Anjalika Bardalai - speech for TISA Annual Conference 2018

Anjalika Bardalai, Chief Economist, TheCityUK, speech for TISA Annual Conference 2018: Social change – impacting financial services for the better



Good afternoon everyone. I’m really pleased to be here today talking about the economics of women in financial services – so thank you very much for the invitation to be here.

I’m also very pleased to be speaking on this theme both as a woman and as an economist, but most importantly, I want to tackle this theme from the perspective of an individual. Not any particular type of individual, not one with a special identity-based view, but with a view borne out of my particular professional experience.

The theme of this conference is ‘impacting financial services for the better’, but I’d actually like to take a few minutes to reverse that and explore how financial services can impact society for the better. And it’s particularly interesting doing that in the UK, which has one of the world’s most sophisticated financial sectors. So much so, in fact, that I think it’s very easy to take for granted the benefits that financial services offer society as a whole.

In full disclosure, let me start by telling you that I do have a particular perspective on this, because before I joined TheCityUK, I spent about 15 years focused on emerging markets, and in particular, emerging Asia. And in the course of that work I was part of a debate about “inclusive economic growth”, because the idea of fostering growth that’s broad-based and benefits a wide range of sectors and demographic segments used to be associated with developing economies. And that’s because these countries tend to have higher levels of inequality than richer countries do.

But I’ve been intrigued to see the concept of “inclusive economic growth” become more expansive and applied more and more often in recent years to advanced economies, including the UK. And inclusive growth requires inclusive finance. And that’s why I want to talk about women’s role in UK financial services in the context of inclusiveness and also financial inclusion.

Now, this is a potentially vast topic, and I have a little less than half an hour, so let me first tell you what I’m not going to cover:

First: the argument that corporate Boards that include more women improve companies’ performance. This by itself is a wide-ranging debate, encompassing evidence that having more women on Boards is correlated with improved profitability; or that firms run by female CEOs have less volatile earnings and lower leverage than firms with male CEOs. Of course, there is evidence against these claims too, and in any case correlation as we all know is not the same as causation. But this is more of a corporate finance approach, and there’s a large body of literature we can consult if we want to take this approach. Today I want to take a different tack, and adopt a more macro lens.

Second: pay differentials and the gender-based wage gap – a huge amount has already been said on this subject, and so much is being done at the moment, both on the regulatory side and by individual firms. So the only thing I’ll say here is that to me it seems obvious that a balanced workforce, treated fairly, would be good for corporations and also for society as a whole.

These are of course the two angles that are addressed most often, certainly in the media, when we talk about women in FS. But let me explore this issue from a different angle.


So first: what does inclusive growth mean in the context of the UK?

I think the most important aspect of this is the regional dimension. If we look at the most commonly used measure of income inequality, the Gini Coefficient, we see that the UK’s performance is very much in line with its G7 peers and in fact Italy, the UK and France all have almost identical scores. But the idea that economic growth has benefited some regions and not others is something that’s being discussed a great deal at the moment. Sub-national geographic trends aren’t really the focus of today’s remarks so I won’t dwell on this, except to share this chart

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which is one of the most striking visuals I’ve seen capture the extent of income inequality in the UK and how it compares to income distribution in other European countries. It shows GDP per capita in European countries, with the vertical bars representing the range of the lowest to highest region within each country. What’s striking is how enormous the range in the UK is compared to other countries.

I should be clear too that in the quest for a gripping title I called this talk ‘Women in the City’ but I want to talk about women and financial services in the UK as a whole, not just in the City of London. Especially given the fact that of the 1.1m people working in the sector, two thirds are based outside London.

Of course income is very much tied to employment so let’s take a look at some employment trends. The proportion of women in employment has risen steadily since the 1970s, reaching 78% last year. You can see this here:

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Interestingly, and possibly counter-intuitively, the increase in female employment has been much bigger for full-time work than for part-time work. The percentage of women in part-time work has hovered at around 32% since 1985, whereas the percentage in full-time work rose from 29% in 1985 to 44% in 2017.

