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Where will you end up in the fourth industrial revolution?

 At Sibos this year I noticed a lot of references in keynote sessions to the Fourth Wave of the Industrial Revolution, the ensuing shake-up of the jobs market, and how this would apply to the financial services sector.

 The World Economic Forum’s Centre for the Fourth Industrial Revolution is doing a lot of research in this area, and its Future of Jobs 2018 report, which came out in September is a fascinating read.

It found that nearly 50% of companies expect that automation will lead to some reduction in their full-time workforce by 2022, based on the job profiles of their employee base today. However, 38% of businesses surveyed expect to extend their workforce to new productivity-enhancing roles, and more than a quarter expect automation to lead to the creation of new roles in their enterprise.

Exactly where these new roles will emerge will be driven by a number of horizontal IT trends that are affecting all industries, as well as specifics related to current business challenges and business model transformation within particular lines of business in the financial services sector.

Firstly, let’s consider three of the main technology areas that are beginning to touch all modern industries, but particularly financial services:

AI and machine learning

Early initiatives around robotic process automation (RPA) have already had a big impact on reducing employment levels in repetitive process-driven work. As this extends through to machine and deep learning models towards generalised artificial intelligence, there will be an increasing demand in the workforce for people who can not only develop AI, but also manage the governance of its models. Domain expertise will be required here but also earlier -- in the source data aggregation, cleansing and sense checking stage, as well as the judgement level, where people will increasingly be working with AI outputs to make everyday, tactical and strategic business decisions.

Cloud computing and the emergence of quantum computers

Compute and data storage capabilities that can scale and flex to demands have transformed the provision of IT for businesses. Increasingly it’s the services that can be made available over public, private and hybrid cloud infrastructures that will drive the next generation of change, from AI optimised solutions through to more efficient developer operations.

Further out on the horizon is the rise of quantum computing. While the quantum physicists and mechanics continue their work in labs to grow the power and stability of qubit processors, others will start thinking about applying quantum encryption to current data stores (luckily quantum encryption is currently more advanced than the quantum computing power required for decryption). Others still will begin to take algorithms written for classical digital computers, and try to build new more efficient ones that can take advantage of the unique characteristics of quantum computers. And when the hardware becomes ready for prime time, expensive quantum computers will become part of the cloud matrix, further complicating the task of cloud provisioning and resource allocation.

Distributed ledger technology

The underlying promise of distributed ledger technology (DLT) boils down to the issues of transaction transparency, trust and tracking.

With so many DLT-related use cases already live and being developed by new players, established banks and industry consortia alike predict there will be some successes and even more failures. But those working on projects that fail are unlikely to find themselves out of work. In May this year Computerworld magazine reported that blockchain development was now the hottest skill in the freelance job market, growing more than 6,000% in the previous 12 months.

Next, let’s take a few things happening across three key lines of business within financial services:

Retail banking

In retail banking, regulation around open banking is helping to inject urgency into the digital service transformation discussion. As FinTech’s and challenger banks emerge to fill new and existing niches and compete with the incumbent banks, the banks themselves are looking for inspiration to companies that have successfully executed platform business models, as well as those that are thriving in an API economy.

No retail banks operating in markets where open banking rules are imminent, or on the horizon, expect to look the same in 20 years as they do now. Most expect to be doing fewer things, but doing them better and working more effectively with partners to round out their offerings while still providing the rails for money movement, and importantly, retaining access to data.

Transaction banking

In transaction banking, transformation is being driven by falling levels of trust from corporate customers of their bank partners. Particularly in developed economies, their number one trusted partner position among corporate treasurers is being eroded by the treasury management system (TMS) and enterprise resource management (ERM) vendors.

To retain and grow their current business they will need to provide omni channel self-care execution, full straight through processing, real-time monitoring and proactive issue management. But they will also have to provide the treasurers more information, advice and understanding of their business demonstrated by their provider banks.

Capital markets

For large capital markets participants, transformation agendas have been driven by customer requirements for improvements in speed, accuracy and information sharing. Over the past decade a lot of project investment has gone into the front and middle office in areas such as pricing and risk management. But the back office has not always been keeping up.

In operations environments where straight-through processing has long been a pipedream, many firms are only now reaching very high levels of automation, freeing up people from pre-processing and upskilling more into exceptions investigations.

But it’s not just about the back office. Digital transformation, accompanied by cultural change to break down traditional silos, can help sell side firms get the most value from their data, engage customers in new channels, identify risks as they appear and move fast enough to capitalise on new opportunities.

Where next?

A short blog post can’t do proper justice to the subject of digital transformation in the financial services industry. A proper examination of the intersection of IT developments, changing workforce requirements and business model transformation would fill a book. But one thing that is happening is banks are increasingly taking a proactive and collaborative approach to reskilling their workforce and generating the right skills in potential employees. For example, Bank of America Merrill Lynch has had its heads of operations and technology work with universities to develop appropriate courses for the skills the banks will need, including investing in a programme for responsible AI at Harvard University.

In Singapore, DBS is offering employees in-house training courses it has developed with partners, while the Singaporean government is itself offering citizens money for courses to learn new skills appropriate for the new age of work.

Those countries and companies that succeed in the future economy will be those that prepared effectively, identified and grew the skills they needed, and invested in people.

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