The Taiwan Banker

For the first few decades of its existence, the internet was mostly a disappointment. In the very early days, tech optimists foresaw the end of distance, but those hopes were soon quashed, at least in the medium term. Production of some tradeable goods and low-value services moved to China and India, but this outsourcing never added much value for the customer countries. Silicon Valley remained a local phenomenon, driving up San Francisco housing prices but failing to create jobs in the US economy as a whole. In 2011, the economist Tyler Cowen wrote The Great Stagnation, asserting that the internet would not be able to drive overall growth until it was more closely integrated into economic structures and business models. “Much of the value of the internet is experienced at the personal level and so will never show up in productivity numbers…cruising the Web may even lower GDP on net if instead you would have gone out to buy an ice-cream cone or otherwise spent some money, even if you would have less fun away from your computer.” As the work from home (WFH) model becomes more mainstream following the pandemic, however, the internet is becoming not only a medium for funny pictures, but a fundamental part of work. This shift has the potential to affect a variety of social patterns in unpredictable ways. In the US, for example, it has prompted migration away from San Francisco, where closed housing markets made living unaffordable. It has also contributed to the long-awaited rise of telemedicine. The more hierarchical finance sector will face labor market pressure to adopt the new model, but the pace may be slower than in some other industries. In the end, the decision may come down to the culture and strengths of individual companies, and also specific geographic constraints in different real estate markets. Different work concepts Even within the tech sector, not every company has the same attitude. Netflix, for instance, may be frequently matched against information-oriented companies like Google, but in fact it earns much of its value through artistic creation. The Wall Street Journal quoted its co-CEO Reed Hastings saying “Not being able to get together in person, particularly internationally, is a pure negative.” Netflix’s highly competitive culture, called the “Netflix way,” encourages hard-hitting feedback and decisive personnel decisions. “We’d rather have three outstanding people than four OK people.” Facebook and Twitter, on the other hand, have made remote work available to all employees who request it. In financial services, the cultural differences may not be as pronounced between companies, as between different levels of the organization. The December 2020 PwC Remote Work Survey found that 70% of US employers believe that three days of office work will be necessary, while only 20% of employees thought so. This means that the competitive variation between companies may be economic, rather than cultural. If banks truly require physical presence, in the long run, they may need to pay for it. ‘Reading between the lines’ is an important skill in the highly-regulated financial sector. The most frequent source of complaints regarding remote videoconferencing is the lack of an intimate connection. This is in part a technological problem, and the technology has certainly improved from a decade ago. It has even improved since the pandemic started. In October, the chipmaker NVIDIA announced that it had used encoding via neural networks to cut bandwidth requirements by several orders of magnitude. These advancements will help cut down on “Zoom fatigue” that results from long periods of attention to a flat screen. Nevertheless, decades after the first websites, distance still hasn’t been eliminated. A near-consensus has been reached that employees in most companies will still have to come to the office for some fraction of the time. WFH is not the same as the “digital nomad” concept, where people would travel the world earning money with their laptop. In any case, that freedom of travel will no longer exist for the time being. Vulnerabilities everywhere Besides emotional connection to customers, staff, and other counterparties, another issue of approximately equal importance to the success of WFH in finance is security. An August report by the cybersecurity firm Malwarebytes found that 20% of US firms had “paid unexpected expenses specifically to address a cybersecurity breach or malware attack following shelter-in place orders.” A separate consultancy, Twingate, also found that over 10% of employees had their video calls hacked during remote work. Companies can use several basic practices to control this threat. Employees should be issued their own work computers, allowing the IT department to manage configurations directly, and also helping ensure that the computer is used for only work purposes, rather than perhaps by other family members. Staff should avoid public Wi-Fi, and should connect to a dedicated VPN. In order to avoid phishing and impersonation attacks, they should also confirm communications with the IT department and senders of emails. Many of these vulnerabilities had to do with the lack of preparation time before the sudden imposition of emergency health measures. To the extent this is the case, WFH could in fact help promote security in the long run by forcing companies to reckon sooner with a concept of security that does not involve physical distance. At the same time, simply removing the psychological comfort of physical presence may never be enough to motivate an equal level of protection through alternative procedures. Spy agencies reportedly transmit their most sensitive secrets using paper and pen, recognizing that no amount of security ever matches up to simply lacking the capacity to be hacked in the first place. Most information that goes through a financial institution is sensitive, but not to the point of involving national security. Still, a thorough risk assessment of all operations of a financial institution is not the type of task that lends itself easily to automation. It seems reasonable to predict that IT departments will eventually go from a cost center, as during the days of Cowen’s essay, to a source of competitive advantage. Unknown opportunities The true value of technological changes is often not the direct savings or products of new processes, but the other innovations that can be layered on top. WFH may help drive increased use of analytics on the data collected by employees’ remote systems. Many employers have trouble trusting their employees without direct monitoring, which is a problem of company culture. They will need to transition away from headcount alone as an indicator, towards more comprehensive indicators that both reflect performance and are not susceptible to manipulation. Doing so probably requires more sophisticated integration of data with the business model than was previously necessary – which may also have positive knock-on effects in other areas, including for consumer interaction. It is technically possible to record every action of an employee on a computer, but this sort of low-level and privacy-reducing data collection should be avoided whenever possible. For employees to take advantage of the increased opportunities for flexibility, companies will need to move away from their clock-in and clock-out mentality. The time saved on commutes should not be considered a zero-sum matter of bargaining between the employer and employee, but rather as an innovation that could enhance long-run productivity, in a variety of currently unknown ways. Electricity was invented in the late 1870s, but was considered only a novelty for generation to follow. As of the turn of the century, only 5% of factories were powered by electricity. Factories had to be redesigned to take advantage of the new flexibility of electric power over coal, and the full advantages of electricity weren’t realized until Henry Ford’s mass production techniques were used in the 1920s. A similar process may be occurring with the internet. Businesses will need to remain alert and become early adopters for the next mega-trends. It’s still far from clear how industry practices may continue to evolve after the pandemic, but it’s unlikely that the old normal will fully return.