Technology News

Banks Reap Major Gains from AI and Tech Advancements, Boosting Productivity and Profits

16 September 2024

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Zaker Adham

Summary

Banks have never been more profitable, thanks to the surge in technological innovations such as artificial intelligence (AI) and digital banking tools.

Since 2009, the average contribution per bank employee has soared by $98,000, meaning that without these advancements, the banking sector would need 400,000 more employees to achieve the same revenue.

While this shift is great for shareholders, it's less favorable for those in banking. Though the overall U.S. workforce has grown, banking jobs have remained static, leading to a decline in banking jobs per capita. Investors, however, are seeing significant gains, with experts like Mike Mayo of Wells Fargo Securities predicting a golden era for bank stocks. Mayo’s research highlights a “sea change” in employee efficiency, driven by automation and AI, that has pushed revenue per employee to record heights.

AI’s growing role in banking has dramatically improved efficiency, reducing the need for employees as more tasks become automated. Banks are now able to maintain vast amounts of deposits with fewer employees, resulting in skyrocketing profits. Mayo predicts this trend will continue, even as the economic climate shifts with fluctuating interest rates.

Looking back, innovations like online banking, introduced in the 1990s, laid the groundwork for today’s tech-driven banking landscape. However, the true explosion in productivity came in 2020, as AI advancements supercharged the sector. By 2022, deposits per employee had grown significantly, and total banking revenue hit a record $567 billion, outpacing the performance of other industries.

But as banks replace workers with technology, the number of banking jobs remains nearly unchanged. Despite increased productivity, bankers’ wages have struggled, with pay raises falling behind those of other sectors. AI is expected to eliminate a significant number of banking jobs in the coming years, with up to 54% of roles potentially displaced, according to estimates.

With fewer branches and more automation, banks are poised to double incremental profit margins. However, some investors believe that the peak of this tech-fueled boom might already be behind us, particularly with interest rate cuts on the horizon.

If bank revenues continue growing at the same rate over the next 15 years, the industry could see revenue per employee increase dramatically, further cementing the role of AI and technology in reshaping the banking workforce. The mantra of today’s banking industry seems clear: “Less bankers, more bots.”