For years, finance has been a preferred major for many graduates, as the returns from working in the field tend to be very generous. This trend continued even after the financial crisis on 2008, however, the financial sector seems to still be having troubles recovering from the crisis. This week, the latest wave of job cuts at European banks was announced. Those European banks have struggled to gain profitability since the crisis, mainly due to the negative interest rates, volatile markets and tougher, though deserved, EU regulations. Banks like Deutsche Bank AG, Commerzbank and ING have announced thousands of job cuts across their offices in Germany, the Netherlands and Belgium . For one of the biggest Dutch banks- ING the employee cuts are estimated to be more than 5000 jobs- 3150 lost full-time jobs in Belgium and 2300 jobs in the Netherlands. The company is expecting to save up to 900 million euros due to the job cuts by 2021. Considering the fact that the Dutch government received a 10 billion euros capital injection from the Dutch state at the height of the financial crisis, the Dutch labour unions and the government do not seem to be happy about the news of the thousands of job cuts ahead.
However, these job cuts are not only taking place for the sake of reducing costs. The plan of ING is infamously called “Think Forward” and its goal is to digitalize the predominant part of the group’s operations. ING is planning of investing 800 million euros in its technology platform, to be rolled out in the next 5 years in Spain, Italy, France, Austria and the Czech Republic, where the bank is planning to grow mostly via online banking and very few physical stores. This example shows the transition that many industries are facing nowadays- from their traditional ways of operating, to the more and more necessary digitalization of all services. Digital innovation is becoming a must- an analysis from McKinsey shows that digital laggers in the banking industry face up to 35% of net profit erosion, while early adopters may realize a profit increase of up to 40%. In addition, banks are increasingly realizing that in order to succeed digitally, they should adopt the habits of digitally native companies- for example by opening up the banks’ application programming interfaces, pursuing agile development, or hosting hackathons to foster intensive digital collaboration. Banks need to use their digital capabilities to create more value not only for their customers but also for its employees and suppliers, and increase the bank’s connectivity. Moreover, banks need to embrace digitalization if they want to stay competitive in an age that faces the reshaping of banking- a time when FinTech start-ups are disrupting the current financial system and competing with incumbent corporations that rely less on software.
As seen above, the adoption of new technology and digitalization of services is necessary for banks to survive in the post-crisis world of low interest rates and economic stagnation. However, this digital change has to come at a price- the change in operations of banks requires massive job cuts. Nevertheless, we should not forget Schumpeter’s theory of creative destruction- new ways of production replace old and obsolete ones simply because the new ways increase the pace of economic development. In this case, many jobs are being lost but the digital age creates new opportunities and new jobs- ones that also require new skills.
Sources:
https://www.ft.com/content/a0bc5214-8957-11e6-8cb7-e7ada1d123b1
