Boring Banking: Will It Become Bangalore's Bonus?
After getting bailed out by taxpayers' billions, banking is clearly viewed by the public and by regulators as needing to become more boring. In other words, to look less like the high return-on-equity sector of yesteryear and more utility-like, perhaps outlawing the most volatile, highly leveraged, and profitable in the short-term types of modern finance.1 The notion that the financial sectors, particularly in the United States and the United Kingdom, should simply shrink as a part of the overall economy follows naturally from this premise.
The easiest way to trim the financial sector—or at least to cut its domestic payroll—is to make it more transparent and consumer-friendly and offer more plain vanilla–type products that would actually be of utility to real world customers outside the financial sector.2
First, simple, transparent, and standardized products without a myriad of hidden fees (of a type that pending credit card legislation3 and a possible new consumer protection agency would presumably limit) would by definition become more commodity-like and thus prone to price competition for consumers and smaller profits for banks. Less profitable product lines would, in turn, increase the need to cut costs and therefore lead to more offshoring (and ultimately automation) in the sector.4
Second, just as computerized trading led to the disappearance of noisy trading pits, the simpler a financial product is, the easier it is to offshore (and ultimately automate). This is so because the ease at which offshoring of a particular task or process can be done is determined by its degree of simplicity. Assuming that cost savings can be achieved, what concerns companies that decide to transfer offshore thousands of miles away is quality control. The easier it is to describe to an offshore provider every outcome that a process can have, the easier it is to perform such quality control from a remote location. So the more plain vanilla a given financial product is, the easier it will be to offshore.5
In short—the law of unintended consequences could accelerate the trend of shrinking the banking sector, and making bankers perform more boring and simple tasks could make the sector's domestic payroll shrink or even disappear.
3. See "Summary: The Credit Card Accountability Responsibility and Disclosure Act," May 19, 2009 (Senate Banking Committee).
4. See for instance the Financial Times, September 30, 2009, "Cost Cuts to Boost Indian IT as Outsourcing is Set to Rise."