Welcome to the virtual world

Where bank employers are no longer human but robots

Jane Kemp, Julia Maat, Eva Bierman

February 2017

The current trend in the banking sector

The financial industry is vital to the public interest and critical to the welfare of billions of citizens. As the industry has a lot of challenging developments, like technology and regulation, the competition within the industry has grown rapidly. Banks need to be more efficient, more cost aware, and more customer focused. In the past, in the present, and in the future being more cost aware is primarily done by decreasing the employee data base (Rose & Hudgins, 2013). For instance, Rabobank fired 10,000 employees in 2013, and they announced new dismissals at the end of 2015, firing 9,000 employees (Finanzen, 2017). The Royal Bank of Scotland is preparing a mass firing, where 15,000 employees will be dismissed (Nu.nl, 2017). These two banks are just examples of this massive decrease of the employee data bases of banks. Between 2015 and 2019, the expectation is that 16,000 jobs will disappear within the Dutch banking industry (RTL Z, 2016a).

Traditional banks used to spend most of their effort, time, and money on transaction execution. Nowadays, this process has become a basic feature of total service package banks provide to their customers. With these current trends in financial markets, banks have to rethink how to satisfy the customers’ needs and wishes. One of the main trends observed is that customer experience has become more important instead of only providing the requested financial services. Customers of the ‘new generation’ require to have access to their balances anytime and anyplace, which includes access through personal computers and mobile phones. In order to satisfy these needs, banks have to find a way to implement these changes to their banking business model. An effective way to shift the traditional banking system to a digital banking system is the Omni-channel approach. Omni-channel is a multichannel approach to customer services in which all channels are tightly integrated, while keeping the customer in the center of the integration. With this, banks can gain insights from customers’ channels, behavior and preferences. Moreover, the successful implementation of Omni-channel can increase the size of the market share by competitive advantage (Happiest Minds, 2014).

As a result, banks can keep up with customers’ needs and are able to meet the fast changing expectations of the ‘new generation’. But this new trend also has a downside, especially for employees of banks. As customers prefer access to service anytime, anyplace, digital banking becomes more important, and local bank offices receive less visits. Many banks already noticed this trend. So did the ABN AMRO Bank, as financial director Kees van Dijkhuizen explains: “Half of our total customers does not pay a visit to one of our local bank offices at all. The other half, about two million customers, only pays about one visit in two years” (Finance Innovation, 2014). Moreover, as the price of personal computers declined and the number of households who own personal computers grows, the home banking area is innovating rapidly. A new type of banking appeared, virtual banks, which do not have a physical office, but only exist on the World Wide Web. Virtual banks, also called clicks, are growing but not as fast as hoped. Depositors want to be sure that their savings are protected, and this new, only by internet available banks, do not feel secured enough for customers. The influence of internet banking though is increasing, as a complementary service to physical banks. The physical bank branches are likely to decline in the future partly due to the internet banking technologies. (Mishkin et al., 2013).

Despite the decline in visits to local bank offices and the increasing demand for digital access to financial services, Gerard van Hees, director of FNV Finance, argues that customers will still desire personal contact when it comes down to closing more complex financial products. René Frijters, founder and CEO of Knab, a virtual bank, states that this could also be enabled by the use of the digital channel and through online conversations, but admits that financial employees always will be needed to execute several processes and, more important, to meet the regulations for the responsibility of banks. Nevertheless, this will require substantially less bank employees than in the current financial market (Nu.nl, 2014).

The future of the banks and technological innovations

Based on the current observed trend regarding the rapidly changing technological environment, Gerard van Hees predicts that banks will become IT-companies (Nu.nl, 2014). Big data, collecting digital behavior, will form the fundamentals of financial advice in the future. Therefore, in the future, a robot could possibly determine whether you will get your mortgage loan or will not. An employee is not needed anymore to execute those activities (RTL Z, 2016a). However, there are still employees needed for analyzing (big) data, data which can improve the services to their customers. Therefore, other requirements will be set for banking employees and retraining will be required. They need to interpret data from a lot of different data sources. Basic operations will be done by robots or software, and therefore the role of the employees will shift towards advising in difficult specialistic questions (RTL Z, 2016b).

The same trend is already observed within the securities trading process. Technological innovations allow rapid trading by automated strategies. Human traders have been replaced by automated systems. The automated systems make trading a much faster process and saves costs by replacing people with automated systems. With this development, not only the workforce of banks is affected, but it also changed the competitive environment of the banking area. Whereas human traders had to make quick decisions in order to submit orders ahead of competitors, the only existing competition with automated trading systems is through investing more in better, and more advanced trading systems. As a response, more complex technologies will be developed and IT becomes a more important expertise for banks (Bennett, 2011).

Although the technological innovations appear to create a lot of benefits, especially regarding the cost structure of banks, it also introduces new threats to the traditional banking area. It is often argued that other parties threaten to take over the payments process and consequently customers will create their own platforms through which they can achieve financial products. This makes banks less needed as intermediaries in the financial markets (Nu.nl, 2014).

The introduction of Apple Pay and Bitcoin shows that the traditional transaction execution of banks is already exposed to the competition of firms other than banks. Moreover, new non-banking intermediaries will create platforms with digital access for consumers and suppliers of financial products, which makes banks as the intermediary less meaningful. In addition, peer-to-peer lending and crowdfunding are concepts that become more popular, where again banks are not involved in the process.

Besides due to the technological innovations, it becomes much more difficult for banks to distinguish themselves from other banks. Because, as stated above, functions that were used to be provided by banks could be overtaken by other companies, and services and products, where the fundamental base is technology, are much easier to copy than when the fundamental base is human competence. Due to the decrease in employees and physical contact with customers, the use of human competence to distinguish as a bank from other banks will have a much lower potential. Therefore, it is important to keep looking for new ways as a bank to make itself unique and to attract and hold customers for the longer-term.

The new business model of future banks

Taking into account the changes, to maintain their market share, banks must adjust their business model and incorporate the developments on the financial market. As mentioned earlier, an effective way to shift the traditional banking system to  a digital banking system is the Omni-channel approach. In addition, banks can also change their banking business model by the so called ‘triple revolution-model’. First, banks have to recognize technological innovations. Even though there are already many technological innovations observed, this trend will be likely to continue. Second, there are changes in customer preferences. As stated in the previous section, customer experience has become more important than providing the service itself. Third, the financial regulation will have an effect on the new business model of banks. The financial crisis has shown that banks can be vulnerable in poor economic circumstances and new regulation should prevent the possible failures of banks, but how this regulation will look like in the future is still unknown (Financieel Dagblad, 2015).


As the bank is challenged with a lot of changes due to innovation and regulation, the business models of traditional banks will have to change. These models are already changing. The banks are being more cost aware, more efficient, and more customer-oriented. Physical banks become less important due to technological innovations, making it possible to do a lot of banking activities by using computers and even mobile phones. With this in mind the number of employees in the banking sector decreased. With upcoming innovations like big data, robots, and other automating innovations the number of employees will further decrease. Though there are IT specialized employees needed, and employees specialized in complex difficult questions from customers, such as questions about complicated not standardized mortgages or loans, the number of these specialists will be substantially less in comparison to the number of current employees in the banking industry.

However, banks need to find a way to keep up with non-banking competition, from both financial as non-financial institutions. The business model should make the banks confidential again. Being at the bank should not be about the service itself, which other competitors also offer, but it should be about the customer experience. Banks should concentrate more on their role as financial intermediary and act as a confidential to its customers. In this way banks can maintain their market share in the financial market (Nu.nl, 2014).