But in financial services, the picture is quite different. You can see here

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that in the UK overall, both male and female employment has risen fairly steadily since 2000. But in financial services a gap between male and female employment arose after the financial crisis and has widened considerably since then. In fact, until 2005 more women than men worked in the industry; since 2006 the industry has employed more men than women, and in 2017 the gap between the two was nearly 200,000. It would have been interesting to look at employment rates in the industry rather than just employment levels but the data didn’t allow me to do that. But if you look at unemployment rates as a sort of proxy, it reinforces the idea of a gap. Since 2009 the unemployment rate in the FS and real estate sector has been about half a percentage point higher, on average, among women than among men. (Sorry to bring real estate into this but that’s just the way the ONS break down the data so I couldn’t isolate financial services specifically.)

Now, it has to be said that this gap of 200,000 represents less than 1% of total industry employment. So in relative terms it’s not too bad at all. But the trend is certainly worrying. Of course, it’s hard to say definitively why this gap opened up after the crisis. One possibility is that women were disproportionately targeted for redundancies during 2008-09 because of discrimination. Another possibility is that women were disproportionately represented in the sorts of roles that are being eliminated because of automation and industry restructuring, which were accelerated by the crisis.

The most likely thing is that this trend is the result of the interplay of a number of different factors. But whatever the cause, the point is that this represents a resource problem for the financial services industry. Firstly, it means that the industry is possibly under-utilising a big part of its potential pool of talent. Secondly, if the gap keeps widening, it would mean the industry would become less and less diverse from the gender perspective.

So: inclusiveness in this context has to focus on the overall participation of women in the pool of financial services labour. Something much more fundamental than the discussion about women in Boardrooms, important though that is as well.

Fortunately, there are initiatives underway to address this issue from the ground up. One of them is the Treasury’s Women in Finance Charter, which focuses on the mid-level of talent in financial services firms rather than the C-suite. Another is the Financial Services Skills Taskforce, announced by the Chancellor in June this year. . TheCityUK has been asked by the Chancellor to convene this Taskforce and we are working closely alongside Mark Hoban, who is chairing the work. The Chancellor highlighted the ongoing transformation of the industry because of the increasing application of new technology, but acknowledged that the sector needs a long-term pipeline of domestic skills to complete this transformation. The Taskforce will help ensure the sector has the skills it needs to remain globally competitive, and part of its objective is to create and increase genuine diversity in all areas – gender, but also ethnic and socioeconomic - so that financial services becomes genuinely meritocratic and reflective of society as a whole. 

Now inclusiveness as I’ve just described it is, if you like, is the supply side of the issue. When we look at things from the demand side, we now come to the issue of women’s inclusion in financial services.

To put this in perspective, let me come back to the point I made at the beginning that financial inclusion is often thought of as an issue for developing economies. And indeed, because they are starting from a lower base, the scope for improvement is much higher in most cases.

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This is the IMF’s data on the gap between men and women in financial account ownership in around 150 countries. They picked out a couple of emerging markets for discussion but I would draw your attention to the fact that the UK sits HERE, with a statistically insignificant gap in account ownership between men and women. Probably unsurprising, but still something to cheer – and not something to be taken for granted because in two of our G7 peers, there was a small but statistically significant gap.

That said, there’s always room for improvement and in the UK that improvement is needed in some of the more sophisticated areas of financial services provision. For example, there appears to be some evidence of a start-up funding gap, in which female entrepreneurs have less access to business funding than male entrepreneurs.

For example, one study [1] found that in 2017 there was a sharp decline in funding for UK companies with at least one female founder, even though funding for start-ups overall almost doubled in that year. Of course, we shouldn’t read too much into a single year’s data, and data in this area are quite limited anyway. And there are so many complex interlocking factors to look at when considering angel and VC investment, so this is certainly one to look at, but perhaps through a broad lens that encompasses things like the pitch process and investor perceptions of women as business owners, rather than just the narrow financing lens.

There’s also evidence that women receive lower returns on their investments, on average, than men do. This is often linked to evidence that on average women have lower risk tolerance than men. There’s also very interesting research noting that women also generally have a lower perception of their own financial expertise.

Oliver Wyman, who have done a lot of great work in this area, build on this to explain how many aspects of the financial services industry have been designed based on the financial preferences of men. A really interesting example is what they say about individual trading accounts. They note:

Most online execution-only trading platforms are aimed at active traders with high perceived financial expertise and a strong taste for risk. In other words, they are aimed at a more characteristically male investor [2].

Now, I haven’t seen data for returns from online trading split by gender, but given the preference and design issues it’s probably reasonable to assume that women are less likely to be maximising their potential investment returns through this particular channel than men are. In fact, a related point which is interesting comes from my analysis of the IMF’s Global Financial Inclusion database. Although as I said the UK has a gratifying gender balance between most financial inclusion indicators, the biggest gap is internet-related – it’s in the use of the internet or a mobile phone to access a financial institution account, where the proportion of men doing so was 54%, but the proportion of women doing so was just 39%.

