JP Morgan leads the digital banking revolution with its multi-billion-dollar investment. What other banks can learn?

  • Overview of the digital transformation in the banking sector
  • Digital strategies initiated by JPMorgan and their outcome


The global banking industry is undergoing a transformational change in its business model due to the challenges posed by a growing prominence and invasion of innovative fintech companies in the financial space. Digital transformation is the rallying cry among banks with some adopting it in a better way than others. Banks are expanding beyond their traditional boundaries to remain relevant in the digital environment. Multiple research surveys and studies have highlighted the fact that a majority of the customers have switched to digital for accessing their bank accounts through mobile banking and mobile apps. Customers are becoming more open to adopting new digital platforms because of the ease and convenience these provide.

A slow adoption to new technology and lesser focus on customer convenience for its offering has been the shortfall of traditional banks and it is this area where fintech has leveraged. In order to cope up with the digital transformation, banks have increased their spending by billions to better digital customer deliveries (through analytics), improved mobile banking, upgraded their systems (automation of back-office) and protection of data. The spending of these banks is also focused on ensuring the information security of clients becoming more efficient, staving off competition (especially from the fintech) and reaching out to the millennial generation.

JPMorgan Chase & Co. one of the largest banks in the world is making major investments on transformation and is scaling to emerge as a full-fledged digital player in the banking industry. It leads the pack in terms of spending on technology and innovation. The company increased its technology budget to $10.8 billion (2017) for scaling up to the next generation of digital banking and also introduced multiple lines of digital platforms for its customers. The company is trading off short-term losses for long-term gains, with investment in digital strategy. The trade-off can be seen with the rise of active digital customers, which increased from more than 10 million active digital customers (2013) to 46 million active digital customers (2017). This even topped the Bank of America, its biggest competitor, which had 35 million active digital customers in 2017. Additionally, JPMorgan’s active mobile customers have increased by more than 50% in five years from ~15 million active mobile customers (2013) to ~30 million active mobile customers (2017).

The bank is evolving itself into a holistic digital banking ecosystem by offering multiple suites of digital mobile apps, these include Chase Mobile (bank’s mobile banking app), Chase Pay (bank’s digital wallet), Finn (bank’s mobile-only bank) and JPM Mobile (bank’s digital wealth management app), all of which appeal to different customer segments. JPMorgan has ~30 million active mobile users for these mobile applications.

One of the priorities for JPMorgan is to focus on the hiring of talent with technological expertise, this is done in order to lead the innovation in the company. In addition, JPMorgan already has more than 50,000 people working in technology. Beyond the traditional approach of hiring, the company is also leveraging on its engineering hires from its recent acquisition of the online payment startup WePay, which has been attracting talent from the Silicon Valley. Recruiting top-notch tech talent has positively impacted its capability to develop and deliver well-received digital products and services, which is one of the key drivers for the company’s growth in digital customers in recent years.

The profit margins for the bank has been compressed with new business models’ centred around customer convenience and as the company increased its operating expenses to ramp up digital presence. In 2017, JPMorgan’s non-interest expenses increased by 4.8% as compared to 2016. All the non-interest overheads individually also registered an increase in the same year in relation to the previous year, but of all these technologies, communications, equipment expenses along with compensation expenses, professional and outside services expenses registered the biggest overall increase. The compensation expenses increased by ~53% of the total non-interest expenses (2017) as compared to ~51% (2016), while the technology, communication and equipment expenses, professional and outside expenses increased by ~13% and ~3%, respectively (in 2017 as compared to 2016). The increase in non-interest expenses for the company has also been relatively higher than the previous years as it has been focusing heavily on its in-house capabilities to support the digital strategy and this reflected with the increase in headcount as well to 252,539 (2017) from 243,355 (2016).

JPMorgan has positioned itself with an ecosystem which is more customer-friendly and in the meanwhile shifted its business model from being profits based out of products to profits dependent on the backdrop of having a huge customer base. It is playing the long-term strategy by transforming into a digital bank ready for the future. Furthermore, going digital is the way forward to make up for the profit margin since this provides an opportunity to scale the business at minimum marginal cost and, in turn, deliver to customers a huge value and convenience.

The big banks like JPMorgan Chase & Co. are spending heavily on the customer-based technology, giving it an edge over its smaller rivals in the competition for deposits. Novantas, a retail banking consulting company has stated in one of its recent research that the big banks are growing more rapidly in comparison with their smaller competitors, re-affirming the firm control of the large banks over the deposits. In addition, as per the American Banker, the top 20 banks in the US collectively control ~67% of the deposits in the US, currently, as compared to ~22% ten years ago and this is because that these top banks have invested heavily on the customer-based technology over the years. The deposit growth rate of the top three banks in the US; JPMorgan, Bank of America and Wells Fargo is double of the small banks. Investing in customer-friendly technology should be way ahead so that banks can capture the deposits of customers from its competitors (beyond banks such as fintech).

On a broader perspective, customer expectations with regard to financial services are ever-increasing and banks will find it difficult to control their entire value chain using traditional business models. Their success will depend on the ability to leverage insights derived from customers, advanced analytics and adopting technology to provide tech-savvy customers with better financial services and more offerings. The innovation with digital services that each bank provides better than its competitors will be the key going forward and banks will have to go digital to stay relevant. While JP Morgan is already leading the way, other banks are left with not many choices, but to follow the suit.

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