Signs point to more difficult economic times ahead. The future is always uncertain, but banks must prepare now, and this may spell trouble for innovation teams.

Wells Fargo & Co. recently notified about 1,000 employees in its Consumer Banking and Payments, Virtual Solutions and Innovations groups of the bank’s plans to eliminate their positions. The bank has repeatedly declared a commitment to efficiency as it slims down its workforce and tightens up operations.

According to a report from Reuters, about 900 of the layoffs are in the bank’s home lending unit, attributed to declining application volume and the number of customers in default. The cuts will occur across the United States but are concentrated in Des Moines, Iowa, which is expected to see about 400 reductions, and Fort Mill, South Carolina, which is expected to see 111 cuts.

With the home lending unit taking 900 of the 1,000 announced cuts, that leaves as many as 100 positions to be eliminated from the bank’s innovation team within PVSI. But what positions will be cut and where those positions are based is unknown.

A spokeswoman for Wells Fargo provided the following statement to Bank Innovation:

Wells Fargo is in the midst of transformation, and we are making a number of decisions to position our company for long-term operational success; which means running our businesses in the best, most efficient way and for the greatest customer benefit.

We don’t have details to share on what positions were eliminated within PVSI. The majority of positions eliminated were in Home Lending.

As we transform to anticipate customer needs, we will become more efficient and have a smaller team overall. As Tim Sloan said in recent communications, ‘Given changing customer preferences — including the accelerating adoption of digital self-service capabilities, the focus on operational excellence, and ongoing commitment to efficiency — we expect our headcount to decline by approximately 5 to 10% within the next three years. This decline would reflect normal team member attrition as well as displacements over that period.’

Wells Fargo in September had announced its intent to reduce a headcount of about 265,000 employees by up to 10% by 2020. Although the bank cited changing customer preferences and behaviors, some analysts took issue with the official explanation and pointed to a bigger revenue problem.

Aside from headcount reductions, the bank has pledged to lower costs and increase efficiency by reducing its branch count by about 800, also by 2020, and by selling non-core businesses.

The latest cuts would indicate the hits just keep coming for home lending. In August, Wells Fargo announced it was cutting over 600 mortgage positions, largely in retail fulfillment and mortgage servicing. In October, it was reported JP Morgan Chase & Co. would be laying off about 400 employees in its consumer mortgage banking division. And a small bank in the South that had an innovation team of two recently closed the group and let the two employees go — a small sample size, but a troubling sign nonetheless for innovation at smaller institutions.

If efficiency is the word of the day, what does that mean for innovation?

Market research company Forrester, in its recently-released Predictions 2019 guide, said firms will be shifting their focus to “operational efficiency” and that transformation across many sectors will be going “pragmatic.”

Benjamin Ensor, vice president and research director for Forrester, told Bank Innovation that projects with no imminent return on investment will be first on the chopping block.

“The innovation teams that haven’t put in place good metrics, that can’t show that the work they’re doing is generating value for customers and for the business today, are the ones that are going to be at risk,” he said. “It’s going to be tough for them to demonstrate they’re creating value for the business.”

Among other predictions that paint a bleak picture for innovation in the year ahead, a financial services brief accompanying Forrester’s guide said to expect innovation to finally come to the back office after a decade-long focus on customer experience. Ensor said firms working with reduced budgets or a reduced workforce may start turning their attention to automating more fundamental processes including anti-money-laundering, insurance claims, and regulatory reporting — or anything that may reduce paper processing or manual errors, which can be costly.

As Ensor wrote in the brief:

“Margin pressure in core businesses such as lending, investment management, motor insurance, and in various areas of corporate banking will spark budget cuts at many financial firms in 2019. As budget cuts start to bite, senior executives will tire of innovation with no ROI. As the returns on digital customer experience plateau, firms will shift their focus to reducing the cost to serve customers through greater operational efficiency. In 2019, financial firms will focus on digitizing operations that deliver productivity improvements and improve customer outcomes. However, the mandatory need for too-often-postponed back-end transformation will continue to create tension.”