JPMorgan Chase is rebuilding its consumer business model to create a "digital everything" strategy that trades short-term losses for long-term profits.
With $2.6 trillion in total assets, JPMorgan Chase is the largest bank in the US. Its retail bank, Chase, spans 61 million American households.
Led by Chairman and CEO Jamie Dimon, the bank is undergoing a transformation, moving away from offline legacy systems and into the digital age. Over the past two years, the bank has spent nearly $20B to scale its technology and prepare itself for the next generation of banking.
Today, JPMorgan (JPM) is using its capital and scale to build an entirely digital bank. This is in part because customers no longer need to rely on banks for financial services — 60% of US bank customers say they are willing to try a financial product from a tech firm they already use, and that number rises to 73% for customers aged 18 — 34.
This trend towards digitization is already starting to play out as fintechs circumvent banking licenses by partnering with issuing banks to offer checking account-like products.
JPM’s digital push, a theme it refers to as “Mobile First, Digital Everything,” is showing positive early results. In Q2’18 JPM had about 48M active digital customers, while top competitor Bank of America had 36M. JPM’s mobile active users also showed strong growth in Q2’18, jumping 12% YoY.
JPM executives believe that creating a digital ecosystem will help the bank better align with clients’ interests, by moving away from the industry’s traditional fee-based model to a more consumer-friendly ecosystem model.
This strategy is evident in JPM’s recent announcement of its free trading platform, You Invest, which will give its 48M digital customers access to free trades with a flip of a switch.
In this report, we lay out JPM’s strategy for transforming its consumer bank, Chase, into a digital-first organization, by diving into the data behind its investments, M&A, patents, partnerships, hiring activity, and products.
Tech hiring is a top priority. JPM is making every effort to attract, train, and retain top technical talent, including proactively improving programs and partnering with fintechs.
JPM leads banks in active digital customers. JPM continues to improve its existing apps while also focusing on developing new ones (such as Finn) for future customers.
JPM boasts an industry leading credit card network. With an elite rewards network, JPM is able to use its credit cards as a lever to attract and retain valuable clients.
JPM began betting on payments a decade ago — and it hasn’t slowed down since. JPM is all-in on creating a prominent mobile payment system in the US.
JPM is the first consumer bank to give free trades to all retail customers. JPM has established a new focus on retail investing with the introduction of its platform, You Invest, and reported launch of its own robo-advisor in 2019.
Table of Contents
- Chase prioritizes hiring technical talent to lead innovation
- JPM’s evolving suite of digital banking apps
- Mobile apps
- Credit cards as a lever to attract affluent clients
- Chase Sapphire
- Branded cards
- ChaseNet & ChasePay
- JPM is attempting to become a major player in retail wealth
- ETF business
- Other key initiatives
- Physical branch banking
- Fintech partnerships
Chase prioritizes hiring technical talent to lead innovation
One big driver behind JPM’s growth in digital customers is its consistent focus on technical hiring. As of the end of July, JPMorgan Chase’s career website had 2,314 open technology jobs, 148 product manager roles, and 63 digital jobs.
This is in addition to the already 50,000 people working in technology at JPM, including more than 31,000 in development and engineering jobs and 2,500+ in digital roles.
To continue to scale tech hiring, the bank recently announced a revamp of its entry-level program for technologists, which brings in about 1,000 engineers each year globally. JPM is introducing a two-year curriculum to focus on technical skills. New hires will be given technical assessments, training, and managers who act as career advisers.
Beyond traditional recruiting channels, JPM is also leveraging its recent $300M+ acquisition of online payments service provider WePay to attract talent in Silicon Valley. Following the acquisition, WePay grew its engineering team by 33% as of June.
Finally, JPM is also using strategic investments to bolster its non-tech talent. In July, JPM led a funding round to Volley Labs, a San Francisco-based startup that uses artificial intelligence to help large enterprises generate training content for employees. Currently, Volley’s content for the bank focuses on cybersecurity and compliance, but this could expand further.
Recruiting top talent directly impacts JPM’s ability to develop well-received digital products. Below, we analyze the bank’s wide array of digital products and its plans to expand each segment.
JPM’s evolving suite of digital banking apps
For Chase, a solid ecosystem of digital products begins with the ability to onboard customers in a fully digital manner.