Again, we often think of financial inclusion as an emerging-market issue about bringing people into the formal financial system. But as the IMF points out, even in rich countries like the UK there is an opportunity to “promote greater use of digital financial services among those who do have an account”.

And on this point, I’m pleased to say, TheCityUK has set out a proposal for what financial and related professional services as an industry should look in the years ahead. We worked with PwC to publish research last year that set out a medium-term strategic vision, which you can see summarised here:

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And I’d draw your attention to particular attributes which are very relevant to the discussion about women and financial services. For example:

  • Being digitised, innovative and customer centric. We said that firms need to go beyond superficial actions to truly embed customer-centricity. They should develop products and services that truly meet customers’ needs and reflect their ideas and preferences. It should be clear from the data I’ve just spoken about that this will mean reflecting the preferences of different segments of society, including women, not just an unrepresentative “typical customer”.
  • Addressing societal needs. We said that the industry needs to maximise financial inclusion by providing financial products that are easy to access, understand and use. We also noted some specific product and service gaps. For example, we all know that increasing life expectancy and an ageing population is widening the gap between existing savings and the cost of funding retirement. The OECD expects that the old-age dependency ratio in the UK will rise to 38% in 2050 from 23% in 2010. This is a challenge that will have a disproportionate effect on women given their longer life expectancy (83, compared to 79 for men) and also their lower average lifetime earnings and savings.

In terms of addressing these needs, we’ve put forward a number of detailed policy recommendations. For example, product innovation could include loan-repayment models that incorporate automatic switches into appropriate savings plans following full repayment. The intention would be to encourage and facilitate more of a savings culture generally, but given the demographic context, this would, in the long-term, have a particularly beneficial effect for women, all else being equal.

Another example of something that could benefit women in particular is the further development of robo-advice. It stands to reason that if there is any kind of bias that affects the way investment advisors advise male vs female clients, then the use of robo advice could eliminate or mitigate this bias, hopefully resulting in more objective recommendations. (Of course, this assumes that the algorithm itself doesn’t have an inherent bias, which is a definite challenge but certainly outside the scope of this talk.)


So I hope that’s given you a sense of some of the different angles from which we can look at this issue of women in financial services, besides the headline-grabbing angles of compensation and Board membership.

The financial services industry needs to look closely at the issue of inclusiveness not just by focusing on Board appointments, but also by examining broader issues of inclusiveness of growth, employment and income.

On the inclusion side, we should be clear that financial inclusion is not just an issue for developing economies, it’s very salient for advanced economies like the UK as well, although of course the context and types of challenges are different. For example, the Treasury select Committee held a session just last week on access to financial services that discussed online access to financial accounts, among other things.

And to bring these two strands of thinking together, let me share with you a comment from a woman I particularly admire – Christine Lagarde, the head of the IMF. In a speech in 2016 she said:

“Despite clear evidence of its benefits to individuals and society as a whole, financial inclusion is often proceeding on an isolated track—more social policy than macro policy. It is critical that we avoid such a “silo mentality.” Financial inclusion is an integral part of inclusive growth strategies and should be closely integrated into macroeconomic and financial policies.”

And why are inclusion and inclusiveness important? Of course many would cite the social or the moral argument. One may or may not agree with the idea that greater inclusion and diversity is good for its own sake, and because fostering that is the right thing to do. My guess is that most of us in this room would agree with that notion.

But the difficulty is that it’s a subjective notion. And because of that, I would argue that the right way to progress on this front is to take a more objective tack. This actually reminds me of the dynamic in one of my main areas of focus at the moment, which is green finance. Of course there’s a moral or a CSR argument in favour of encouraging finance that helps address climate change and environmental sustainability. But I prefer to focus on the fact that what green finance does is use the basic metric of risk-adjusted return and apply it to one of the world’s most pressing long-term challenges.

Similarly, in the case of inclusion and inclusiveness, we should evaluate people and their contributions as individuals, not as types, and not because we want to favour one group or another. Let’s focus instead on enhancing the connection between financial services firms and customers; on having access to wider talent pools; and on the fact that a more inclusive workforce will allow the sector to become a more effective partner of the wider economy and society.