The financial services sector is suffering from a technology skills gap that hampers its ability to deliver customer-facing innovation and operational efficiency.
According to PwC research, limited skills availability is a real issue for these companies, with 72 percent of global banks, insurers, and other sector organizations saying the technology skills gap is a threat to growth.
Factors behind this shortage include a cultural barrier that has developed over recent years. IT professionals no longer see the sector as the destination of choice workplace it once was. Director at global technology recruitment firm Harvey Nash Rhona Hutchon told me this is a reality her clients currently face:
Before the financial crisis, a career in financial services for a technologist was a really attractive option – the sector had the highest salaries and bonuses and offered job security with benefits such as final salary pensions being the norm. However, these institutions were forced to make much needed cultural and business changes and many of the more lucrative perks had to go and at the same time, other industries started to mature. Technology talent suddenly had more choice.
Considering the option of earning a fat paycheck in the dour world of financial services as opposed to having fun and getting a lower wage in a tech startup is no longer a stark choice. Hutchon attributes this change in attitudes to a relative maturity in the fintech world where firms offer much more than a basic salary and free donuts.
Tech firms used every trick in the book to win the war for talent; designer offices in city-centre locations, truly flexible working, casual dress code, salaries that rival or can trump traditional financial services firms as well as interesting work with the latest technologies.
Mixed talent pools
While most financial services firms have been ‘digital’ in some form or other for some time, a changing and more demanding customer demographic is placing a demand for technology innovation. Responding to these issues requires a lot of resources – including people.
In such a situation, traditional companies have no choice other than to innovate, reduce operational overheads and deal with competition from fast-moving fintechs. The risk is being left with low-margin, highly commoditized services.
Since established institutions struggle to beat the pace of innovative new ventures introduced in their sector, they sought to join them in a number of ways. This includes setting up acceleration schemes, forming joint ventures, investing or acquiring fintechs.
According to chief information officer at Lloyds Banking Group, John Chambers, working alongside fintechs provides a new approach for financial services organizations to move talent around and seek the best people. He predicts:
As fintechs attract more people with traditional banking expertise, the current barriers will be reduced and these pools of talent will become mixed.
Chambers believes that while new financial services ventures may have the advantage of having no legacy and being able to readily use new technologies, their most significant limiting factor is the ability to bring concepts to market at the right scale at pace:
Those people working within fintech firms may want the challenge of working on larger scales, and places like Lloyds Banking Group can offer that.
Trying to blend the old and new world of financial services technology is giving rise to severe organizational problems, according to Jon Terry, global financial services HR consulting leader at PwC. Terry says:
Keeping individuals from a fintech business coming to work in the world of boring banking interested and motivated is becoming a challenge. Incorporating different ways of working is equally, if not more important, than embracing the new technologies that fintechs bring.
Without citing names, Terry mentions the case of a large US bank that, moved by the interest in a particular startup, ended up making a series of mistakes by trying to incorporate the fintech into the broader organization and stifling innovation as a result. The venture has since been separated from its parent.
There’s this mismatch in terms of capacity to change in traditional businesses and fintechs. It goes both ways though: you don’t want to slow the fintech people down, but there also needs to be a willingness to change in the traditional institution.
Imperatives such as ‘reshaping the unimaginable’ echo across the corridors of PwC’s clients in the financial services sector – but this becomes a problem when the dialog involves career technologists at established banks and insurers. Terry says:
The IT people found in FS firms are typically what I would call traditionalist technologists. What they’re not is people that are prepared to just forget and ignore what the current architecture is like and come up with something completely different.
Innovative thinking within IT departments at traditional firms is the number one thing missing, says Terry, closely followed by agility.
Making connections and looking beyond the obvious is something that traditional technologists are not really thinking about. That’s what fintechs do and is more important than technical skills, which probably many of these financial services companies have got in droves.
So how many of the financial services clients that come to PwC are getting this working with startups thing right? According to Terry, very few.
But here’s my positive spin on that: they learn rapidly from their mistakes. They are spreading their bets [on startups] around a bit more and also learning from their mistakes around not integrating very effectively.
A new normal
Since the advantages of working for a large financial provider are not that many for IT professionals, the talent flow has been going in the other direction – and top performers have been attracted faster by fintechs than sector firms with slow and cumbersome recruitment processes.
While IT professionals have been impressed by the comparatively non-hierarchical structure of startups and their bureaucracy-free approach to business, Harvey Nash’s Hutchon echoes Terry’s view that large incumbents are starting to work within this new normal – by changing everything from recruitment processes to softening dress codes and upgrading offices into collaborative working spaces.
[Traditional companies] are also marketing themselves better – after all they have budgets for new technology toys and projects of a scale that many fintech start-ups can only dream of, and they are starting to talk about what they are doing at external tech networking events.
Staffing challenges are a good leveler, says Hutchon, and despite the organizational complexities involved, financial services companies and fintechs are seen collaborating more often than competing in global centers of excellence.
If the financial services industry can’t lure enough staff to join them, then they will have to collaborate more with fintech start-ups. And this can only be a good thing.
The difficulties that financial services firms experience in acquiring and retaining talent are not uncommon. We see this across many business sectors. However, the financial services sector is unusual in that it is hard for firms to keep up with the pace of technological change – and the impact that has on their business. Conversely, fintechs may come and go as new business models arise and whether they stick (or not).
Within the picture of inevitable partnerships painted by Chambers, what is the best way to get access to talent that comes with every new wave of innovation?
With every new idea, product or service acquisition, a bank or insurer is buying people, complete with different ways of working that, if force-fit to an existing organization, will cause damage and unintended disruption rather than the anticipated added value. And that, as Terry says, has until very recently, been the usual fate of firms that attempted integration and failed.
Sector firms need to be smarter about selecting and absorbing the useful things that fintechs bring, while also redefining success metrics. Despite these issues, financial services firms are catching up with the reality that there is more to relationship building than holding dress-down days and a free beer fridge.
Image credit - via © Sergey Nivens - Fotolia.com.