If J.P. Morgan Chase & Co.’s latest moves around the world are any indication, the world’s sixth-largest bank is getting anxious and wants to be at the forefront of the global banking revolution sweeping fintech and digital currencies.
Just this week Sky News reported that the lender is planning to buy a minority stake in 10x Future Technologies, a U.K. fintech startup that helps “banks to develop their own artificial intelligence and machine-learning capabilities and seamlessly integrate out-of-the-box solutions.”
J.P. Morgan appears to agree with Antony Jenkins, the founder of 10x Future Technologies and a former group chief executive at Barclays, that technology is going to “key to banking success.”
“In the future, the most significant factor in the battle between challengers and incumbents will be technology, which is driving a fundamental transformation of financial services,” Jenkins wrote in the FT. “Agile, relentlessly customer-focused businesses will triumph over those that rely on their size.”
Separately, J.P. Morgan is working on a “secretive digital banking project” that is aiming to take on digital-first challenger banks like Monzo, Atom and Tandem, TechCrunch reported last week. If reports are correct, it would mark J.P. Morgan’s entry into retail banking in the United Kingdom.
To build out the team, the company has reportedly created a “skunkworks” project that will act as an independent start-up within the corporation. While details are scant, job listings reveal that J.P. Morgan has set about hiring UX designers and technical architects in recent weeks, which are the type of roles that may be required for the new project.
Curiously, the reports come just weeks after J.P. Morgan announced the shuttering of Finn, a U.S.-based mobile banking product aimed at millennials, as former customers of the service are being ported over to traditional Chase accounts. But more broadly, the move coincides with further global fintech expansion for the company. In May, the company took a stake in Global PayEx, an Indian invoicing and payments firm. In January, the firm made further inroads into China, partnering with a local fintech company to launch a new e-commerce payments platform. Both international expansion and technology are clearly on the mind of CEO Jamie Dimon – in his annual letter to shareholders earlier this year, he revealed he was “worried” about China’ success.
The entry of J.P. Morgan, which has $2.6 trillion in assets, would obviously present a huge roadblock for the challengers, which have been growing much faster than their so-called “legacy” competitors. Just this week, Monzo announced that it had secured a further $143 million investment from Y Combinator, a U.S.-based tech investment firm, pushing the firm’s valuation over $2 billion for the first time.
“Most traditional banks have either launched, or are in the process of launching, digital ‘challenger banks’ as stand-alone subsidiaries”, explains Max Bautin, a partner at tech investment firm IQ Capital, who points to Marcus, Goldman Sachs’s digital-only spin-off as another example of a big bank taking on the challengers.
“It is unlikely that J.P. Morgan is going to be any more successful than these other established banks trying to go digital. The challenger banks are trying to be more disruptive as they enter that space, which the traditional banks will find hard to match.”
So why is JPM taking on such a difficult task? Why now? Marin Cauvas, an investor at Anthemis, believes it is about expanding the company’s reach to the so-called Generation Z that the challenger banks are making a play for.
“Having the privilege of ‘coming clean’ as new brands, they are able to attract a market segment that fundamentally lacks interest in what traditional banking has to offer. They are doing so by focusing all their efforts on delivering a totally novel user experience and offering financial products relevant to their target audience.”
Pushing Ahead with JPMCoin
The digital banking project also comes as tech big beasts are finally taking a serious interest in crypto. Last week, Facebook announced its own cryptocurrency, dubbed Libra, which will operate independently and will be co-governed with 27 other major financial, tech and investment firms, including Visa, Mastercard and Stripe. J.P. Morgan itself has previously announced plans for its own, separate, crypto project.
Dubbed “JPMCoin”, the coin is not a fully open Blockchain where any participant can mine their own coins. It will be based on the company’s “private” Blockchain, and like Libra, will be pegged to real currency, meaning that it will, in effect, act more as a substitute token than a separate currency. The coin will initially use a Blockchain to speed up bond payments, but presumably it could conceivably be expanded to other areas, such as retail banking, including this new digital project. Trials of the coin are set to begin later this year.
What makes J.P. Morgan’s move even more interesting is that according to the TechCrunch report, the bank’s ambitions could ultimately be greater than one banking app or product: There is apparently talk of an entire cloud-based banking platform playing a similar role as Amazon Web Services does for the wider web, acting as core infrastructure for the bank, on top of which other products – whether Monzo competitors, investment platforms or anything else – could be built.
“I would be worried”, says Bautin, “J.P. Morgan and other banks are resolved to fight back, and will probably take a good share of the customers going digital. Customers do not often switch their bank accounts, so if these traditional banks can offer similar services to the challenger banks then they will take a larger share.”
As for investors, it could be a smart strategic move to head off thriving competition while modernising the company’s underlying banking infrastructure. And for investors in the challenger banks, It might be time to hope that the upstarts can stand on their own in the big leagues.