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Bankers depart for the fintech frontier

More finance executives leave to join technology start-ups as banks tighten headcount

It was February 2012 and banks, dealing with the fallout from the credit crisis, had culled more than 230,000 jobs the year before. Stu Taylor, the London-based global head of matched principal trading at UBS Group, realised it was time to move. So he left his seven-figure salary and risked his savings on a technology start-up.

He and three partners “went into a zero-salary moment” setting up Algomi, a bond sales management platform to be used by traders, portfolio managers and investors. Three years later, the 42-year-old says the far longer hours to bring home a fraction of his previous pay are worth it. “I enjoy what I’m doing, we’re creating something I think is making a difference, and it’s mine.”

Ten months after Taylor left UBS, the bank announced a plan to cut 10,000 jobs and retreat from trading businesses where stricter capital rules hampered profitability.

As investment firms have curtailed or shuttered lines of business, particularly in debt trading, the contractions have prompted former bankers to quit finance and put their experience to use in the new field of financial technology, or fintech. Capitalising on the changing regulatory environment, such companies offer risk management, data analytics, trading platforms and other services previously performed by humans.

“Seven out of 10 conversations I have with investment bankers now end with them asking me to keep them in mind for jobs in technology,” says Atlanta-based Eric Anderson, who leads the financial-technology practice at Egon Zehnder International.  “That almost never happened five years ago.”

North America had 212,100 fewer bond brokering jobs in January this year than at the start of 2008. By contrast, there are more than 500,000 job openings in software development and cybersecurity, many of which did not exist a decade ago, White House data shows. An annual review of the US banking system by McKinsey & Co in December tallied more than 12,000 start-ups focused on banking businesses.

Four of the biggest US and UK banks have reduced headcount by almost 350,000 since the beginning of 2008, according to Bloomberg data. A quarterly Bloomberg Global Poll released in January found 83 per cent of respondents say the banking industry will continue to cut jobs this year.

Mark Whitcroft, a 34-year-old Briton, left his job last year as a director on Deutsche Bank’s New York bond syndicate desk to become a principal at Illuminate Financial Management, a UK venture capital firm that bankrolls fintech start-ups to “transform financial markets”.

“For me, this was an opportunity to change career,” he says. “It was an opportunity to have a much bigger impact on something that’s an emerging industry, rather than something that’s a continuation of an existing one.”

More than half, or 51 per cent, of employees at European banks are thinking about changing jobs, according to a survey this year by New York-based recruitment firm Options Group. Around 42 per cent of people at hedge funds with more than US$5 billion of assets expressed the same desire.

Technological advances will have the greatest impact on banking, said 86 per cent of the bank CEOs surveyed by PwC last year. More than 30 per cent of revenues at European banks will be driven by digital transformation in the future, according to McKinsey. That may involve replacing some people with computers.

“If a process is measurable or mechanical, it can be automated,” says Anthony Lim, a Singapore-based cybersecurity consultant. “Any area in investment banking that can be automated will be.”

Banking and securities firms spent US$488 billion last year on information technology, research firm Gartner estimates. That amount is set to top US$500 billion this year, as Libor and foreign-exchange rigging scandals put electronic messaging under the spotlight, and after hackers jeopardised millions of JPMorgan Chase  accounts last year.

Alan Schmoll, 36, hopes to capitalise  after leaving a position as director of debt capital markets at Bank of America in Hong Kong last September. The Australian co-founded Tokyo-based Asbet and its MarketsOne website, which lets users show interest in million-dollar bond sales similar to accepting an event invitation on Facebook.

“The system is not designed to take people out of a sales job, but to assist in a process that’s laboursome and error-prone and allow them to focus more on the informal chit-chat with buy-side accounts, which is where the real value is,” he says.

Global investment in fintech has increased five-fold since 2010 to US$13.7 billion, according to New York-based venture capital tracker CB Insights.

Former bankers like Taylor consider their moves an investment. “What I’ve lost financially, I have absolutely gained in terms of wanting to be there. And hopefully, maybe, there is a payday someday in the future.”