Jamie Dimon, Chairman and CEO of JPMorgan Chase. (Paul Morigi/AP Images for JPMorgan Chase)
Fintech partnerships are a hot topic in banking, and JPMorgan Chase’s (JPMC) new wholesale payments head of fintech and innovation, Jeremy Balkin, fired a salvo at other banks when he said at a recent conference:
“We’re the bank of choice for fintech partnerships because J.P. Morgan is to payments what Amazon Web Services is to cloud and the internet.”
Referencing the bank’s four million merchant customers, Balkin told the conference audience, “think how valuable that client pool—that data set—is for a fintech with a disruptive point-of-sale solution.”
It’s a compelling proposition for potential fintech partners.
Commenting on the rise of fintechs like PayPal and Square, JPMorgan Chase CEO Jamie Dimon recently told analysts:
“We should be scared s—-less about that.”
Other banks should be scared s—-less about what the bank is doing.
According to Balkin:
“Our roadmap is absolutely insane with what we have on our agenda for this year. The bank is willing to experiment, and has a culture that is strong enough to say ‘let’s do something different.’”
According to a study from Cornerstone Advisors, 45% of US-based banks and credit unions have partnered with fintechs in the past three years. Looking ahead, two-thirds of all financial institutions consider fintech partnerships important to their strategies.
To date, the impact of bank-fintech partnerships have been tepid. Less than one in five banks have seen significant improvements—defined as a 5% or better gain—in nine different performance metrics.
Impact of bank-fintech partnerships
The lack of impact shouldn’t come as a surprise, for two reasons.
First, on average, mid-size institutions (those with $500 million to $50 billion in assets—in contrast to JPMorgan Chase’s $3.386 trillion) have just two full-time employees dedicated to fintech partnerships. One in five banks have none, and just 6% have five or more employees working on fintech partnerships.
Question: How many fintech partnerships can two people identify, vet, negotiate, deploy, scale, and monitor? Answer: Not very many.
Second, the focus of many bank-fintech partnerships has been on digital account opening.
There’s no question that having a strong digital account opening and onboarding capability is critical. But it’s table stakes these days, and it’s not a candidate for a bank-fintech “partnership”—it’s a bank-vendor relationship.
JP Morgan is hardly the first bank to talk about fintech partnerships. What’s different, however, is that:
So far, fintechs have found a receptive audience and—for the most part—a bureaucracy-free environment among mid-size banks, compared to the megabanks.
The bank’s signal to the market that it’s serious about fintech partnerships—not just from an investment perspective, but from an operational perspective—may reduce this bureaucracy and make it harder for smaller banks to compete for partnerships.
Banks aren’t taking this lying down. Initiatives in the mid-size bank space include:
How did Amazon Web Services become the “AWS of the cloud and internet”? It developed a technology platform that enabled entities to plug and play.
It’s not clear to me that JPMorgan has that technology platform in place, but perfectly clear to me that most banks don’t.
Mid-size institutions lack scope and scale, and typically have to integrate their fintech partnership efforts with their core systems and digital platforms. With roughly 60% of all financial institutions yet to deploy APIs or cloud computing, most banks need help in building this new platform.
A growing list of tech providers is emerging to help banks create a platform for fintech integration including: Agora, Bond, Constellation, Item, Moov, Nymbus, Sherpa Technologies, Railsbank, Solarisbank, Synctera, Technisys, and Treasury Prime.
Embedded Fintech landscape
Competition for fintech alliances is hotter than it’s ever been. The days are over when banks could:
Two people working on fintech partnerships in a bank isn’t enough. Banks need to develop a competency—and a technical platform—for fintech partnerships. If building this competency isn’t part of your bank’s digital transformation efforts, you need to re-evaluate that strategy.
In bank and credit union board meetings, directors are getting antsy that their institutions are losing ground in the race to partner with fintechs. JP Morgan’s foray into fintech partnerships is going to up that agitation even further.
Ron Shevlin is the Managing Director of Fintech Research at Cornerstone Advisors, where he publishes commissioned research reports on fintech trends and advises both
Ron Shevlin is the Managing Director of Fintech Research at Cornerstone Advisors, where he publishes commissioned research reports on fintech trends and advises both established and startup financial technology companies. Author of the Fintech Snark Tank on Forbes, Ron is ranked among the top fintech influencers globally, and is a frequent keynote speaker at banking and fintech industry events. Want to talk more fintech? Connect on Twitter or LinkedIn.