UK: Automation Will Change The Character Of London Businesses | How Will Financial Services Adapt To The New Environment?

Since the Industrial Revolution, technological advances have transformed business and commerce, and changed the character of jobs that people do. With the rapid progress of digitisation, a further period of major transformation is under way. London, its Financial Services industry included, will inevitably feel the change and will need to respond.

With the increase in computing power and advances in robotics and Artificial Intelligence (AI), combined with significant reductions in IT costs, technology is substituting for labour in ways previously imagined, perhaps, only in science fiction.

In research for Deloitte1, Oxford University academics Carl Frey and Michael Osborne have looked into the likely impact of IT on jobs in the UK. This work follows on from previous research into the US labour market, using similar methodology. We have concluded that about 30% of current jobs in London are at high risk of replacement by technology within the next ten to twenty years. We estimate that jobs currently paying less than £30,000 per year in London are over eight times more likely to disappear than jobs paying over £100,000. This suggests that higher-level jobs in Financial Services may not be threatened to any significant degree; but even so the nature of jobs in the industry will change substantially.  The ability of computers to collect and analyse Big Data means that in some roles, even those with relatively high levels of technical knowledge and skill, will be automated.

Our London Futures report1 suggests that the total number of jobs in the capital will grow over the next few years, with 78% of Financial Services respondents to a survey of employers indicating that they expected to increase their headcount in London in the next five years. The capital will respond to technological change – as it has always done in the past – by adapting and becoming a centre for new businesses and new jobs requiring skills in the new technology.

The London working environment will also be affected by pressures of cost, for both employers and employees. Growth in job numbers will increase pressures on work space, housing and infrastructure. Employers will need to judge whether the cost of retaining jobs in London is justified by the benefits. For employees, the high costs of housing and London living may prompt a 'reverse brain drain' as individuals leave for jobs in other regions, and a less expensive existence.  Our London Business Footprint Report2 highlights that although the financial services sector is still the biggest user of office space in central London (31% or about 47 million square feet) its share has been declining in the past five years, although the insurance sector has increased its use of space in its EC3 heartland area.

There may well be intense competition to attract top talent into London and retain it, and Financial Services employers cannot be sure of being high on the wish-list of the best recruits. Despite the financial crisis and the rise of centres in emerging markets, London has retained its pre-eminence as an international financial centre; but further research by Deloitte2,3 suggests that Financial Services employers are losing some of their attraction among undergraduates, the main pool of new talent. This research indicates that banking is not as popular as in the past as a career for business students, and insurance is unattractive for all but a few. The IT industry has fast-growing appeal among those starting out in a career- with Google the most popular employer in no fewer than 15 out of 28 countries surveyed—whereas the reputation and image of Financial Services may be under a cloud.

With advances in automation and AI, jobs in Financial Services will require a different skills set. The industry will need to attract tech-savvy and innovative individuals, in the face of competition from employers in other industries.

Financial Services employers might usefully consider what will be the most suitable strategy for meeting the changes that will occur and which are already in process. The issues are apparent: identifying the talents that are needed for jobs in the future; beating the competition to employ the best people, train them and retain them; and adapting the working environment as the demand pressure for office space grows.

London is an agile city that has always responded to technological progress in the past, and will do so in the future. The Financial Services industry will need similar agility to continue flourishing within the changing environment.

References to Deloitte reports:

  1. London Futures. Agiletown: the relentless march of technology and London's response
  2. The London business footprint – the evolving financial sector
  3. The Deloitte Talent in Banking Survey 2014
  4. The Deloitte Talent in Insurance Survey 2014

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