Historically, account conversion on legacy systems has taken place offline — and as a result, been very expensive. Now, executives at JPM are hell-bent on modernizing this process.
In H1’18, executives used the phrase “digital account open[ing]” three times on earnings calls. While not the most cutting-edge technology, creating an option to open an account online is an essential step towards “digital everything.”
On the Q2’18 earnings call, CFO Marianne Lake discussed the early success of the service, saying:
“Digital account opening … is a pretty good success story. And we are seeing a lot more accounts opened digitally across the channels, and we’re seeing, of those, a decent chunk of net new to bank.”
Digital account opening capabilities are currently available online and through Chase’s mobile-only bank, Finn (more on Finn in the section below). That said, it would not be surprising if this feature were to eventually roll out on the Chase Mobile app.
JPM offers a host of mobile apps, amassing nearly 32M active mobile customers.
Chase Mobile, Finn, and JPM Mobile are JPM’s 3 mobile banking apps, all of which appeal to different customer segments. ChasePay is the bank’s digital wallet.
Chase Mobile is the bank’s most popular app, and essentially acts as a digital branch for customers. The app allows users to make deposits, make payments, and keep tabs on their account (through paperless statements and account alerts), and will soon add You Invest, the bank’s brokerage platform.
The deposits function includes Chase QuickDeposit (digital check deposit) as well as Chase’s new service, cardless ATMs. By using near-field communication (NFC), physical cards are no longer needed for Chase customers to use ATMs.
The payments function includes P2P payments through Chase QuickPay with Zelle and bill pay (for rent, mortgage, utilities, credit cards, auto, and other bills) with Chase Online Bill Pay. These features were the result of JPM’s investments in Zelle and Bill.com.
The third component of Chase Mobile is its “stay informed” feature. The app gives clients digital access to 7 years of paperless bank statements, push account alerts, and text banking. In the future this may also include virtual account support, as JPM hired its first head of artificial intelligence research in May.
CIO Lori Beer discussed the possibility of digital account support, saying:
“We can build more intelligent internal help and service clients better. We see beyond chatbots to using more virtual assistants. That’s driven by consumer trends, like Siri, Google Home, and Amazon Alexa.”
The last component, scheduled to be integrated into Chase Mobile at the end of August, is You Invest, which will allow customers to make free stock and ETF trades.
Finn is JPM’s mobile-only bank, and represents JPM’s attempt to jump on the mobile-only banking trend before it becomes the norm. The emoji-filled app was released nationwide this year.
Finn is run out of a separate office from the rest of JPM and Chase, and Finn Head Melissa Feldsher described the unit by saying, “we think of ourselves as a startup in the bank”.
At this point, the app is a giant A/B test for young consumers, focused on building a banking relationship early. Right now the free service includes checking, savings, PFM, and 24/7 customer support.
The app’s most interesting feature might be its rule-based, reactionary savings mechanisms, which aim to teach customers how to save.
While savings is the beginning, down the line some speculate that JPM may introduce the same rule-based structure for investments, offering low-cost or even free investments in equities and/or ETFs.
The app’s “move money” feature lets customers send P2P transfers via Zelle, pay bills, transfer money to another bank account, deposit checks, or even digitally order authorized checks to be mailed.
To date, the app has had little traction. However, JPM hopes that in the future Finn will become its “entry-level” customer recruiting tool.
JPM’s digital wealth app enables clients to monitor portfolios, manage account balances, and read relevant market news. The app has many of the same features as Chase Mobile, but is oriented towards JPM’s high net worth and ultra-high net worth clients.
Chase’s Private Client wealth services have a minimum daily account value target of $250K, and its private bank account minimum is $10M.
ChasePay is the bank’s digital wallet. The app uses QR-codes, which are scanned at POS by barcode readers (so no new hardware is required for merchants). Payments through the app can only be funded by Chase products: credit cards, debit card, or prepaid card.
ChasePay was introduced by JPM in late 2015. The app enables digital omni-channel payments, and is run on JPM’s closed-loop payment network (more on this network, ChaseNet, below).
While adoption has been very slow in the US, this is not deterring the bank, and JPM remains persistent and continues to scale the application.
“We said from day one that changing customer behavior would be tough,” JPMorgan Chief Communications Officer Trish Wexler said in regards to Chase Pay. “But we’re Chase, and our customers expect us to lean into the future and learn what we can now so we’re ready when they are.”
