blog from Efi Pylarinou Advisory

GenAI to boost productivity in banking: a revenue per employee analysis

Share this resource

The independent No.1 global woman influencer in finance & data

View Solution Provider Profile

Connect with Efi Pylarinou Advisory

by Efi Pylarinou Advisory
| 03/06/2024 18:00:00

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 Capitalisation per Employee against the Digital Laggards.

No single KPI is ideal, but Market capitalisation 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 capitalisation 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 US$1 billion in total revenue and 2,000 full-time employees, their revenue per employee would be:

US$1,000,000,000 revenue / 2,000 employees = US$500,000 revenue per employee

So a revenue per employee of 0.50 would mean the bank generates US$0.50 in revenue for every US$1 of employee costs/salaries.

Not all financial providers are equal, and VISA is not a bank, but I will include VISA in my story today as they recently published 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 US$1.

In my sample of Banking incumbents giants, only Goldman Sachs showed Revenues per Employee around US$1 and not as consistently as VISA.

Overall, in the US, the first two decades of Digitalisation 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 for picking Banks leading in AI and Finbox for their historical Revenue per employee trends.

The celebrated giant JP Morgan, the Top AI leader, has historically had 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 us 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?

Read the original article here.