- Competition from fintechs was a major theme during JPMorgan’s fourth-quarter earnings call with analysts.
- “I expect there to be very tough, brutal competition in the next 10 years,” CEO Jamie Dimon said. “I expect to win. So help me, God.”
- Dimon also called out data aggregator Plaid and regulations like the Durbin Amendment for creating “unfair competition.”
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The decades-long race between big banks and fintechs is coming to a head. No longer scrappy startups, fintechs like Square and Stripe have come of age. As they’ve grown, banks like JPMorgan have become increasingly wary of the competition.
Citing the massive valuations of fintech standouts like PayPal, Stripe, Visa, and Mastercard, Wells Fargo analyst Mike Mayo asked JPMorgan’s CEO and chairman Jamie Dimon how he plans to “win” during the bank’s fourth-quarter earnings call on Friday.
“We’ve been doing fine in the last 5 years,” Dimon said, adding that he sent a list of company valuations — including PayPal ($280 billion), Mastercard ($322 billion), Alibaba ($658 billion), Facebook ($715 billion), Google ($1.2 trillion), and Apple ($2.1 trillion) — to the bank’s operating committee. The companies have surpassed or are catching up to JPMorgan’s roughly $422 billion market cap.
“Absolutely, we should be scared shitless about that,” Dimon said.
To be sure, Dimon isn’t backing down.
“I expect there to be very tough, brutal competition in the next 10 years,” Dimon said. “I expect to win. So help me, God.”
Even though they’re competing, banks and fintechs need each other
Most of the fintechs cited during the call aren’t actually banks. They are tech companies that partner with banks, using someone else’s bank charter to move money and hold deposits. That means that banks’ see fintechs simultaneously as their biggest competition and as valued partners.
“We bank a lot of them. We help them accomplish what they want to accomplish,” Dimon said. “My view is we’re going to compete where we need to.”
“I think we are now facing a whole generation of newer, tougher, faster competitors who, if they don’t ride the rails of JP Morgan, they can ride the rails of someone else,” Dimon said.
Read more: JPMorgan slashed how long it takes to test out fintechs from 9 months to 3 weeks with a new process that could save it millions as it looks to buy, invest in, or work with more young companies
JPMorgan has invested big to bring fintechs into its fold. But they’re not the only ones. Incumbents like Visa and Mastercard, too, are locking in partnerships with fintechs like Brex and SoFi.
And where JPMorgan isn’t partnering, it’s competing.
“Everyone’s going to want to be involved in payments” Dimon said. “Fintech competitors white label the banks and build whatever service they want on top of it, and we have to be prepared for that.”
Dimon raised concerns around financial data and called out Plaid
In discussing the complicated relationship between banks and fintechs, Dimon made a point to highlight how fintechs’ size in the market impacts competition.
“There are examples of unfair competition, which we will do something about eventually,” Dimon said. “People who will make a lot more on debit because they operate under certain things. The only reason they compete is because of that.”
Read more: Execs from Plaid and Yodlee explain how new data-sharing rules will dictate the future of how banks and fintechs work together
One of those “things” is the Durbin Amendment, which puts a limit on the debit fees larger banks can charge merchants per transaction. Banks with less than $10 billion in deposits — which is where most fintech challenger banks fall — are exempt from those restrictions.
Dimon also called out fintechs — which aren’t subject to the same regulations as JPMorgan — that don’t do their own anti-money laundering and due-diligence when onboarding new customers, saying they create risk for the system. Financial data sharing was mentioned, too.
“We will be a little more aggressive on people who improperly use data that’s been given to them by Plaid. You can expect that there will be other battles that take place here,” Dimon said.
Read more: A regulatory turf war is brewing in the red-hot payments space between the OCC and big banks. Insiders explain what’s at stake and how it could impact fintechs.
JPMorgan and Plaid have a data-sharing agreement, granting Plaid’s fintech customers access to consumer financial data like account and routing numbers.
“Data privacy and security are core to everything we do, including the data exchange agreements we have with JPMorgan Chase among many other banks,” a Plaid spokesperson told Insider.
Across the industry, tensions around banks’ data-sharing practices are high. The Consumer Financial Protection Bureau is currently working on new rules for data sharing based on the Dodd-Frank Act — the legislation created in the wake of the 2008 financial crisis — which could force banks to agree to industry-wide standards when it comes to what fintechs can access.
Dimon has been a strong proponent of controlling how customer information is disseminated. In early 2020, Dimon said the bank was working on ways to allow customers to cut off third-party apps access to their data.
JPMorgan is looking for acquisition ideas, especially in payments
Competition is heating up in the world of payments, especially as consumers start shifting more of their spend toward digital. Less use of cash is a tailwind for all payments players, including JPMorgan.
When asked whether JPMorgan would pursue M&A in a segment like payments, Dimon said that he’s open to deals as a way to grow in tandem with organic growth across its payments business.
“We’re quite good at [payments], between credit card, debit card, Chase merchant services,” Dimon said.
“But we’re open for inorganic too,” he added.
Read more: JPMorgan eyes commercial bank’s international expansion with goal of $1 billion in revenue. ‘This is an extraordinary opportunity to hire bankers.’
Dimon even asked for any acquisition ideas from participants on the call.
“We’re always looking for a way to invest more of our money intelligently,” Dimon said. “We’ve got a tremendous set of assets. We also have a tremendous set of competitors, particularly in payments.”
Dimon mentioned players like Google, which just revamped its Google Pay app to include checking accounts. And PayPal’s app, as well as Venmo, are gaining traction among consumers as a go-to digital wallet.
“We like competition. We believe in it,” Dimon said, “but we have to be really prepared for that. And that is deeply on our mind and how we run our business.”