In his annual letter to shareholders last year, JPMorgan Chase Chairman and Chief Executive Jamie Dimon famously warned that "Silicon Valley is coming" to steal banks' business.
This year, Dimon took a decidedly different tone, saying the bank's recent investments have put it on equal footing with the technologists on the West Coast. "We have built our own extraordinary in-house big data capabilities — we think as good as any in Silicon Valley," Dimon wrote.
He said the nation's largest bank is using data analytics to understand its customers better, including why they leave. The bank is also devoting more resources to protecting customers' data and is restructuring the way it works with third parties that have access to that data.
Still, fintechs remain a disruptive force and Dimon said that, as such, JPMorgan will continue to look to these upstarts for inspiration and partnerships. Here are five of the key technology takeaways from the letter.
Mining for Insights
The unit that Dimon said can compete with any Silicon Valley firm is called Intelligent Solutions and it is made up of 200 analysts and data scientists.
On the commercial side, the group is doing what Dimon called "responsible prospecting." Traditionally, it's been difficult for banks to get lists of prospective clients that have accurate telephone numbers, email addresses and business descriptions. Through data analytics, the company has discovered "twice as many high-quality prospects," Dimon wrote.
On the consumer side, the company is using big data to deliver more targeted marketing and understanding why customers leave the bank. That perhaps seems like an obvious use of such capabilities, but it is a significant undertaking given that its Chase Bank unit — one of the nation's largest mortgage, credit card and automobile lenders — has a relationship with nearly half the households in the U.S.
The Value of Data
Dimon stressed that protecting customer data is a top priority — particularly when it comes to giving third parties access to that data.
"Our customers have done this with payment companies, aggregators, financial planners and others," Dimon wrote. "We want to be helpful, but we have a responsibility to each of our customers, and we are extremely concerned."
Currently, customers of such third parties hand over their bank login information and these firms, such as Mint or Acorns, access data through a technique called screen scraping. Last year JPMorgan, Wells Fargo and Bank of America, were accused of blocking these third parties' access to their customers' account information.
"In the future," Dimon wrote, "instead of giving a third party unlimited access to information in any bank account, we hope to build systems that allow us to 'push' information — and only that information agreed to by the customer — to that third party."
That push could materialize through open application program interfaces, essentially a tool that allows companies to share limited and specific information. Connecting to a site via Facebook is the classic API example.
Digital Small Business Services
Banks' commercial customers have long been waiting for the same kind of innovative digital products that retail customers have access to. This is especially true for small businesses. To that end, Dimon highlighted two new digital initiatives to be rolled out this year for Chase small- business customers.
The first is an initiative called Chase for Business, which will include a digital application process allowing business customers to sign up for what Dimon termed the "triple play" — a deposit account, business credit card and Chase merchant processing — with one signature and in one day. Historically, that process has taken longer and has involved a lot of repetitive paperwork.
He also touted a partnership with the online lender OnDeck Capital, under which Chase will use OnDeck's technology to quickly process loan requests. On its own, Chase might take a month or more to approve and fund a loan request, but Dimon said the partnership with OnDeck would allow it to approve loans in as little as a day. The loans will be Chase branded, retained on the bank's balance sheet, and subject to its pricing and risk parameters.
The Fintechs Are Coming
For all of the bank's efforts to outinnovate the fintech firms, Dimon retains a certain admiration for these upstarts. He credits them, for example, with making financial services more accessible to larger swath of the population.
"Services will be rolled out faster, and more of them will be executed on a mobile device," he wrote. "Fintech has been great at making it easier and often less expensive for customers and will likely lead to many more people, including more lower-income people, joining the banking system in the United States and abroad."
"It is unquestionable," he added, "that fintech will force financial institutions to move more quickly, and banks, regulators and government policy will need to keep pace."
Dimon told investors that JPMorgan Chase will "vigorously" monitor the fintech landscape for ideas — and perhaps even more partnerships.
"We want to stay up to date and be extremely informed, and we are always looking for ways to improve what we do," he wrote. "We are perfectly willing to compete by building capabilities (we have large capabilities in-house) or to collaborate by partnering. … We need to be very technologically competent because we know that some of our competitors will be very good. All businesses have clear weak spots, and those weaknesses will be — and should be — exploited by competitors. This is how competitive markets work."
What He Didn't Mention
Dimon made no mention of blockchain technology in the letter, which was a bit of a surprise given that the company reportedly has been testing a blockchain use case that would move money for about 2,200 clients.
He avoided discussion of other innovations as well, either because they are too nascent or just didn't fit into the 50-page document. But that doesn't mean he's not paying attention to them.
"There are many new technologies that I will not discuss here (think cloud, containerization and virtualization) but which will make every single part of this ecosystem increasingly more efficient over time," he wrote.