The new bank era has arrived – one that requires learning to code, creating digital structures and closing branches. Get with the programme, advises Chris Skinner.

I was surprised to hear that JPMorgan Chase’s new hires for banking positions are being taught to code as a mandatory part of their induction programme. “Coding is not for just tech people, it is for anyone who wants to run a competitive company in the 21st century,” Mary Callahan Erdoes, head of JPMorgan Asset Management, told the Financial Times. “These are skillsets of the future. By better understanding coding, our business teams can speak the same language as our technology teams, which ultimately drives better tools and solutions for our clients.”

It reminded me of a comment made at a conference earlier this year by Marcus Schenck, at that time co-head of investment banking at Deutsche Bank. He said: “I don’t think we’re far away from saying that whoever wants to work in a bank better speak English and better be able to code.”

Similarly, Goldman Sachs claims to be a technology company that happens to have a banking licence and, in recent times, has been advertising for new employees who are engineers, rather than bankers. One in four jobs advertised by banks in 2017 had the term ‘engineer’ in the title.

The digital pivot

What I find interesting about these examples, and there are many more, is that banks are pivoting from being branch-based structures to digital structures. In the past two years, for example, JPMorgan Chase has shed one-third of its workforce and Barclays has almost halved its full-time employees (although much of that can be attributed to the shedding of its African operations).

Some of this is down to branch closures, but a vast swathe is coming from the trading rooms. As machines trade, humans disappear. This is well illustrated by Goldman Sachs, whose cash equities trading room employed 600 people in 2000. Today, there are two. Goldman Sachs’ Marty Chavez, currently chief financial officer but soon to become one of three co-heads of the securities division, claims the bank has consistently found that four traders can be replaced by one computer engineer and one-third of Goldman’s 9000 staff are now computer engineers.

This is an irreversible trend or, as the whale investor in technology start-ups, Marc Andreessen, wrote in 2011: “Software is eating the world.” This is now full-steam ahead in the banking world, and we are seeing major changes taking place, not just from the banks shedding staff, automating jobs and hiring coders, but also partnering with start-ups, investing in innovation and opening to a world of data.

What is interesting, however, is that there are very few names we can point to who take this as seriously as JPMorgan Chase, Goldman Sachs and a small clan of other names. I still find many banks are dodging the hard questions about laying off staff, shutting down offices, changing outdated systems and moving to the new world of open banking. By way of example, there are regular headlines about banks’ online systems and apps not working. In our world of connections, being unable to provide access for even a few hours grabs major headlines.

This reflects the old systems, written in the 1970s and 1980s, that are still the backbone of many banks’ operations. Reuters found that 43% of the big bank systems in the US run in Cobol, representing 220 billion lines of code and more than 80% of transactions. This shows the conundrum of today’s bank change: coding and open to real-time operations, while keeping old code that is closed and batch running.

Running to or from change?

My friends in the big banks call this challenge 'run the bank, while changing the bank'. It is not easy. ‘Run the bank’ is keeping the lights on, having the systems up and running, not having downtime and maintaining infrastructure from the last century. ‘Change the bank’ is learning to code, creating digital structures, closing branches and buildings, and attracting new talent and partners.

I’m sure that your bank is engaged in this run the bank, change the bank challenge. How well are you doing it? Do you feel the leadership is taking it seriously? Is your bank’s structure changing dramatically? Are you seeing jobs that are transactional being slashed and replaced with new jobs that code?

If your answer to any of these questions is no, then your bank is not changing – and so you may want to run away from it.

Chris Skinner is an independent financial commentator and chairman of the London-based Financial Services Club.

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