JPMorgan Chase

Competitive Strategy
Teardown
How The Bank Stacks Up On Fintech & Innovation
Among bulge bracket banks, JPMorgan
is making a bigger push into payments
technology as digital banking becomes a
strategic priority.
Last year, JPMorgan CEO Jamie Dimon made headlines for calling
bitcoin “a fraud.” But the performance of his bank, the largest by
assets in the US, received less hoopla.

While the bank has not been immune from the falling trading
volumes that have also afflicted its bulge bracket peers, the drop
has been less severe than at some of its rivals. And JP Morgan has
also avoided major scandals and regulatory sanctions that have
beset some of its rivals.

Spurred by revenue growth in its consumer banking and asset

management units and favorable economic and regulatory
tailwinds for the banking industry including rising interest rates and
momentum behind President Trump’s tax plan, JPMorgan added
over $60B to its market cap in 2017. This was the second highest
increase among bulge bracket banks over the 12-month period.

JPMorgan grew its market cap by $60B+ in 2017

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Moreover, JPMorgan has pushed forward on its digital
capabilities.

In 2016, the bank spent $9.5B on technology and Dimon has

committed $300M alone to improve JPMorgan’s technology for
its asset management products. Relative to its peer group, JPM
claims the highest number of mobile banking customers and its
Chase Mobile app currently sports a 4.7 (out of 5) rating in the
App Store.

In this analysis, we look into JPMorgan’s investments, M&A,

patents, hiring, and earnings calls to understand how the bank is
strategically positioning itself against bulge bracket peers.

Specifically, we compare JPM to:

» Bank of America Merrill Lynch

» Barclays Capital
» Citi
» Credit Suisse
» Deutsche Bank
» Goldman Sachs
» Morgan Stanley
» UBS

Key findings
» Earnings calls – While JPM has seen strong digital banking
growth, Bank of America, Barclays, and Morgan Stanley each
mentioned technology or digitization on earnings calls at least
twice as often as JPM had between 2008 and 2017. While JPM
talked about expanding its digital consumer banking capabili-
ties, others discussed how digital might change the workforce
or upcoming digital-focused products.
» Investment activity – JPMorgan has prioritized payments,
infrastructure, and cybersecurity as recent areas of interest
in its strategic fintech investing, according to an analysis of
CB Insights data. However, the bank trails Goldman and Citi
by deal count. It has focused on companies it previously part-
nered with or already worked with including LevelUp, Bill.com
and Menlo Security. JPMorgan’s two more active bulge bracket
peers have invested in a broader array of companies including
startups focused on mortgage, regulation technology, and
fraud prevention.

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» M&A activity – Tech M&A has not been a focus for many of
the bulge bracket banks to date. JPM is one of just three bulge
bracket banks to pursue tech M&A along with Goldman and
Credit Suisse. While JPM’s recent push into tech M&A also
highlights a focus on payments tech (it reportedly acquired
WePay for up to $400M), Goldman has shown a focus on
lending/credit.
» Patents – Bank of America is the most active patent filer of the
bulge bracket banks, with close to 5X more patent applications
filed since 2009 than JPM, the second-most active by patent
application activity.

Earnings call analysis – Barclays, Bank

of America, Morgan Stanley talking up
digitization
While mentions of “technology” and “digital” on bulge bracket
bank earnings calls have jumped in 2017, the theme has been less
prominent for JPM vs. a handful of its peers.

Of JP Morgan’s peers, Bank of America, Morgan Stanley, and

Barclays have all discussed technology and digitization substan-
tially more in their earnings calls in 2017 than in years past.

Here are some findings from what the three discussed on

earnings calls in 2017:

» JPM discussed continued digital consumer banking growth,

which grew 6% in Q3’17. JPM CFO Marianne Lake mentioned
that “having a leading digital capability is critical to our overall
customer franchise, and it will in all likelihood have an impact
on stickiness of deposits because customers value that kind of
convenience very highly.”
» Bank of America spent portions of its Q1’17 and Q3’17 talking
about digital banking initiatives and technology investment.
Specifically, CEO Brian Moynihan mentioned the bank spent
$2.25B on technology initiatives in the first three quarters of
2017. The bank also now sees mobile devices account for 1 of
every 5 deposit transactions.
» Barclays’ increased mentions of technology included discus-
sions on how its workforce would change. CEO Jes Staley
highlighted that 50% of the bank’s technology staff are cur-
rently contractors and consultants and the need to prioritize its
in-house tech personnel over the next two years. Staley also
noted digital adoption at Barclays hit 5M “regular users of its
mobile banking app” in the UK.

