A pitched battle is being waged for banking talent. On one side, not surprisingly, is the banking and related financial services sector, and on the other is the rapidly growing new financial technology sector, or “FinTechs” – comprising innovation-oriented businesses that compete in the financial services market by chipping away at banking’s traditional infrastructure and services.
This siphoning off of talent is spreading through the entire financial services value chain. In addition to FinTechs, others entering the fray include BankTechs, PaymenTechs, and InsurTechs. This is happening because, while focused on disruption, these fledgling start-ups still require subject matter experts to help them grow into high-flying companies, so they are luring top talent for banks.
In simplest terms, the largest banks are struggling to retain talent because they currently cannot offer an opportunity to play a role in truly transformative innovation. In contrast, FinTechs can, and they’re growing so rapidly that, from the lowest levels to senior executives, they cannot fill all available positions.
Some estimates indicate that the overall FinTech sector worldwide has an open job market of 400,000 at any given time. In the U.S. alone, there are about 120,000 openings at any one time. These are large numbers, far larger than the number of individuals who have the necessary skills, whether they’re just graduating from college or are currently employed. As a result, FinTech firms are increasingly seeking veteran professionals – with an emphasis on business acumen and organizational scaling.
Particularly desirable – given that many larger financial firms are seeking to acquire or enter into partnerships with FinTech companies – are those with technical skills who understand how banks operate and can make deals within a banking environment.
There are several reasons why individuals with banking or financial consulting backgrounds are attracted to FinTech opportunities – and chief among these is organizational culture. In general terms, banking and traditional financial services companies, particularly the largest corporations, lag in innovation and face an intimidating level of regulation and bureaucracy.
In contrast, the FinTech sector features far flatter organizations that offer opportunities for significantly accelerated career progression. So, it stands to reason that banks must flatten out their own organizational structures if they are to compete successfully for talent.
In terms of sheer numbers, the exodus away from banking is definitely weighted toward junior employees – but senior executives are in demand, too. Despite an often significant reduction in compensation, senior-level professionals are also joining or establishing FinTech start-ups. Some even take reduced-salary roles, with the cutback made up for by equity or other stock options. The attraction is an opportunity to be involved with a project from the ground floor, and to play a leading role in development of a product or service that successfully fills a market niche.
There are always pluses and minuses in transitioning from one business sector to another. But for the numerous senior leaders Marlin Hawk consulted who elected to switch traditional institutions for FinTech companies, there were two key, motivating factors – innovation and autonomy.
Some Wall Street firms – to discourage junior bankers from defecting to FinTech – are reducing by a full year the time required to be promoted from analyst to associate. And several banks have created in-house digital factories to incubate digital operations, in agile, innovative environments that are decidedly less formal. These factories not only serve to help with retention of existing talent by modifying company cultures, but may also contribute to attracting millennial talent that includes recent graduates of baccalaureate and MBA programs.
It’s essential for large, traditional institutions to focus more attention on millennials. Of 2015 Harvard Business School graduates, a paltry four percent were interested in entering investment banking – a remarkably low number compared to only five or 10 years ago. This drop in interest is a clear indication that the autonomy, opportunity for rapid advancement, and technological innovation offered by FinTechs is attracting millennials in droves.
For traditional financial institutions, the overall situation is indeed a serious one. Consider that in 2015, between 40 and 50 percent of all bank or hedge fund employees were considering switching jobs and leaving their larger corporations, at least in part because of concerns about automation making their current roles unnecessary. And this was true even in typically human-operated functions like financial modeling or advisory.
Looking further ahead, estimates indicate that approximately 800,000 people will have their financial services roles eliminated by automation during the next decade. Given this gloomy projection, cultivating technology capabilities and putting them to use at a FinTech start-up will continue to look like an attractive option for many banking professionals.
So, what are traditional financial institutions to do?
For one thing, they can mitigate the problem either by investing in or making outright purchases of successful new players in the financial technology sector. They certainly have the resources, and this strategy would allow banks to retain access to talent, while also learning from FinTechs and others.
In addition, they must cultivate innovative approaches (note the aforementioned digital factories) that will help retain talent. My own firm, Marlin Hawk, issued a 2016 white paper on talent poaching that found the practice rampant across the entire business spectrum – with many leading companies failing to defend talent in any substantive fashion. Certainly, such a low-key response isn’t an option for traditional banks … at least not if they hope to compete for crucial talent with an increasingly varied, non-traditional array of FinTech entities.