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Fletcher fellow discusses changes in banking industry

Published: Thursday, February 6, 2014

Updated: Thursday, February 6, 2014 08:02

Paul Schulte (F ‘88), a senior fellow at the Fletcher School of Law and Diplomacy, led a discussion last night on the growth of technology and its impact on the banking industry.

During the discussion titled, “Financial Technology: The End of Commercial and Investment Banking as We Know It,” Schulte told the room of about 20 students that financial jobs are changing and will hardly be recognizable in the coming years.

“You guys are not white collared workers anymore,” Schulte said. “You are blank collared workers. The white collared worker is gone.”

Schulte, who also serves as managing director at his own consulting firm, Schulte Research International, explained that many banks are stuck working with old processes that will be obsolete with an influx of new technology from entrepreneurs. 

“There are so many stupid things that are being done at banks right now that people have said, ‘Fine, if you don’t want to solve that problem and get rid of that process, I’m going to do it for you,’” he said. “Commercial and investment banking is being challenged at every single angle.”

He asked if any audience members were interested in a job in research analysis at banks, and explained that such a job is quickly disappearing.

“The invasion of technology in your traditional sales, trading and research function has meant that commissions have collapsed and investment banks cannot afford the research function anymore,” Schulte said. 

Instead, Schulte advised students to become involved in entrepreneurial startup companies and explained that their power will continue to grow.

“It is easier, cheaper, the barriers to entry and the cost and all of the headaches associated with becoming an entrepreneur — you are much better off now to become an entrepreneur than at any time in the past,” he said. “These larger financial institutions are not capable of accommodating what they used to accommodate because of the way in which technology — small startups and decent-sized startups — are infiltrating and eating away like termites at the foundations of all of these financial institutions.”

He went on to compare the current banking industry to the newspaper industry, explaining how the growth of internet ad revenue caused a decline in demand for newspaper ads, and thus the overall demise of the industry. 

The internet has also revolutionized the banking industry, Schulte said, and new technology will result in bank branches closing as people turn to mobile and online platforms.

“What’s coming along now are all of these different companies
 which are basically small startups with very few people,” Schulte said. “What happens if someone comes along and says, ‘Me and my seven guys are going to be able to get you new customers for your bank without any physical bank branches, and we’re going to be able to do that 98 percent cheaper than your bank branch, per customer?’”

According to Schulte, new technologies will result in a decline in credit card usage, but unlike banks, credit card companies are adapting.

“The phone is becoming a wallet,” Schulte said. “Credit cards are going to be eliminated. You would think this would freak out the credit card companies, but the credit card companies are like the music industry — they get it.”

Schulte then opened the discussion up to audience questions. Patrick Schena, adjunct professor of International Business at the Fletcher School, explained that as new companies grow they can become similar to banks, potentially exposing them to government regulation.

Schulte did not disagree, but explained that many of the businesses are so new that no one really knows what will happen with government regulation, especially by countries such as China, India and Vietnam.

Florence Young-Aragbaiye, a first-year Fletcher student, then asked how the growth in new technologies will impact the non-profit sector. Schulte responded that innovation and new technologies will also be useful in these industries.

“For the nonprofit, everything I have said is totally applicable to the nonprofits and the government,” he said. “The NSA sure has learned this stuff pretty well.”

Schulte ended the conversation with advice, telling students that learning about new technologies will help them find future jobs.

“Telephone technology for banking, for pharmaceuticals, for other services in the emerging world is the future,” Schulte said.

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