GenAI to Boost Productivity in Banking: A Revenue per Employee Analysis
For the past decade, we Fintechers have been showing how certain financial services providers have executed successfully on their digital transformation strategy by comparing their increased Market Capitalization per Employee against the Digital Laggards.
No single KPI is ideal but Market capitalization per Employee is a decent indicator especially, for platform businesses that benefit from network effects.
I prefer to look at the trend of Revenue per Employee instead of the more forward-looking market capitalization figures.
Revenue per employee is a better productivity metric to date (not forward looking). One would expect that as employees gain experience in the business, their contribution value incrementally increases and then most probably reaches a plateau (for most employees).
If a bank has $1 billion in total revenue and 2,000 full-time employees, their revenue per employee would be:
$1,000,000,000 revenue / 2,000 employees = $500,000 revenue per employee
So a revenue per employee of 0.50 would mean the bank generates $0.50 in revenue for every $1 of employee costs/salaries.
Not all financial providers are equal and VISA isnt a bank but I will include VISA in my story today as they published recently a report on `Opportunities for GenAI in Financial Services` which reiterates the expected productivity gains in several financial services areas. VISA has also been classified as a Digital Leader in financial services with a rising Market cap per employee. VISA is also one of the few financial services giant incumbents with a historically high Revenue per employee. Even though its current Revenue per employee may be lower than a decade ago, it has remained above $1.
In my sample of Banking incumbents giants, only Goldman Sachs showed Revenues per Employee around $1 and not as consistently as VISA.
Overall in the US, the first two decades of Digitalization have not affected the total number of employees in banking in any meaningful way. More or less the FDIC-insured Banks have been employing in the US, 2 million people.
GenAI is expected to have a significant impact with sizable productivity gains in the not-so-distant future. So this is a good time to take stock of the Revenue per employee KPIs of a few of the leaders in AI (plus VISA).
Evident AI Index for Banks is the source to pick Banks leading in AI and Finbox for their historical Revenues per employee trends.
The celebrated giant JP Morgan which is the Top AI leader, has historically a Revenue per employee of around 0.40. Will that double in the next few years? Will it reach 1 because of GenAI?
Capital One (2nd according to the Evident AI bank index) has had similar levels with JP Morgan but has shown a clear and sustainable improvement in the last 3 years, remaining solidly above 0.50. Let's watch which one leaps higher.
The Royal Bank of Canada has had overall slightly lower levels of Revenue per employee but looks much better than Citigroup which has been unable to surpass the 0.30 level in a meaningful way. Wells Fargo looks fairly indistinguishable from Citigroup.
Can these Banks leverage GenAI and break the 0.50 ceiling or can we expect even higher leaps?
Additional GenAI recent content:
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- Four Areas Where Generative AI Can be Used in Contact Centers
- Revolutionizing Finance: How GenAI is Transforming WealthTech and Compliance
- A Moody`s & Microsoft GenAI collaboration for the Era of Exponential Risk
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