- October 31, 2017
Japan banks are not at the forefront of efficiency and rationalization. This is obvious in the numerous branch offices where I still wonder whether the concept of kaizen will ever arrive. Even today, client-facing women at the counters have to manually pass documents to one or two superiors for getting a stamp to conclude a transaction.
But this is doomed to change radically over the next 10 years, so it seems. Mizuho Financial Group has announced to radically automate processes and to eliminate 19,000 jobs by 2026, roughly a third of its workforce. Mitsubishi UFJ Financial Group and Sumitomo Mitsui Financial Group have made similar announcements amounting to a total workforce reduction of much more than 30,000 by the three megabanks over the next decade.
Keywords are digitization, AI and robots. Japanese banks are rapidly introducing those in efforts to replace routine tasks yet undertaken by humans. This comes on top of an ongoing integration of branches reflecting a declining population, in particular in rural areas. Negative interest rates have made lending, one of banks`s core businesses less and less profitable adding another push to speed up rationalization.
Interestingly, these announcements of huge job reductions have not evoked a major outcry by employees or labor unions so far. Why?
For one, Japan is not suffering from unemployment at all. Rather, it experiences a growing shortage of labor in many industries such as logistics, restaurants or construction.
Second, the concept of robots and AI replacing human work is greeted with much more openness than elsewhere. It is seen less as a threat but rather as a means of overcoming the shortage of newborns and a vibrating young workforce.
Third, people know of inefficiencies in the banking sector witnessing them with their own eyes each day. At the same time, Japanese see their banks increasingly as important partners to consult them on investments and private wealth accumulation beyond a simple saving accounts. Hence they welcome efforts for modernization. Well, at least I get this feeling when talking to my Japanese friends.
Financial institutions in Europe and the United States have already made a head start on the path to digitization. Bank of America earlier this year opened three completely automated branches that have no employees. The U.S. bank will open 50 to 60 more automated branches through 2018. U.S. banking giant Citigroup believes there could be another 30-percent reduction in their staff between 2015 and 2025 following similar moves.
It will be interesting to see whether Japanese banks even overtake their Western peers. For sure, the positive attitude to the use of AI and robots will help a long way as will the sheer need to replace a labor force that will continue to shrink. Japan might even become a kaizen role model in the banking sector as it did in the auto industry in the past.