March 24, 2016
As FinTech became a permanent part of our lives, the industry had a tremendous effect on its various aspects. In fact, even governments have noticed tectonic shifts in workplaces, personal life and, possibly, policies in the future. One of the countries at the forefront of innovation has performed a research on the ways FinTech transforms work, people and policy to reveal fascinating trends and possible scenarios of the future that FinTech shapes. One of the interesting parts of the research is related to the transformations happening in the workplace and how businesses transform under the positive influence of FinTech.
It is well-known that capital and labor are immense parts of a production cycle in various combinations. Once technology advances and becomes able to perform the tasks more efficiently and at a cheaper price than a human, it makes more sense for businesses to substitute their labor force with machinery. The situation works the other way around as well. When the labor is relatively cheap, the wages are lower, and the production becomes more labor-intensive. However, it is not all that easy in the real world. Capital and labor usually go together in different concentrations. Machinery still needs humans to operate them and computers need people to work on them. Even if a machine can help business to grow, there is no point in investing in it if there is no competent human operator to work with that machine.
When FinTech came into the light, it became clear that some jobs can be performed more efficiently, leaving professionals more time to invest in other activities. However, there is a fine line between complementing the labor force and substituting it.
When FinTech shifts the balance towards capital investments
While financial technology has an undeniable positive impact on everyday life, it also carries long-term threats. On one hand, we want to harvest the positive outcomes of FinTech applications in mundane tasks that otherwise would be cumbersome to perform. We want to have faster payments systems, better wealth management solutions, better predictive modeling for financial markets and more accurate forecasting of the future events for the insurance industry. However, if AI replaces advisors and salespeople, it wouldn’t matter for those people if the clients benefit because those people will be unemployed and unable to find their place.
It is a matter of time till AI is able to take over wealth management and other segments may not go too far as well. Traditional bank branches are going away and representatives in the branch may soon be replaced with robots like Pepper powered by DeepMind and IBM Watson. The consultants will also be out of jobs.
The self-checkout machines now replace cashiers, who don't have alternative tasks and will eventually become a financial burden and will be spared as well.
The bottom line is that the low-skilled labor force is at a disadvantage. Call centers are already being replaced by online chat and online access to FAQs. Those parts of the labor force that are unable to recalibrate towards higher-skilled activities will be at a misery. Given that over the years, it becomes more difficult for workers to learn new technologies and acquire new skills, middle-aged and elderly low-skilled workers will become benefit-dependent categories with a deep gap between them and a high-skilled workforce.
When FinTech embraces labor force
However, regardless of negative possibilities, there are positive ones as well. The UK government cites an example of faster payments service as the area where financial innovation complements labor, boosting a worker’s productivity without costing them a job. As the research suggests, suppliers and workers can be paid more quickly, boosting the productivity of accountants and others, leaving them free to devote more time to other tasks. In that case, FinTech will have a positive effect on businesses as they will be able to grow at a faster pace and dedicate more effort towards operational efficiency, research and experimenting.
Another positive outcome is that in the long-term, the educational system and the labor force will be skewed toward high-skilled work. Better education and high-skilled workforce can have a positive effect on the structure of the society in the long term.
Finding a balance
Finding a balance does not depend as much on technology as it depends on entrepreneurs and their mindset. The labor force does not necessarily need to be replaced as capital and labor go together. Technological advancements can help to recalibrate the workforce. Instead of looking to substitute a human with capital, business owners need to seek for the shift in the type of work performed by their labor force. Increased efficiency frees time for the workforce to develop professionally and employers need to contribute to that by taking responsibility for their employees.
Innovative FinTech could enable workers to do more in less time, boosting productivity. As a result, more productive workers will become more attractive to employers and so, technological progress may actually boost labor demand and wages. Those having more time as a result of capital productivity will be able to dedicate it towards learning and professional development to become even more sought-after in the labor market. Capital should not be seen as a substitute, but a complementary advancement in productivity. If workers are paid according to their productivity, then wages will go up significantly, improving the quality and standard of life. Needless to say, with higher wages, the government will seize more benefits from taxes.