The nation’s largest bank, based in New York of course, is bidding for the title of the most farsighted bank in grappling with the latest challenge from that other center of cutting-edge American business: Silicon Valley.
JPMorgan Chase, the bank that emerged from the financial crisis in 2008 even bigger than before, has embraced what is now a full-fledged strategy for learning from the burgeoning “fintech” industry that aims to disrupt the sort of banking that was once built around a relationship cultivated over time through visits to branches. Fintech’s approach to wooing today’s bank customers is built on new payment networks, new ways of lending and new ways of tracking personal finances.
“When people consider Wall Street and Silicon Valley it has to be about working together,” said Gavin Michael, head of digital at Chase, the retail banking side of the company. “This is really about how we use each other’s expertise and resources.”
Big banks are responding to Silicon Valley’s wooing of their customers by building competing technology, partnering with firms that already have some of the same bells and whistles and showing the traditional financial industry can still strong-arm the web-based upstarts — even buy them, if it comes to that.
JPMorgan Chase isn’t alone in wanting to meet the challenge of technology startups, but its CEO, Jamie Dimon, might be the most vocal.
“Silicon Valley is coming,” CEO Jamie Dimon warned in his 2015 letter to shareholders. “There are hundreds of startups with a lot of brains and money working on various alternatives to traditional banking.”
The challenge for JPMorgan Chase and other banks will come as startups raise expectations about what every company in financial services is expected to deliver, said Hans Morris, managing partner with Nyca Ventures, a New York-based investment firm.
Morris, who worked at Citigroup and Visa before hopping into the venture capital world, said brisk innovation makes even recent inventions look outdated. Banks now have technology like fingerprint identification on mobile applications and remote deposit capture that lets customers put money in accounts by taking pictures of checks.
“Those are table stakes at this point,” Morris said. “You have to have them if anybody is going to use your bank. “And the table stakes will evolve with technology as a whole.”
Michael acknowledged the point. When customers use a Chase mobile application, they don’t evaluate the experience based on using other financial services, but all the other apps lodged on their smartphones. “Consumer expectations are being set across the board,” Michael said.
When Chase builds, it tends to be in a way that exploits the economies of scale it already enjoys. Chase estimates that about half the households in the United States use at least one payment card that it has issued, giving it an enormous base of existing users who may use new ways of banking.
That was the idea behind Chase Pay, the company’s effort to get into the ring with Apple Pay and Google Wallet. The bank unveiled Chase Pay at Money 20/20, a widely attended gathering of finance types that has come to include the technology world as well. Chase’s payment system outflanks the likes of Visa and MasterCard, the networks to whom Chase pays millions each year, by creating a new network.
“Without the intermediaries there is a lot we can do,” Michael said.
The company is also teaming up. In December, Chase unveiled a partnership with OnDeck Capital, a lender for small businesses founded in 2007 that has since made $3 billion through its online platform. But there’s a hitch. Chase borrowers won’t borrow from OnDeck as other customers have; they will simply use its technology to process loans. Chase will keep the more lucrative but hard-to-find business of actually making the loan.
“Using their technology is a way for us to fast-track the application process for our small business clients,” Michael said.
And, strange as it can seem for an institution descended from the portly, aristocratic banker from the 19th century, J. Pierpont Morgan himself, Chase is imitating the hipster startup culture that’s made Silicon Valley famous — and sometimes infamous. Offices in Manhattan and San Francisco feature “bright colors and open plans” of the sort found in the technology world.
Chase is also populating its ranks with recruits from quintessentially West Coast industry and digital media. A new version of its website included input from a former senior vice president at the search engine Yahoo, and from the news aggregation and blogging site Huffington Post. Michael himself is a former chief technology officer at management consultancy Accenture.
At the same time, Chase — right up to the CEO himself — has clashed with the fintech world over the rules of engagement.
In November, users of Mint, a popular personal finance software owned by Intuit, found they couldn’t access data on their Chase accounts through the service. It turned out that the bank had blocked the flow of information to Mint, fearing that Chase customers could lose control of sensitive personal data.
Dimon even brought the issue up with Richard Cordray, the head of the Consumer Financial Protection Bureau, the federal agency charged with regulating such matters, and not without reason.
“If something happens and data were compromised, consumers would probably sue Chase, Capital One or Bank of America,” said Jeanne Hogarth, vice president of the Center for Financial Services Innovation.
Michael highlighted the advantages of traditional banks, notably fraud protection and deposit insurance. There’s still a role, he said, for banks like Chase, even when its own customers rely on the technology industry for their solutions. “We need to make sure our customers understand exactly what they’re doing when they use these services.