 2014, Price Waterhouse Coopers reported that 71% of financial service respondents will invest in cloud-based technology. The national banking regulator in Netherlands, De Nederlandsche Bank, already uses Amazon Web Services for a host of banking services such as credit risk analysis, retail banking, mobile applications, website hosting and high performance computing. Bankinter, the sixth largest bank in Spain, also moved to Amazon cloud and brought down their risk simulations from 23 hours to just 20 minutes. A Dutch bank, Robeco Direct N.V managing around 8 billion Euros of assets in investment funds and mortgages shifted their whole retail banking platform to the cloud.
Cost efficiency, data growth and analysis, regulatory compliances and security are some reasons favoring the adoption of cloud technology.
3) Elimination of Trading Jobs
The need for reducing the risk of price manipulation episodes, controlling trading costs and regulatory measures is pushing the trend of FX automation, resulting in the elimination of trading jobs. Traditional trading over phone leaves regulatory loopholes. In the past, currency fixes and manipulation of interbank lending rates have cautioned finance regulators and pushed them towards FX automation.
Investment banks like Barclays and UBS have already automated 90% of their FX trading platforms and eliminated human intervention to a large extent. Talking to Financial Times, the Chief Executive of Barclays, Antony Jenkins says:
“We already have around 90 percent of spot foreign exchange going from trade to settlement via automated processes and we expect that to increase. There is going to be further and faster automation of much of what is considered investment banking today”.
The Financial Market Supervisory Authority of Switzerland also shifted 95% of its foreign exchange trades to electronic platforms after unearthing manipulation of currency benchmarks by its employees.
According to Bank for International Settlements data, 2 trillion USD is traded daily and 65% of this trading is conducted electronically.
This trend is reshaping the foreign exchange trading significantly and if the whole system becomes completely automated, there will be significant loss of employment, except for the demand of sales people who will communicate with clients and this cannot be automated. Otherwise, in all other aspects, the automation is inevitable. It will reign in financial trading crime to a large extent.
Read more in detail at Bloomberg.
4) Adoption of Agile Working Methods
The allure of cost saving is prompting the financial services industry to adopt Agile working methods. In business, Agility defines the ability to adapt to changes in a business environment, in a cost effective manner. In banking, Agility refers to the flexibility, nimbleness and the speed of execution of operations and processes. An Agile banking workforce rolls out products at a rapid pace and for overall productive management, Agile strategies are developed to handle the complexity of product growth. The overall target is to enhance customer experience.
In 2014, more investment banks hired people with ‘Agile’ expertise. For instance, in early 2014, JPMorgan shook its Asian workforce by hiring 100 technologists for their Singapore hub, and rolled out agile and lean development models across their core units which operated the back office functions. The adoption of agile working methodologies improved cost and time of delivery. According to the report titled “How Winning Banks Refocus their IT Budgets for Digital?” from McKinsey, if banks segregate a quarter of their projects and apply agile methodologies for their completion, 70% of those projects are completed within budget and 55% is delivered on time. In contrast, if the allocation of projects is increased from a quarter to half, 96% of those projects are completed within budget and 79% is delivered on time.
If interested, read this complete report about the ‘Agile’ transition process adopted by Barclays Retail and Business Banking.
5) Fintech Startups
Working with fintech startups 2017 onwards seems good for a finance career because big bracket investment banks are inclined to invest or provide expansion funds to fintech startups. According to Fortune, fintech startups are slated to receive $8 billion worth of investments. Big banks are increasingly focusing on fintech startups for their financially-focused software systems, and as a result, adapting to a new regulatory environment based on digital media.
Big banking institutions like American Express, Citibank and Bank of America are investing in fintech startups to meet three challenges: security, digital and regulation. A technology infrastructure executive at the Bank of America, David Reilly, says “engaging with the startup and venture capital community forces us to think about innovation in a different way, more revolution than evolution”. Banks like HSBC, Banco Bilbao Vizcaya Argentaria have established in-house capital funds to invest in fintech startups.
The 25 hottest trending fintech startups are listed below:
- Advanced Merchant Payments (China)
- Calastone (England)
- Etoro (England)
- Fastacash (Singapore)
- Funding Circle (England)
- Juntos Finanzas (USA)
- Lending Club (USA)
- Mambu (Germany)
- Matchmove (Singapore)
- The Currency Cloud (England)
- Wallaby Financial (USA)
- Credit Benchmark (England)
- Currency Transfer (England)
- Epiphyte (England)
- Ensygnia (England)
- Lending Robot (USA)
- Lendstar (Germany)
- Nutmeg (England)
- Open Gamma (England)
- Sixscape (Singapore)
- Standard Treasury (Singapore)
- Stockspot (Australia)
- Transfergo (England)
- Transferwise (England)
- Wealth Front (USA)
On one hand, the preference towards investing in fintech startups imply a lack of innovative culture within the investment banking community but on the other hand, investing in fintech startups helps to solve new challenges and build an innovative ecosystem. The growth of fintech investments will significantly increase in 2017.
Anyone pursuing a finance career is bound to be effected by the adoption of technological processes within the finance industry. We talked of only 2017 trends and in the next couple of years, technology will be a core component in finance.
It will lead to loss of employment in traditional fields and create new job opportunities. Take an informed choice today and plan your finance career ahead. Learn skills that will help you to remain ahead and abreast of competition.