Run the bank or change the bank

I was surprised to see that JPMorgan Chase is now hiring people as bankers and, as a mandatory part of their induction programme, they are taught to code. “Coding is not for just tech people, it is for anyone who wants to run a competitive company in the 21st century,” said Mary Callahan Erdoes, Head of JPMorgan Asset Management. “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 at a recent conference from Marcus Schenck, Co-Head of Investment Banking at Deutsche Bank, who stated: “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 license and, in recent times, has been advertising for new employees who are engineers, rather than bankers. 1 in 4 jobs advertised last year had the term engineer in the title. 

What I find interesting about all of these examples, and there are many more, is that banks are pivoting from being branch-based structures to digital structures. In the last two years, for example, JPMorgan Chase has shed a third of its workforce and Barclays almost halved their full-time employees. 

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. Marty Chavez, COO at Goldman Sachs, claims that the bank has found consistently that four traders can be replaced by one computer engineer and a third of Goldman’s 9,000 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 impacting our banking world, and we are seeing major changes taking place, not just from banks shedding staff, automating jobs and hiring coders, but also banks partnering with start-ups, investing in innovation and opening to a world of data. 

What is interesting in this space 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 is a reflection of old systems, written in the 1970s and 1980s, that are still the backbone of many banks operations. Reuters found that 43 percent of the big bank systems in the USA run in COBOL, representing 220 billion lines of code and over 80 percent of transactions. This shows the conundrum of today’s bank change: code and open to real-time operations whilst keeping old code that is closed and batch running. 

My friends in the big banks call this challenge run the bank whilst 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 opening to code, creating digital structures, closing branches and buildings and attracting new talent and partners. 

I’m fairly 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 are taking it seriously? Is your bank’s structure changing dramatically? Are you seeing the slashing of jobs that are transactional being 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 the bank.