Up to 200,000 banking industry workers in the U.S. could find their jobs eliminated because of artificial intelligence by 2030, according to a recent report by a Wells Fargo & Co. industry analyst.
Mike Mayo, a senior Senior banking analyst at Wells Fargo, said in a synopsis of his 200-page equity research report of Oct. 1 that “this will be the biggest reduction in U.S. bank headcount in history.”
Mayo cautioned that “new job additions could make the reductions less.”
Wells Fargo has declined to provide the entire report to the media.
“There is recognition that tech can enable the biggest capital-for-labor swap in the history of banking, thereby allowing tech spend to reduce non-tech spend,” Mayo said.
“We expect capital markets-related headcount reductions coming as soon as this month,” Mayo said.
Those announcements could be timed to coincide with regional, super-regional and national banks’ third-quarter earnings reports.
Mayo said the main motivation is “an unrelenting drive to lower unit costs which, in turn, should improve efficiency. ... the biggest future driver of savings is employee compensation, which are half of all bank expenses.”
Mayo based his dire employee forecast on “an examination of available data on headcount per bank, by business line and by function.”
“Cuts are driven by a roughly one-fifth to one-third reduction in back office, branch, call center and corporate employees. The main exceptions are those jobs related to technology, selling, advising or consulting.”
In the past two years, BB&T Corp. has embraced a digital-first approach to plugging in artificial intelligence and robotics into its back-office, customer-service and compliance operations.
Initially called “Disrupt or die,” the bank recently softened the phrase to “Disrupt and thrive” as it launched the latest phases.
Since the end of 2016, the BB&T initiative has led to reductions in employees (down 2,439, or 6.5%, to 35,334) and branches (down 409, or 18.6%, to 1,787). BB&T gained 654 employees from its Regions Insurance purchase in 2018.
“We are investing in improving processing cost — a big opportunity for us and frankly all banks — by the use of artificial intelligence and robotics,” Kelly King, the bank’s chairman and chief executive, said when introducing the initiative in April 2017.
“We will be pretty aggressive about that. We just think there are huge ways to reduce cost in the backroom by the use of that.”
The $66 billion merger of BB&T and SunTrust Banks Inc. represents the “ultimate rollout” of the philosophy.
It also underscores the sobering realization that digital banking is overtaking bank branchest.
The initiative has focused on pouring resources into the bank’s digital platform and information-technology network, downsizing the branch footprint, increasing spending on the community bank unit, and relying on organic growth and flat expenses.
King said the merging of BB&T and SunTrust was not only strategic in nature, but a necessary element of disrupt and thrive.
“This is not a loss for anybody; it is a win for everybody,” King stressed. “If we had not made this decision, this would have been bad for everybody. We’re going to remain a go-forward, energized organization that will thrive and grow and add associates.”
BB&T is joined by Wells Fargo and other national and super-regional banks in each spending hundreds of millions of dollars to pursue what they believe will be significant cost savings from data mining of customer patterns.
Mayo estimated the combined AI spending from large-capitalization financial institutions at more than $150 billion annually.
Mayo said the emphasis on artificial intelligence “matters today if banks can use technology to grow revenue faster than expenses, especially in tougher (economic) environments.”
“If so, there’s upside.
“The main negative is the risk from outdated infrastructure, stranded costs and new risks created by technology.”
Federal Reserve view
The Financial Stability Board of the Federal Reserve said in November that there are four areas where AI could impact banking:
- Customer-facing uses could combine expanded consumer data sets with new algorithms to assess credit quality or price insurance policies. Chatbots could provide help and even financial advice to consumers, saving them the waiting time to speak with a live operator.
- The potential for strengthening back-office operations, such as advanced models for capital optimization, model risk management, stress testing and market impact analysis.
- AI approaches could be applied to trading and investment strategies, from identifying new signals on price movements to using past trading behavior to anticipate a client’s next order.
- AI advancements in compliance and risk mitigation by banks in areas like fraud detection, capital optimization and portfolio management.
The Fed board cautioned that increasing use of AI raises questions about “potential risks to bank safety and soundness, consumer protection or the financial system.”
However, the researchers found that automation and AI are likely to cause “rough times ahead in the labor market that will cause very real dislocations for many workers even if the total number of jobs holds steady.”
The Wells Fargo report comes when the Triad is considered by one think tank as having the most vulnerable workforce in the country when it comes to the risk of losing a job to automation and AI.
