No, Financial Services is Not a Shrinking Industry

I was reading the Financial Times over the weekend and I came across this article citing a banking analyst’s perspective on the US banking sector. This analyst predicted that US banks could cut 200,000 jobs over the next decade, mainly in branches and call centers. That sounds about right.

But then he added this quote which I thought was stupefying:

If I was giving advice to my kids, I’d say you probably don’t want to go into the financial industry. It’s likely to be a shrinking industry.

I couldn’t disagree more. Now, this banking analyst covers large cap banks and so he is looking at financial services through a pretty narrow lens. But when I look at the financial landscape all I see is so much potential for change with completely new businesses and new business models sprouting up on a regular basis.

Here are five areas where financial services will expand significantly this decade:

  1. Banking as a Service

This is a broad area but one that already has great traction. There are many banks today, large and small, that are enabling businesses to integrate lending, payments and banking services directly into their own products. We are see the largest companies such as Apple and Amazon offering financial products in this way, and fintech companies like Stripe, Marqeta and Cross River doing this as well for companies of all sizes. As more businesses seek to offer some kind of financial service to their clients this sector will continue to grow steadily.

  1. Digital Currencies

There is probably no more powerful trend in finance today than the movement towards digital currencies. While bitcoin and dogecoin have attracted most of the headlines in recent weeks in some ways they are a distraction from something far bigger. Every major central bank on the planet is either thinking about or starting a pilot for digital currencies. There will be massive ecosystems built this decade to support the growth and creation of digital currencies.

  1. Decentralized Finance (DeFi)

While some would argue that DeFi (here is an explainer) is a subset of digital currencies I wanted to put it as a standalone area because it has such massive potential. The mainstream financial press is still pretty much ignoring DeFi but I believe it is going to have a massive role to play in the future of finance. Everything that traditional finance does can also be done with DeFi at a lower cost and with greater speed (often real-time). While the user experience is still subpar compared with most fintech applications those are problems that can be overcome. Perhaps the biggest challenge will be regulatory as the framework never imagined a decentralized world.

  1. Digital Banks

The rise of digital banks during the pandemic has been well-documented. Chime reportedly has more than 12 million customers now, with 8 million considering it their primary bank, making it the fifth largest bank in the country based on that metric. The same research suggested that the megabanks lost 6.5% of their primary customers during 2020 while digital banks gained 7%. This trend is likely to continue and some of these digital banks are going to become very large with tens of thousands of employees.

  1. Autonomous Finance

We are moving closer to a world where financial decisions are made for us by intelligent assistants. This could be for saving money (Digit and Stash for example), paying down debt (Tally), investing (Wealthfront or Betterment) or lending. No one has cracked autonomous lending yet but as Ken Lin, CEO of Credit Karma, told me back in 2018 we have the technology and information for an intelligent assistant to make decisions on the best loan or best credit card for you. You wouldn’t even need to fill out an application, it would be a one-click approval process. While this will cause the loss of some jobs it will be more than offset by the engineering talent required to maintain these intelligent systems.

Now, there are many areas of finance I have not included that will also grow and attract large numbers of new workers. Innovation in mortgages, remittances and payments, buy now pay later, capital markets, digital identity, small business finance and personal finance just to name a few.

This decade we will be literally remaking the fabric of the financial system. This will be painful for many and we will see many leaders fall by the wayside but there has never been more opportunity in this industry. It might well be true that big banks will shed 200,000 jobs this decade but there will likely be many times that number of jobs created by these new industries.

If I was giving advice to my kids, which I have done from time to time, I would say if you are interested in money, computer science and/or math there could hardly be a better industry to get into right now than financial services. Now, I probably wouldn’t recommend pursuing a long career at a big bank, but there are hundreds of relatively new financial services startups today that will be very large and important companies by the end of the decade.

  • Peter Renton

    Peter Renton is the chairman and co-founder of Fintech Nexus, the world’s largest digital media company focused on fintech. Peter has been writing about fintech since 2010 and he is the author and creator of the Fintech One-on-One Podcast, the first and longest-running fintech interview series.