The UK launch of JP Morgan Chase’s app-based retail bank is good news for the local tech sector, but there are question marks over what it means to the US investment banking giant.
JP Morgan Chase, which is more than two centuries old, recently announced that it had recruited 400 people to work at the new digital bank.
Customers can sign up to the bank known as Chase in minutes, gaining access to the Chase app. Customers can then use features to help them budget, manage money, spend and save. But in a market with so many challenger banks, what’s in it for JP Morgan Chase? Fintech entrepreneur Matthias Kroener, who set up early digital bank Fidor, questioned why JP Morgan is bothering with retail banking – and why in the UK?
“The UK offers the highest competition, in particular in retail, which is an outcome of one the highest retail commission income of banks in Europe,” he said. “Brits pay more than anybody else, because a few banks dominate the market.”
He was surprised at the size of the investment in people being made by JP Morgan Chase, which he said was unlike most digital banks. “What did surprise me is that Chase has to spend hundreds of millions and hiring hundreds of people, which sounds like the opposite of a modern technology and fintech,” said Kroener.
He said it would be interesting to understand what the cost per customer acquisition will be. ”It will be the first time that an investment bank truly is interested in the problems of a retail customers. That would be a culture change.”
One senior IT professional in the UK financial services sector welcomed the announcement due to a boost to the IT sector, particularly in the City of London. “It’s great to see more tech investment and jobs in the UK, so that is very good news for the financial services and IT industries,” he said.
He added that it will be interesting to see how Chase positions itself against the competition and attracts customers as “they will need something compelling to pull people in”.
“If this new offering has been designed to be low-cost in the long term, they may have opportunities to offer customers incentives that higher-cost operations cannot afford to do.” But he added that being part of JP Morgan could dilute that advantage if the rest of the firm has a proportionally higher cost base to support.
During the launch, Chase CEO Sanoke Viswanathan said: “We’re offering people in the UK the opportunity to experience Chase for the first time with a current account that’s based on simplicity, a fuss free rewards programme and exceptional customer service.
“Having spoken extensively to consumers across the UK, we know that people want good value combined with an excellent experience, from a trusted bank.”
It is offering 1% cashback on everyday spending for the first 12 months, free card use abroad and 5% interest on limited savings. It intends to introduce a broad range of banking products in the future, including new current account features, savings and investment accounts, and lending products.
JP Morgan Chase US rival Goldman Sachs launched a UK digital bank, Marcus, last year. It was built in the Amazon Web Services (AWS) public cloud, and is another example of a traditional bank launching a separate digital offering to keep pace with digital banking trends.
Legacy infrastructures
David Bannister, chief analyst at Bloor Research, said the two US banking giants don’t have legacy infrastructures in the UK, so in effect are starting from scratch like any other digital challenger bank.
“The same tech and regulatory drivers that lowered the barriers to entry for Starling bank and other digital challengers work for big players too, when they open in different geographies,” he said. “JP Morgan Chase doesn’t have legacy core banking systems to maintain in Europe, just as Goldman Sachs didn’t have legacy corporate banking services anywhere when it moved into that sector a year or so ago.”
He added that in retail banking, the challengers’ main competitive advantage is their low cost base. “The kind of innovative services they have introduced are easily replicated by competitors, but the established banks are less nimble.
“Effectively JPMC in the UK retail banking market is just like Starling et al compared to the incumbents. They don’t have ATM estates to maintain, for starters,” said Bannister.
Traditional banks such as JP Morgan Chase and Goldman Sachs also have deep pockets and can enter the digital challenger sector with a long-term plan.
Traditional startup banks are reliant on the continued confidence of investors, which could wane over time as banks move towards profitability.
Starling Bank, for example, was the first UK digital challenger bank to reach profitability. After receiving its UK banking license in 2016, it reported its first monthly operating profit of £800,000 for the month October 2020.
