JPMorgan Chase (NYSE: JPM) came out with its annual report today and the opening of the document is a letter from JPM CEO Jamie Dimon. The annual missive has become the most widely read “Dear Shareholder” letter in the financial services industry, with Dimon being widely regarded as the best bank CEO in the world. As he has generally done in previous letters, Dimon addresses a plethora of issues and ideas concerning both JPM and society at large.
Regarding the growing competition that attacks traditional banks, Dimon says, “Banks are playing an increasingly small role in the financial system.” While noting that he is pro-competition, Dimon asserts that “US (and European) banks have become much smaller in relation to multiple measures, ranging from shadow banks to fintech competitors and markets in general.”
While fintechs, big tech companies and other non-traditional firms offer financial services, Dimon defends old finances by saying that while some regulators may say the risk is out of the banking system – making banks safer – he defends his industry by asserting that banks are reliable, less expensive and consistent credit providers during times of goods as well as bad.
“… Transactions carried out by well-controlled, well-supervised and well-capitalized banks may be less risky for the system than transactions that are pushed into the shadows.”
In Dimon’s opinion, banks are generally better regulated than fintechs.
“We believe that many of these new competitors have done a great job alleviating customer issues and making digital platforms extremely easy to use. But the growth of shadow banking has also been partially made possible because the rules and regulations imposed on banks are not necessarily imposed on these non-banks. While this may have been deliberate in part, the rules have sometimes been accidentally calibrated to displace risk unintentionally. We must remember that the risk level of this unprecedented pandemic may not have changed – it has just been moved to a less regulated environment. And new risks are created. While it is not clear whether the rise in nonbank and alternative banking services has reached the stage of systemic risk, this trend is accelerating and needs to be closely monitored, which we do regularly in our own business. “
While criticizing the regulatory environment for fintechs, a frequent refrain of incumbents, Dimon asserts that from loans to payments to investment, fintechs have “done an excellent job”. The ability to approach financial services differently, by merging social media and leveraging data, “will help these companies gain significant market share.”
Admitting that Big Tech is transforming into financial services companies, Dimon admits their strengths are substantial, but Big Tech is not without its problems:
“Their regulatory environment, globally, is heating up and they will face major problems in the future (banks have faced a similar scrutiny). Issues include privacy and use of data, how taxes are paid on digital products, and antitrust and anti-competitive issues – like favoring their own products and services over others on their platform and how they fix the price of products and access to their platforms. In addition, Big Tech will have very strong competition – not only from JPMorgan Chase in the banking industry, but also from each other. And that competition is much bigger than just the bank – big tech companies are now competing in advertising, commerce, research, and social media. “
As competition from agile fintechs may increase, Dimon is confident that JPMorgan Chase will remain a robust challenger as financial services go through a rapid period of digital transformation.
“We have an extraordinary number of products and services, a large existing customer base, enormous economies of scale, a strong balance sheet and a strong brand of trust. We also have an extraordinary amount of data and we need to embrace artificial intelligence and the cloud as quickly as possible so that we can make better use of it to better serve our customers. We need to make our extraordinary number of products and services a huge plus by improving ease of use and reducing complexity. We need to act faster and bolder in how we attack new markets while protecting our existing markets. Sometimes new markets seem too small or don’t seem to be essential for our customers – until they are. We intend to be a little more aggressive here. “
Calling for more regulatory control over Fintechs to “level the playing field” Dimon says he doesn’t expect much to change and that they will adjust their strategies appropriately. Dimon says upcoming strategies include acquisitions – in payments, asset management, data, and other services. And this is how JPM will move forward and hopefully survive and thrive.