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» On Morgan Stanley’s Q3’17 earnings call, Morgan Stanley CFO
Jonathan Pruzan mentioned the bank is beta testing new
customer-facing digital products it plans to launch, potentially
in the robo-advisory space. Specifically, Pruzan noted: “When
we think about our wealth business, it’s a business that’s built
on scale. And it’s built on the fact that people with wealth want
personal advice. So it’s going to be both a mix of technology and
digital with the personal element of the advice channel. And we
think that’s the winning formula going forward.”

Bank of America, Barclays & Morgan Stanley

talk up digitization
Al mentions of “tech,” “technology” and “digital”

Investment analysis – JPM trails Goldman,

Citi by fintech deals
While JPM has not been as vocal about tech in earnings calls as
some of its peers, its private market activity indicate fintech is a
priority for the firm. Among bulge bracket banks, JPM ranks third
for total fintech investments since 2013.

JPMorgan’s recent fintech investments have focused on

payments and infrastructure-type companies. These companies
have in some cases also formed strategic partnerships with the

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bank. These include:

»» Bill.com, which JPMorgan partnered with in September 2017 to

enable its customers to send and receive electronic payments
and invoices. The bank co-led a $100M investment to Bill.com
in October 2017.
»» LevelUp, a Boston-based mobile order ahead service, which
JPMorgan’s Chase Pay partnered with in December 2016 to
allow Chase customers to order ahead and pay at participat-
ing QSRs in Boston to save time when getting their food and
drinks. JPMorgan co-led a $50M investment of debt and equity
to LevelUp in May 2017.
»» OpenFin, an infrastructure provider using software to help
financial institutions create and upgrade trading applications.
JPMorgan invested in a $15M round to OpenFin in February
2017.
»» Stripe, the $9.2B payments processing unicorn, received a
revolving credit facility secured by banks including JPMorgan.
»» Based on the data, JPMorgan ranks ahead of most bulge
bracket banks when it comes to overall fintech investment
since 2013, but behind its peers Goldman Sachs and Citi.
While Citi maintains a strategic corporate venture capital
arm, Citi Ventures, the CVC has looked beyond fintech for
investment including in areas such as security, marketing, and
e-commerce.

Goldman, Citi are the most active bulge

bracket banks in fintech investing
Total fintech investments, 2013–2017 YTD (12/18/17)

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Using CB Insights Business Social Graph, we can see where
JPMorgan’s strategic fintech investments overlap and diverge
with some its bulge bracket peers. Goldman Sachs, for example,
has seen its more recent fintech investments flow to areas like
lending/credit (Better Mortgage, Nav, Neyber) as well as regtech
companies including Droit Fintech. Meanwhile, Citi recently
invested in personal finance management startup Clarity Money
and security-related companies including bank fraud prevention
software company Feedzai.

But JPMorgan also shares a number of strategic fintech

investments with other major banks. Cloud communications
is one area where JPM shares multiple investments with other
banks. The bank invested in competing Bloomberg chat service
provider Symphony (Goldman Sachs, Citigroup, Bank of America
Merrill Lynch, Deutsche Bank, Morgan Stanley) as well as voice
communications and analytics platform Cloud9 (Barclays).

Within blockchain, JPM has also made similar moves as its

competitors. While the bank was previously involved in blockchain
consortium R3, it withdrew from the consortium in April 2017
following its peers Goldman Sachs and Morgan Stanley which
left the consortium in November 2016. While no reason was
given by JPM for the move, the bank is developing its own private
blockchain called Quorum and is also an investor along with
Goldman Sachs in enterprise blockchain startups Axoni, a startup
providing blockchain infrastructure for capital markets, and Digital
Asset Holdings.

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Bulge bracket banks share many fintech
investments
2013–2017 YTD (12/18/2017)

JPM’s cybersecurity moves vs. rival banks

In 2016, JPMorgan upped its cybersecurity budget from $500M in
2015 to $600M. At the time, then CIO Dana Deasy remarked:

“Labor is a big part of our cost. So are the tools themselves.

We are constantly, and I mean constantly, scanning [the market]
for the latest, best tools. This is critical because adversaries
are always trying to find new ways to cause havoc, harm, and
destruction at large companies.”

JPM has invested in fewer cybersecurity companies than its

peers Goldman Sachs and Citi, but it’s worth noting the bank’s
uptick in strategic activity as of late. Two of JPM’s last two deals
went to cybersecurity startups that won the JPMorgan Chase

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Hall of Innovation awards, which is given to companies “honored
for their achievements in innovation, disruptive technology, and
business value to JPMorgan Chase” (meaning they were already
working with the bank).

These investments include Menlo Security (in December 2017),

which aims to eliminate phishing and malware by isolating risk,
as well as Reversing Labs (in November 2017), which provides
cyberthreat detection and mitigation products.

Here’s a look at how the bank’s cybersecurity investments

compare to the rest of the bulge bracket:

Goldman & Citi lead by total cybersecurity

investments
2013–2017 YTD (12/18/2017)

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