Fintech Firings Accelerated by Pandemic
David C. Donald - The Chinese University of Hong Kong
-- Downturns are generally a time when executive management decides to shed line workers to cut costs. The economic turmoil arising from the Covid-19 pandemic is turning out to be no exception.
Bloomberg reports that Citigroup Inc. and Wells Fargo & Co. have announced intention to pare down their workforces to address the downturn resulting from the pandemic. The same news outlet reports that Svenska Handelsbanken, Sweden's largest, will cut 1000 jobs while shifting services to digital. That news came on the back of HSBC announcing a restructuring plan with potentially 35,000 jobs being eliminated. These firings are taking place despite a boom in 'automated' finance connected with the pandemic and a very active secondary market, and they are also affecting trading staff at banks like Goldman Sachs and Barclays. As in other times, economic downturn is seen as a good opportunity to automate, and this is dramatically increased by the presence of a deadly, contagious disease that is spread mainly by human contact.
The shift toward machine services is accelerated as financial institutions protect against this interpersonal contagion through lockdown-initiated remote working and distancing. Data shows that the use of financial services apps has increased significantly during the pandemic. This is not only a result of contagion risk, but also comes from the flood of networking and transaction data being generated by increased online activity and use of tracking apps.
We are seeing a perfectly ordinary trend being magnified by circumstances. Martin Ford pointed out in his 2015 book, Rise of the Robots (pp. 48-50), that workplace automation accelerates during economic downturns, so that jobs lost are often not replaced during the recovery. Given the very loose nature of labor laws in most countries and the sticky nature of other obligations - such as commitments to replay loans, pay rent or pay on long-term supply contracts - firing workers has become a standard way to stabilize corporate balance sheets during bad times. The 2017 tax reform pushed through the US Congress by the Republican Party is specifically designed in part to assist this process by providing tax breaks to investment in automation.
This trend not only causes job losses, but reshapes industries. Increased use of digital services also challenges smaller firms without the economies of scale to afford sophisticated online systems. For this reason, Covid-19 has contributed to nearly 40 small brokerages closing in Hong Kong in 2020, which is a record for firms of this type in the securities industry. Even large firms like Deutsche Bank are looking toward restructuring.
As automation eliminates mid-level jobs and pushes people toward lower levels of skill and pay, economic inequality will increase and the position of ordinary people will become even more precarious in jurisdictions without adequate social safety nets.
Uncharacteristically, the laissez faire bastion of Hong Kong, which for years has embraced a philosophy of "market leads, government merely facilitates," has launched a high-profile program to create jobs and facilitate placements in the financial sector. It is labelled with the acronym FIRST (Financial Industry Recruitment Scheme for Tomorrow) (email FIRST@fsdc.org.hk) and although it has so far only offered webcast information sessions - as opposed establishing a fixed staff offering concrete assistance programs - it may show that even one of the most unequal and unprotected economies in the world can take steps on behalf of its residents.
As banks continue their layoffs, small firms close down, and larger firms begin major restructuring while accelerating their move toward automation, perhaps other governments would do well to develop their own versions of the Hong Kong initiative. The transition toward automated financial services is not going away, and the speed of this trend's acceleration during the current pandemic could help governments and other policy makers understand the social implications of shedding so many skilled jobs.