Credit cards as a lever to attract affluent clients
Despite its alleged “digital everything” strategy, JPM’s most important all-around product is actually its credit card network.
Chase’s credit card business accounts for 22% of the entire US consumer credit card market and is the bank’s top draw for new customers. Chase has been able to steadily grow this business through its elite rewards program and strong Sapphire brand.
Chase’s 20 personal credit cards can be divided into two groups: Chase-branded and partner-branded. Chase offers 5 branded cards, 3 no-fee cards, and 2 Chase Sapphire cards.
Chase Sapphire is JPM’s take on Amazon Prime: consumers pay an upfront annual fee, and in return are granted significant credit card rewards and access to the Chase Sapphire club (more on this below).
Chase’s credit card business, and specifically Chase Sapphire, help JPM grow its base of affluent and high net worth clients. JPM leverages its credit card business as a recruitment tool that leads directly to new accounts.
For example, in 2016 JPM shocked the industry by offering an unprecedented 100,000-point sign-up bonus for its Chase Sapphire credit card. The card was a massive hit, bringing in thousands of new young customers into the JPM ecosystem. The bank incurred a $200M loss because of the promotion, but considers it a small price to pay for lifetime Sapphire Rewards customers.
The signup bonus has since been cut in half to 50,000 points, but it demonstrates the power of JPM’s capital — and the importance of the Chase Sapphire program.
What is Chase Sapphire?
Chase Sapphire is JPM’s Prime-style membership and the foundation of its plan for long-term client monetization. The bank offers two tiers: Chase Sapphire Preferred, with a $95 annual fee (starting year 2), and Chase Sapphire Reserve, with a $450 annual fee.
The network is designed to attract and retain “emerging affluent clients,” and JPM has had a lot to say about it recently.
Chase Sapphire rewards members with elite travel and entertainment offers, which are discounted through Chase Ultimate Rewards. Points earned from credit spending can be cashed in via transfer to travel partners (1:1 point swap), gift cards, travel, cash back, experiences (which range from VIP treatment at concerts to restaurants to sporting events), and more.
The bank hopes to build on this network and begin rewarding Sapphire members with free financial products and services.
For example, Chase has begun offering discounted mortgages to Sapphire members. Chase offered 75K bonus points for financing a mortgage with the bank. Notably, the ad for this service targets members looking to buy a second home, as the bank continues to focus on the “emerging affluent” community.
Another benefit Chase offers is Sapphire Banking, set to be released on August 27th. Leaked photos posted on Reddit reveal the service’s potential offerings. The service is very similar to Chase Private Client, but with a lower asset threshold: $75K.
Chase’s Sapphire product is extremely sticky (Sapphire Reserve has a >90% renewal rate) and has the potential to grow into a successful ecosystem where products and services are bundled for “free”.
Of Chase’s 15 partnered cards, 60% are focused on travel rewards, while the others (Amazon, Starbucks, or AARP) are branded.
The two most popular branded cards, Amazon and Starbucks, help JPM bring younger customers into the Chase payment ecosystem, while also giving JPM powerful partners moving forward.
JPM’s card relationship with Amazon is significant because of the mass appeal of its perks: 5% cash back (in the form of Amazon credit) at Amazon and Whole Foods for Amazon’s 100M Prime members, in addition to other cash back offerings. As Amazon continues to scale its Whole Foods and Amazon Go stores, Chase card will continue to be the most economic payment option for in-store consumers.
Starbucks is another powerful partner, due to its brand loyalty and innovation in digital payments. Of Starbucks’ 75M monthly customers, 15M use the Starbucks app’s digital wallet. Notably, both Chase and Starbucks are scaling QR-code based closed-loop payment networks.
In concert, these strategies are helping to grow Chase’s credit card business year-over-year.
Payments As a Holistic Solution
JPM’s credit cards feed customers directly into one of its top-priority segments: payments. At the bank’s past investor day, speakers described the bank’s strategy in payments as “deeply integrated” and “a holistic solution.”
Since 2012, JPM has applied for 120 patents related to “payment systems” (of those, it has so far been granted 63). It has also been granted 19 patents related to “debit cards,” 13 for “mobile payments,” 14 for “credit cards,” and 9 for “contactless smart cards.”