Brookings Institution researchers, in collaboration with McKinsey Global Institute, released in January a report titled “Automation, AI and the American worker.”
The report ranks Greensboro-High Point metropolitan statistical area as second in the nation for automation risk and the Winston-Salem MSA as sixth at risk, among the nation’s top 100 metros.
About 48.5% of all current jobs in Greensboro-High Point area, along with 48.1% of jobs in the Winston-Salem area, have the potential for being affected by automation.
Of those jobs, 29.4% of Greensboro-High Point MSA and 28.2% of Winston-Salem MSA jobs are at “high risk,” defined as being at least 70 percent automatable.
According to the report, what makes the Triad more vulnerable to automation includes: having a sizable manufacturing base; a significant number of low-skilled jobs; and a limited base of specialized jobs in “relatively durable professional, business and financial services occupations, combined with relatively large education and health enterprises.”
The latter point could be pivotal to the Triad given that its three healthcare systems — Wake Forest Baptist Medical Center, Cone Health and Novant Health Inc. — are the largest private employers with, combined, more than 32,000 employees.
One of the unnerving elements of the Wells Fargo AI report is that many of the banking industry jobs cited as vulnerable were considered to fit outside the automation shadow.
Mark Vitner, senior economist with Wells Fargo Securities, said he was surprised at the Triad’s overall ranking.
“The region’s growth is increasingly coming from healthcare, education, technology and the arts — all of which should thrive in the era of AI.”
Locals aware of AI
The issue of automation and digitization of the workplace “has been a focus for us for some time,” Winston-Salem Mayor Allen Joines said after reviewing the Brookings report. “We will be continuing to develop strategies to address these potential changes.”
Mark Owens, president and chief executive of the Winston-Salem Chamber of Commerce, said local business, civic and education officials “understand that the workforce is changing and jobs look different as technology evolves.”
“We believe strongly in our community’s ability not only to adapt to that change, but to influence it. We’re lucky to have world-class institutions that are already producing graduates with advanced skills in manufacturing and STEM careers.
“At the chamber, we shape this conversation among all the stakeholders involved,” Owens said.
That includes promoting educational, apprenticeship and internship opportunities locally “so that our learners, from K-12 and beyond, are ready to go to work and that they can continue to develop skills that change and evolve along with new technologies.”
AI impact on raises
Bloomberg News reported Oct. 1 that automation has “contributed substantially” to reducing the portion of national income that goes to U.S. workers over the past two decades, according to a study by economists at the Federal Reserve Bank of San Francisco.
“Despite the lowest unemployment rate in around 50 years, the so-called labor share has fallen to about 56% from 63% in 2000. The increased use of robots and other technology has been an important driving factor, according to economists Sylvain Leduc and Zheng Liu.
“With rapid advances in robotics and artificial intelligence, robots can perform more jobs and tasks that required human skills only a few years ago.”
The economists said one ripple effect is that it has led to a reluctance of employees to request increased pay “out of fear that their employer will turn to automation to replace them.”
One example is that “there was no statistical difference between the inflation-adjusted income of the typical N.C. household in 2007 vs. 2017,” said John Quinterno, a principal with South by North Strategies Ltd., a research firm in Chapel Hill that specializes in economic and social policy.
“In 2007, it was $52,430. In 2017, it was $52,750.”
Some bright spots
Brookings researchers stressed that all is not employment gloom and doom with their report.
“Just 4% of all jobs, 7 million nationwide, are in occupations with at least a 90% automation risk exposure,” the researchers said. “Work is going to be quite durable.
“However, very few roles will see no task change, as much work is going to evolve, and likely at faster rates of change than in the past.”
Examples of high-risk professions include: 91% of those employed in food-preparation jobs; 87% of payroll and timekeeping clerks; and 78% of light truck and delivery-service drivers.
By contrast, just 4% of management analysts are considered at risk for automation, along with 8% of software developers and 11% of home-health aides.
“Automation in the last 30 years has delivered more jobs to the economy than it destroyed, and so (it) holds out significant opportunity,” according to the report.
“Automation and AI, in this vein, are increasingly looking like sources of the productivity gains badly needed to secure higher-quality economic growth in the United States,” the researchers said.
As such, automation could well lift the national economy in the coming years and increase prosperity at a time of uncertainty.”