DEEP DIVE is a series of in-depth articles on FinTechtris that explores a particular fintech or financial services leader, discussing its history, products / services, or how it has grown to be an industry leader.

In the aftermath of the Financial Crisis (2008 - 2009), large banks were taking a step back from their existing business models across all lines of business — they were focused on contracting and minimizing non-essential costs. JPMorgan Chase (JPMC) took the opposite approach and has concentrated on expansion for the last decade. This growth not only included its retail branch footprint, which increased at at time when other banks were shrinking, but also with its operations internationally, and adoption of new technologies.

The top 3 banks were mired in controversy and headlines in 2009, over events that led to the recession — Chase essentially had a clean slate from the start. Bank of America was dealing with investigations into Countrywide and Merrill Lynch acquisitions, while Wells Fargo (still) has rampant issues with fraudulent employee conduct and corporate culture. JPMC maximimzed its time and resources on strategic initiatives and partnerships for all stakeholders — and started to separate itself from the pack of traditional institutions.

The company has committed $11B in annual spend towards technology not only for growth as the top US bank (in market share), but to ensure it maintains the role of disruptor and not disrupted when it comes to industry change.

Blockchain and cryptocurrency at JPMorgan Chase

While other banks have are still evaluating or experimenting with blockchain technology, JPMC is active and fully invested in the tech — building out its own Blockchain Center of Excellence. This hub helps incubate up and coming applications that can have a direct impact on the way the bank and financial services industry operates in the future.

Back on Feb. 14, 2019, JPMC formally announced a stablecoin offering pegged in USD (i.e. 1 coin always equals $1 USD) exclusively for payments by institutional customers. At the time, Chase was the first US bank to successfully create and test a digital coin representing fiat currency.

JPM Coin allows for instantaneous payment between two parties over a blockchain network (see diagram below). When one client sends money to another over the blockchain, JPM Coins are transferred and instantaneously redeemed for the equivalent amount of U.S. dollars, reducing the typical settlement time. Over time, the coin is expected to cover other fiat currencies beyond USD.

The most well-known blockchain application from Chase is Quorum, a blockchain platform that uses the ethereum network (the software that runs the cryptocurrency, ether). The open-source platform is being used by Chase to run the Interbank Information Network (IIN), a payments network that involves more than 300 banks. In August 25, 2020, ConSensys (a leading blockchain startup established in 2017) agreed to acquire Quorum. The network and all other bank projects running on Quorum will continue after the acquisition.

FinTech Acquisitions by JPMC

Even before the pandemic hit earlier this year, Jamie Dimon and Chase have been on the hunt for key partnerships that expand both capabilities and geographic coverage.

Known for a build or buy strategy, JPMC has done both in the last 5 years when it comes to acquisition and expansion. Some notable purchases:

• WePay - a payments firm for business platforms — this was the bank’s first fintech acquisition back in October 2017. The newly acquired payments tech was applied to Chase’s 4M small business clients;

• InstaMed - a medical payments technology firm that gives Chase access to the $3.5T healthcare spending market; the acquisition was announced in May 2019;

In terms of a build strategy, JPMC did make an attempt into launching its own neobank (Finn) back in 2018, which focused on areas throughout the US in which the bank didn’t have a retail location. Finn lasted for about a year until it was eventually taken down in 2019. The learnings from the internally-built digital bank helped reinforce its account opening capabilities via online and mobile interfaces, and its user experience with providing disclosures to clients remotely.

INTERNATIONAL EXPANSION for CHASE

JPMorgan Chase recently made headlines with its announcement of a digital banking launch in the UK (under its own brand) for Q1 2021, which would include deposit and lending products. The expansion effort will be lead by Clive Adamson, currently a director for JPM Securities. The bank has been in active discussions with FCA and other government entities in the UK about requirements needed for the launch.

At a time when the UK is saturated with challenger banks riding the wave of open banking frameworks, Chase is looking to shake up the scene and get in the mix. It joins Goldman Sachs (who launched Marcus in 2018) as being the only US banks to expand retail banking overseas.

The success of this move can lead to other expansionary efforts in Australia and Europe, which have similar stances on open banking. Taking a page out Revolut and N26’s playbook (who both expanded to the US), JPMC is being aggressive internationally and putting its resources together like no other financial institution.

Future Outlook for JPMorgan Chase

While other banks are struggling with legacy technology, regulatory complaints and penalties, JPMorgan Chase has truly expanded its horizons beyond constraints of traditional institutions. Large banks have a stigma from startups of being slow-to-move when it comes to technology. This is not the case for Chase. The bank has adopted an open disruption mentality of exploring and leveraging new technologies to stay ahead of the industry. Its commitment to updating its tech infrastructure and focusing on innovation by investing over $10B annually is unparalleled to any other company within the financial services industry.

As this overall banking leader in the US looks ahead, anticipate more acquisitions to take place of companies serving small businesses, enhancing payment capabilities, reducing friction in customer onboarding, and leading a niche segment in their country. As JPMC becomes known as an agile and nimble bank, top talent will start to migrate over from large tech companies and lead the charge into the new decade. Not all shareholders may be comfortable with the focus on technology as a primary strategy. For financial institutions looking to avoid disruption, this may be the best path forward in 2020.

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