JPMorgan Chase Competitive Strategy Teardown: How The Bank Stacks Up On Fintech & Innovation

Last year, JPMorgan CEO Jamie Dimon made headlines for calling bitcoin “a fraud.” But the performance of his bank, the largest by assets in the US, received less hoopla.

While the bank has not been immune from the falling trading volumes that have also afflicted its bulge bracket peers, the drop has been less severe than at some of its rivals. And JP Morgan has also avoided major scandals and regulatory sanctions that have beset some of its rivals.

Spurred by revenue growth in its consumer banking and asset management units and favorable economic and regulatory tailwinds for the banking industry including rising interest rates and momentum behind President Trump’s tax plan, JPMorgan added over $60B to its market cap in 2017. This was the second highest increase among bulge bracket banks over the 12-month period.

Moreover, JPMorgan has pushed forward on its digital capabilities.

In 2016, the bank spent $9.5B on technology and Dimon has committed $300M alone to improve JPMorgan’s technology for its asset management products. Relative to its peer group, JPM claims the highest number of mobile banking customers and its Chase Mobile app currently sports a 4.7 (out of 5) rating in the App Store.

In this analysis, we look into JPMorgan’s investments, M&A, patents, hiring, and earnings calls to understand how the bank is strategically positioning itself against bulge bracket peers.

Specifically, we compare JPM to:

• Bank of America Merrill Lynch
• Barclays Capital
• Citi
• Credit Suisse
• Deutsche Bank
• Goldman Sachs
• Morgan Stanley
• UBS

Key Findings:

• Earnings calls –  While JPM has seen strong digital banking growth, Bank of America, Barclays, and Morgan Stanley each mentioned technology or digitization on earnings calls at least twice as often as JPM had between 2008 and 2017. While JPM talked about expanding its digital consumer banking capabilities, others discussed how digital might change the workforce or upcoming digital-focused products.  
• Investment activity – JPMorgan has prioritized payments, infrastructure, and cybersecurity as recent areas of interest in its strategic fintech investing, according to an analysis of CB Insights data. However, the bank trails Goldman and Citi by deal count. It has focused on companies it previously partnered with or already worked with including LevelUp, Bill.com and Menlo Security. JPMorgan’s two more active bulge bracket peers have invested in a broader array of companies including startups focused on mortgage, regulation technology, and fraud prevention.
• M&A activity – Tech M&A has not been a focus for many of the bulge bracket banks to date. JPM is one of just three bulge bracket banks to pursue tech M&A along with Goldman and Credit Suisse. While JPM’s recent push into tech M&A also highlights a focus on payments tech (it reportedly acquired WePay for up to $400M), Goldman has shown a focus on lending/credit.
• Patents – Bank of America is the most active patent filer of the bulge bracket banks, with close to 5X more patent applications filed since 2009 than JPM, the second-most active by patent application activity.

Earnings call analysis – Barclays, Bank of America, Morgan Stanley talking up digitization

While mentions of “technology” and “digital” on bulge bracket bank earnings calls have jumped in 2017, the theme has been less prominent for JPM vs. a handful of its peers.

Of JP Morgan’s peers, Bank of America, Morgan Stanley, and Barclays have all discussed technology and digitization substantially more in their earnings calls in 2017 than in years past.

Here are some findings from what the three discussed on earnings calls in 2017:

• JPM discussed continued digital consumer banking growth, which grew 6% in Q3’17. JPM CFO Marianne Lake mentioned that “having a leading digital capability is critical to our overall customer franchise, and it will in all likelihood have an impact on stickiness of deposits because customers value that kind of convenience very highly.”
• Bank of America spent portions of its Q1’17 and Q3’17 talking about digital banking initiatives and technology investment. Specifically, CEO Brian Moynihan mentioned the bank spent $2.25B on technology initiatives in the first three quarters of 2017. The bank also now sees mobile devices account for 1 of every 5 deposit transactions.
• Barclays’ increased mentions of technology included discussions on how its workforce would change. CEO Jes Staley highlighted that 50% of the bank’s technology staff are currently contractors and consultants and the need to prioritize its in-house tech personnel over the next two years. Staley also noted digital adoption at Barclays hit 5M “regular users of its mobile banking app” in the UK.
• On Morgan Stanley’s Q3’17 earnings call, Morgan Stanley CFO Jonathan Pruzan mentioned the bank is beta testing new customer-facing digital products it plans to launch, potentially in the robo-advisory space. Specifically, Pruzan noted: “When we think about our wealth business, it’s a business that’s built on scale. And it’s built on the fact that people with wealth want personal advice. So it’s going to be both a mix of technology and digital with the personal element of the advice channel. And we think that’s the winning formula going forward.”

