JP Morgan Chase 2014 Annual Report Download - page 31

2929
IV. SOLID STRATEGY AND FUTURE OUTLOOK
Big, fast data. We continue to leverage the
data generated across JPMorgan Chase, as
well as data that we purchase to create intel-
ligent solutions that support our internal
activities and allow us to provide value and
insights to our clients. For example, we are
monitoring our credit card and treasury
services transactions to catch fraudulent
activities before they impact our clients, we
are helping our clients mitigate costs by opti-
mizing the collateral they post in support of
derivatives contracts, and we are highlighting
insights to our merchant acquiring and
co-brand partners.
There always will be new emerging
competitors that we need to keep an eye on
New competitors always will be emerging –
and that is even truer today because of new
technologies and large changes in regula-
tions. The combination of these factors will
have a lot of people looking to compete
with banks because they have fewer capital
and regulatory constraints and fewer legacy
systems. We also have a healthy fear of the
potential eects of an uneven playing field,
which may be developing. Below are some
areas that we are keeping an eye on.
Large banks outside the United States are
coming. In terms of profitability, the top two
Chinese banks are almost twice our size.
Thirty years ago, Industrial and Commercial
Bank of China operated in only a handful
of countries, but it now has branches or
subsidiaries in more than 50 countries. It has
a huge home market and a strategic reason
to follow the large, rapidly growing global
Chinese multinationals overseas. It may take
10 years, but we’d be foolish to discount their
ambition and resources. We’re also seeing
world-class banks emerge and grow in places
like India and Brazil, and Japanese and Cana-
dian banks are coming on strong, too. Many
of these banks are supported in their expan-
sionary eorts by their government and will
not need to live by some of the same rules
that we in the United States must adhere to,
including capital requirements. We welcome
the competition, but we are worried that an
uneven playing field may hamper us many
years from now.
Silicon Valley is coming. There are hundreds
of startups with a lot of brains and money
working on various alternatives to tradi-
tional banking. The ones you read about
most are in the lending business, whereby
the firms can lend to individuals and small
businesses very quickly and – these enti-
ties believe – eectively by using Big Data
to enhance credit underwriting. They are
very good at reducing the “pain points” in
that they can make loans in minutes, which
might take banks weeks. We are going to
work hard to make our services as seam-
less and competitive as theirs. And we also
are completely comfortable with partnering
where it makes sense.
Competitors are coming in the payments area.
You all have read about Bitcoin, merchants
building their own networks, PayPal and
PayPal look-alikes. Payments are a critical
business for us – and we are quite good at it.
But there is much for us to learn in terms of
real-time systems, better encryption tech-
niques, and reduction of costs and “pain
points” for customers.
Some payments systems, particularly the
ACH system controlled by NACHA, cannot
function in real time and, worse, are continu-
ously misused by free riders on the system.
There is a true cost to allowing people to
move money. For example, it costs retailers
50-70 basis points to use cash (due to
preventing fraud and providing security,
etc.). And retailers often will pay 1% to an
intermediary to guarantee that a check is
good. A guaranteed check essentially is the
same as a debit card transaction for which
they want to pay 0%. For some competi-
tors, free riding is the only thing that makes
their competition possible. Having said that,
we need to acknowledge our own flaws. We
need to build a real-time system that prop-
erly charges participants for usage, allows for
good customer service, and minimizes fraud
and bad behavior.
Rest assured, we analyze all of our competi-
tors in excruciating detail – so we can learn
what they are doing and develop our own
strategies accordingly.