JPMorgan Chase’s growth depends on responding to digital-banking demand in much the same way the staff at Starwood’s W Hotels aspire to handle requests from overnight guests: By providing whatever, whenever.
The New York-based lender, the largest in the U.S., will increase its technology spending 15 percent this year to $10.8 billion, with most of it going toward enhancement of mobile and web-based services in its four main lines of business: consumer, commercial, and investment banking, and wealth management.
The investment amounts to what Chief Executive Officer Jamie Dimon refers to as “table stakes” for competing in global markets reshaped both by technological advances and customers who grew up with easy Internet access and expect to able to do business from anywhere via mobile devices.
It’s a trend most visible, perhaps, in banks’ consumer businesses, where the advent of peer-to-peer payment apps lets customers transfer money to each other electronically rather than haggling over how to split a dinner check or a bar tab while mobile services allow them to deposit a paper check by simply taking a photo of it with a smartphone or tablet.
The paradigm shift is driven largely by millennials, the generation born from 1980 to 2000 whose population of 92 million makes them the largest in U.S. history, surpassing even baby boomers.
“The business case for digital everything is compelling,” said Chief Financial Officer Marianne Lake, pointing to surveys showing that 57 percent of Millennials would change banks for a better platform and 76 percent of companies cite digital capabilities as highly important in choosing a financial institution.
“It’s a generational shift,” she said. “Think streaming films versus DVDs. Banking is no exception, and as such, they are choosing a provider based upon their digital capabilities.”
The benefit to banks is that digital transactions can be handled at a fraction of the cost of providing the same service at an automated teller machine or in person.
“In a fully digital world, the marginal cost of transactions incrementally is close to zero,” Lake explained. “We have seen the cost per deposit 94 percent lower through Quick Deposit,” the bank’s mobile deposit service, “and in trading, the marginal cost of many trades approaches zero as we electronify.”
Today, almost 47 million Chase customers do their banking digitally, up 50 percent in just five years. Active mobile customers, meanwhile, have more than doubled to 30.1 million.
It’s a trend mirrored at the lender’s largest rivals. Bank of America, based in Charlotte, N.C., now has 34 million digital customers, an increase of 17 percent, and 12.2 million mobile customers.
The growth shows how much banking has changed in the approximately 50 years since the first ATM in the U.S. was installed at a branch of Chemical Bank, a predecessor of JPMorgan, in 1969. In an unheard of luxury for that era, the machine let customers withdraw up to $100 cash at any time of day – or night.
ATMs represent a cost savings, too, of course. Management consultant Bain & Co. estimated in 2016 that a transaction costing $2 to $3 at a teller would be just 10 cents at an ATM and a few cents on a smartphone.
Visits to a U.S. bank branch, meanwhile, are twice as likely to annoy customers as handling transactions on a mobile device, the consultant found in a study the previous year.
JPMorgan’s increased tech spending represents about a quarter of its $5.5 billion in expected savings from last year’s GOP tax cuts, an investment that will likely expand its customer base, said Barclays analyst Jason Goldberg.
“This is what differentiates JPMorgan,” added Goldberg, who has a buy rating on the stock. “The company continues to benefit from continuing to invest through the financial downturn, and today’s investments will likely be a driver of future growth.”
Among the bank’s latest digital products are Finn, a mobile-only platform that lets users track their spending and savings based on individual preferences and emotions, and Chase Business Quick Capital, which competes with San Francisco-based Wells Fargo’s Fast Flex in rapid approval for small business loans.
JPMorgan’s digital services are “where investment dollars are flowing, in support of both customer demand across all of the bank’s businesses, and driving down the marginal cost of delivery, at the same time,” said Credit Suisse analyst Susan Roth Katzke.
Such capabilities “will really differentiate players in our industry in the coming years,” Lake explained. The bank “has a plan for every customer type for all of their needs, in each business, and around the world,” she said, and it’s “making the most of shared platforms and capabilities across the firm to accelerate time to market and reduce costs.”