Investment analysis – JPM trails Goldman, Citi by fintech deals

While JPM has not been as vocal about tech in earnings calls as some of its peers, its private market activity indicate fintech is a priority for the firm. Among bulge bracket banks, JPM ranks third for total fintech investments since 2013.

JPMorgan’s recent fintech investments have focused on payments and infrastructure-type companies. These companies have in some cases also formed strategic partnerships with the bank. These include:

• Bill.com, which JPMorgan partnered with in September 2017 to enable its customers to send and receive electronic payments and invoices. The bank co-led a $100M investment to Bill.com in October 2017.
• LevelUp, a Boston-based mobile order ahead service, which JPMorgan’s Chase Pay partnered with in December 2016 to allow Chase customers to order ahead and pay at participating QSRs in Boston to save time when getting their food and drinks. JPMorgan co-led a $50M investment of debt and equity to LevelUp in May 2017.
• OpenFin, an infrastructure provider using software to help financial institutions create and upgrade trading applications. JPMorgan invested in a $15M round to OpenFin in February 2017.
• Stripe, the $9.2B payments processing unicorn, received a revolving credit facility secured by banks including JPMorgan.

Based on the data, JPMorgan ranks ahead of most bulge bracket banks when it comes to overall fintech investment since 2013, but behind its peers Goldman Sachs and Citi. While Citi maintains a strategic corporate venture capital arm, Citi Ventures, the CVC has looked beyond fintech for investment including in areas such as security, marketing, and e-commerce.

Using CB Insights Business Social Graph, we can see where JPMorgan’s strategic fintech investments overlap and diverge with some its bulge bracket peers. Goldman Sachs, for example, has seen its more recent fintech investments flow to areas like lending/credit (Better Mortgage, Nav, Neyber) as well as regtech companies including Droit Fintech. Meanwhile, Citi recently invested in personal finance management startup Clarity Money and security-related companies including bank fraud prevention software company Feedzai.

But JPMorgan also shares a number of strategic fintech investments with other major banks. Cloud communications is one area where JPM shares multiple investments with other banks. The bank invested in competing Bloomberg chat service provider Symphony (Goldman Sachs, Citigroup, Bank of America Merrill Lynch, Deutsche Bank, Morgan Stanley) as well as voice communications and analytics platform Cloud9 (Barclays).

Within blockchain, JPM has also made similar moves as its competitors. While the bank was previously involved in blockchain consortium R3, it withdrew from the consortium in April 2017 following its peers Goldman Sachs and Morgan Stanley which left the consortium in November 2016. While no reason was given by JPM for the move, the bank is developing its own private blockchain called Quorum and is also an investor along with Goldman Sachs in enterprise blockchain startups Axoni, a startup providing blockchain infrastructure for capital markets, and Digital Asset Holdings.

JPM’s cybersecurity moves vs. rival banks

In 2016, JPMorgan upped its cybersecurity budget from $500M in 2015 to $600M. At the time, then CIO Dana Deasy remarked:

“Labor is a big part of our cost. So are the tools themselves. We are constantly, and I mean constantly, scanning [the market] for the latest, best tools. This is critical because adversaries are always trying to find new ways to cause havoc, harm, and destruction at large companies.”

JPM has invested in fewer cybersecurity companies than its peers Goldman Sachs and Citi, but it’s worth noting the bank’s uptick in strategic activity as of late. Two of JPM’s last two deals went to cybersecurity startups that won the JPMorgan Chase Hall of Innovation awards, which is given to companies “honored for their achievements in innovation, disruptive technology, and business value to JPMorgan Chase” (meaning they were already working with the bank).

These investments include Menlo Security (in December 2017), which aims to eliminate phishing and malware by isolating risk, as well as Reversing Labs (in November 2017), which provides cyberthreat detection and mitigation products.

Here’s a look at how the bank’s cybersecurity investments compare to the rest of the bulge bracket:

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