Payments is the ultimate long-game, and it often takes more than a decade for end-users to catch on (as in the case of AliPay). JPM continues to make long-term bets in the space, scaling its network through many channels, from strategic investments to in-house building projects.
JPM’s innovation in payments has led to the creation of its closed-loop payment network, ChaseNet.
Through a 10-year partnership with Visa (beginning in 2013), ChaseNet has been able to process payments on Chase-to-Chase transactions. It processes transactions in fewer steps than traditional networks, eliminating the need for money to move from an acquiring to an issuing bank by servicing only Chase-to-Chase payments on its closed-loop network.
As shown above, ChaseNet cuts the traditional down to just 3 parties. This reduces costs, allowing JPM to cut margins and reduce merchants’ processing fees.
“There’s no network fees, no merchant-acquiring fees, we will not charge them back for fraud once we’ve approved a transaction, and we will also give them the opportunity to drive down further their cost of acceptance based on how much volume they do with Chase.” — Gordon Smith, former Head of JPMorgan Chase’s consumer bank, current Co-President and Co-Chief Operating Officer
In other words, ChaseNet benefits all parties involved: JPM, merchants, and consumers.
ChaseNet cuts merchant costs, rewards loyal customers through chasepay
For Chase’s payment network to be successful, merchants must see the network’s value and come aboard. Merchant services at JPM began with Chase-branded POS hardware in retail stores, and grew via partnerships.
Fulfilling the team’s wider mantra of “digital everything,” Chase acquired WePay — an online payment service provider — in a deal worth up to $400M in 2017. The company helps digital stores process online payments.
WePay’s first Chase product was Chase Pay, an e-commerce checkout button. It was quickly followed by a similar mobile solution enabiling digital stores to accept payments on the Chase network.
Since then, JPM has become more aggressive expanding its merchant services business.
JPM’s partner strategy since the WePay acquisition has been focused on e-commerce and grocers. This has led to partnerships with BigCommerce, PayPal (Braintree), TouchBistro, Meijer, and Kroger. All partnerships enable Chase payments to be processed by ChaseNet.
PayPal CEO Dan Schulman described the partnership as “leveraging each other’s core assets to deliver simple, secure, and truly transformative payment experiences for our joint customers.”
This means that consumers paying on PayPal using Chase cards with be able to earn credit card points. Moreover, all Chase Pay checkouts and PayPal checkouts made with Chase cards will be processed on ChaseNet.
As these partnerships form, Chase’s merchant processing volume is growing steadily.
As more businesses join Chase’s merchant services, more consumers will naturally follow. ChaseNet offers merchants direct monetary savings, but for consumers the value-add is slightly more opaque.
One benefit for customers is their ability to digitally checkout while still earning credit card points. Another benefit is the ability to pay with for things with Chase Ultimate Rewards points, as if these points were cash.
Furthermore, merchants have the ability to offer customers loyalty cards. This means that when customers pay using Chase Pay at participating merchants, they can automatically receive loyalty points. These points can later be cashed in when shopping at the merchant again.
Through ChasePay, Chase also offers “order ahead,” which integrates LevelUp’s white-label product. Through the service, consumers can order ahead at any participating LevelUp merchant and pay for their order with the ChasePay app. LevelUp was recently acquired by Grubhub.
JPM is attempting to become a major player in retail wealth
JPM Chase has never been know for its retail investment business — until now. As of late as last year, the bank charges $24.99 for online trades, but this is set to change in a major way with the introduction of its brokerage platform, You Invest.
You Invest will offer for free trades to anyone who uses the banks mobile app or website. Retail investors will receive up to 100 free stock or ETF trades in the first year and $2.95 per trade after that. Customers with balances of $15,000 or more will get 100 free trades every year, and Chase Private Client customers will get unlimited free trading
The move is viewed as a direct shot at free trading app Robinhood, a brokerage valued at $5.6B. Overnight, 48M JPM customers will be granted access to the new digital brokerage, almost 10x Robinhood’s 5M customers.
In addition to free trading, You Invest will offer free portfolio-building tools and access to the bank’s stock research. The portfolio-building tool will help users construct diversified portfolios by analyzing customers’ risk tolerance and objectives. Customers will then be able to screen ETFs and construct a portfolio composed of cheap ETFs and some stocks.
