Forget fancy financial models derived from quantum physics. The solution to low returns in banking may lie in the car industry of 30 years ago, in a Toyota-style production-line revolution replacing people with machines.
The idea is being championed by Barclays' new chief executive Antony Jenkins. He has held up the Japanese car industry as a model for tackling poor productivity in financial services, and reportedly told investors that automated processes could eliminate 30 per cent of Barclays' workforce ? or 40,000 jobs ? over the next 10 years.
If this is so easy, why hasn't it been done before? Mainly because the banking industry could afford to be lazy before the crisis struck. Revenue growth outstripped rising costs. But the few European banks that have thought like Toyota have the results to show for it. Systems-savvy Swedbank and Handelsbanken have pre-tax operating margins of above 50 per cent. Apply that to Barclays' UK retail bank and pre-tax profit would more than double ? the highest operating margin the business has enjoyed in the last three years is 22 per cent.
In investment banking, new rules are already forcing human capital out of the industry. Highly structured trades that require human brainpower to arrange and process are being regulated away. A large part of the swaps market could go from being traded over-the-counter to on-exchange at lower cost, according to an investor survey conducted by Morgan Stanley.
But retail banking is where the biggest gains may be possible. Executives say that many tortuous back-office processes done by people could be mechanised, and done faster, more reliably and cheaply. There are parallels with telecoms as well as cars. That industry saw costs and people cut by 30 to 50 per cent in the 1990s, according to McKinsey.
The difficulty is that a robot revolution would have a big impact on wider society. An industry bailed out by the taxpayer would be withdrawing generally low-skilled, back-office jobs from the economy. Remaining staff will tend to be higher earners, so average pay in banks would be seen to rise. Banks would end up looking even more self-serving and less supportive of wider society. With Jenkins also advocating that banks should have a positive social impact, he may learn that he can't have it all.