“Amazoning” the Financial Sector

The consumer side of finance will continue evolving to be (relatively) automated and impersonal experiences over the next 10 years, and that’s just fine. The trend of “Amazoning” consumer services empowers yet another industry, limiting the human liability as Amazon has done in their logistical empire. Through the continued development of products that get us what we want faster and more seamlessly, companies will eliminate the need for human interaction, wasted time, and unnecessary costs.

This trend arguably began in the financial sector in 2008 when institutions like Bank of America laid off tens of thousands of employees [1] in an effort to cope with the liabilities of the great recession. This placed increased amounts of work on the remaining employees and forced changes through the adoption of more technology. As the market improved, hiring did not equal the correlated firing as more employees were still left with increased volumes of work relative to the pre-2008 environment. This also led to a greater reliance on digital infrastructure and a pursuit of more automation of menial tasks that were previously performed by lesser skilled employees. What started with Bank of America, continues to this day as ING begins a multi-year $2bil investment in technological automation that will lead to the cutting of almost 6,000 jobs [2]. This is certainly not the last of these initiatives, so look to see this trend continue.

The shift was triggered by the financial crisis, but has been driven by a combination of compounding institutional technologies, shifts in consumer culture, and rapid advances among competing entities.

Compounding Technologies

Digital advancement occurs at a slower pace in the financial sector, relative to other industries (but not nearly as slow as healthcare). This is for good reason, as regulated industries take more time to adapt to nascent advances. This slow evolution of technical systems, coupled with the challenges of compounding of legacy technical infrastructure through mergers and acquisitions has created a massive problem and opportunity. Slow technologies evidently led to slow process, longer reaction times, increased margin for error, and increases in wasted costs.

The only answer is to consolidate technologies and data systems, streamline processes, and reduce the need for both human input and unnecessary costs.

Enter Addepar, firms such as Lab49, and increased investment by institutions in their technical infrastructure to the point of hiring modern product managers to solve these problems. Compounded legacy technologies will be replaced by scalable data infrastructure, more centralized digital platforms, and reductions in human capital and human error. This change at the institutional level will be a foundational component for improvements on the consumer side, to the point where customer service and portfolio managers will be largely irrelevant.

Cultural Shift

Millennials and, to an extent, generation X-ers don’t want to interact with people anymore. Increased exposure to technology and the call for individual empowerment is evident in everything we do, from buying books through Amazon, to ordering food through Seamless, to the rapid scale of Wikipedia, to choosing texting over calling. Institutions are taking steps to meet these trends, most recently as USAA began using virtual agents, personalization and artificial intelligence to forge what it calls a “digital empathy”[3].

We want to disengage, automate, and be empowered, becoming creatures of habit. Whether it’s our obsession with mobility, need for seamless and beautified experiences, or widespread business usage of strategies from Nudge and Hooked, we strive to function independently. This perceived freedom and desire for transparency, coupled with our generations relative financial illiteracy, will continue to drive the popularity of robo-advisors like Acorns and Betterment, and aggregators and shared decision makers like Mint and Clarity.

Ultimately, I would much rather ask Nerdwallet a question about my credit card than speak with some bank teller.

Barring some generational introspection or drastic cultural change, we will continue to demand more freedom, more options, more automation, and less interpersonal interaction in our financial decisions. This will continue driving the way we perform financial transactions and make financial decisions.

Competition

Competition continues to drive advancement in the tech sector, and it is more true than ever in finance. Large institutions are rarely the first to venture into innovative territories, but rather follow or acquire innovators to meet the changing needs or align with current trends. Groundbreaking advancements must generally come from smaller, more nimble entities, which are able to pick a piece of the banks business to address with hyper-focused strategies and technologies. As companies like Betterment and Wealthfront cut into the financial advisors share of the next generation of wealth management clients, this will continue driving change at the institutional level.

As market share is lost or new markets are created, larger financial institutions will slowly follow the tune of the most profitable drummer.

Ironically, much of this FinTech innovation / competition is prompted by talent that either left the financial sector by way of layoffs or grew disenchanted by the shackles for regulation and left on their own accord. Regardless of why the talent shifted, the fact is that this groundbreaking innovation will continue to drive change at the institutional level by whatever means necessary to avoid irrelevance (looking at you Kodak). Expect to see ongoing changes in the wealth management and accounting sectors, as it could go in one of two directions. The need for these individuals could be wiped out, or the more likely outcome of empowering these professionals to service more clients faster and in a less personal way.

We don’t want to talk to people when artificial intelligence and social finance can painlessly provide the same value. We’d much rather have a seamless experience than ever need a customer service representative. Plus, we’re always going to follow the latest trends. All of these certainties have driven modern consumer tech and will shape our financial future, hopefully for the better.


1 — New York Times, December 12th, 2008, “Bank of America to Cut 35,000 Jobs Over” — http://www.nytimes.com/2008/12/12/business/12bank.html
2 — Quartz, October 4th, 2016, “ING replacing 5,800 people with machines, at a cost of $2 billion” — http://qz.com/799816/dutch-bank-ing-is-replacing-5800-people-with-machines-at-a-cost-of-2-billion/?utm_medium=email&utm_source=fintechweeklycom
3 — American Banker, October 25th, 2016, “Are You My Banker, or a Computer?” — http://www.americanbanker.com/news/bank-technology/are-you-my-banker-or-a-computer-1092094-1.html