This feeds directly into JPM’s next strategy — create its own passive investment vehicles, ETFs and robo-advising.
scaling its ETF business
In June 2018, JPM introduced three new beta-focused ETFs. These are by far JPM’s cheapest ETFs to date, costing customers just $9 a year for every $10,000 invested.
One ETF, JPMorgan BetaBuilders Japan ETF (BBJP), became the fastest-growing ETF of 2018, pulling in nearly $2B in less than two months.
This growth has spurred the bank to introduce two additional beta ETFs in August.
Low-cost beta ETFs is a growing business at JPM, and one that can be expected to continue to scale. Customers are looking for low-cost ETFs to buy with free trades, and JPM aims to one day dominate this space.
Earlier this year, JPM considered buying an ETF firm, but for now has apparently decided to focus on building its own. Expect JPM to continue building, investing, and potentially acquiring to scale this business, alongside the development of You Invest.
Other key initiatives
In addition to the initiatives, products, and services highlighted above, Chase’s transformation strategy also includes a forthcoming robo-advisor and a continued focus on physical branch banking.
robo-advisor will be released in January 2019
JPM announced its robo-advisor, built in conjunction with InvestCloud, will be released at the start of 2019.
JPM has yet to say how much the service will cost, but has hinted that it may be free for Chase customers. On the topic, You Invest CEO Jed Laskowitz commented, “If you think about our pricing structure, it will be very similar with what we’re doing with our brokerage platform. We’re rewarding people for doing more with Chase.”
This could be a very successful product for JPM, which will be able to promote the robo-advisor through its You Invest brand.
Physical Branch Banking is still important
While the bulk of JPM’s strategy is a focus on digital, the bank still believes physical branches play an important role in the today’s financial services ecosystem.
This is perhaps counterintuitive, as not even financial services has been immune to the “retail apocalypse”: according to a report from commercial real estate firm JLL, bank branches in the United States will shrink by as much as 20% in 5 years.
Chase, however, plans on opening 400 new branch locations in 15 — 20 new markets over the next 5 years. As of Q2’18, Chase had 5,091 retail branches, down just slightly from Q2’17 when it had 5,217.
While Chase has observed that younger clients no longer go to physical branches — a trend that directly lead to the creation of Finn — it is clear that higher net worth clients still want the option of in-person advisory.
Subsequently, JPM’s approach has been closing low frequency branches, relocating them, and opening new branches in more strategic locations, with an emphasis on locations closer to its higher-end Chase Sapphire customers.
This strategy aligns with Sapphire Banking and will enable Chase to provide individualized attention to these customers. According to JPM, ~75% of deposit growth comes from customers who use branches.
JPM also plans to experiment with new technologies as it opens new branches — as seen in its below sample photo, which depicts clients wearing VR googles and banking with e-ATMs inside the branch.
JPM partners with fintechs to digitize less popular Products
For some of its less popular products, such as car loans, JPM is pursuing “digital everything” through fintech partnerships. This allows the bank to focus on custom building its more frequently used products while still digitally expanding its product suite.
These partnerships are mutually beneficial: JPM adds commoditized products to digital suite, and fintechs receive more business.
For example, small business lending company OnDeck has helped Chase become the third top lender for Small Business Administration loans by unit in the US.
Executive Director of Strategy & Business Development for Business Banking Julie Chen Kimmerling described JPM’s decision to partner with OnDeck:
“When we think about strategy and product we are very focused on customer experience. If there isn’t a problem worth solving we shouldn’t be in that space. We really wanted to provide a simple and fast experience for our customers to access capital when they needed it.”
Kimmerling went on to say that JPM does not view banks’ relationships with smaller fintechs as “us vs them” — an approach to the industry that has lead to fruitful partnerships.
Based on their mutual success, JPM and OnDeck renewed their partnership for another 4 years starting in 2017.
As new business models and technological innovations compress margins on consumer financial products and services, JPM is proactively shifting its business model from product-level profits to portfolio-level profits. This enables the bank to reposition itself as a more consumer-friendly digital ecosystem.
JPM is rearranging its model to focus on profiting from affluent Sapphire and Private Banking customers. This means attracting future customers at a young age and building ongoing relationships has become a top priority — even if it means taking losses in the short-term.
JPM has adopted a long-term strategy to becoming the digital bank of the future. The bank’s goal is now to create an ecosystem with bundled products and services for an upfront fee, and to meet client’s needs across a number of products and tech platforms.
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