April 7, 2017

In what has become something of an annual tradition, I wanted to break down portions of Jamie Dimon’s letter to JPMorgan shareholders. This year’s letter started off sounding a little more like Warren Buffett than in previous years, but the most interesting sections (to me) are the responses to the technological changes in the market and how JPMorgan positions itself.

For those of you who don’t have time to peruse the 45 page letter, this may be a helpful summary.

JPMorgan allocated about 30% of its $10 billion technology budget to new initiatives. This includes $600MM “spent on emerging fintech solutions – which include building and improving digital and mobile services and partnering with fintech companies.” Carving out 20% of the “new initiatives” budget to work on longer-term partnerships and projects that may not have an immediate impact feels about right for them, and shows that even with a massive budget, a small startup can still offer a lot of value to an incumbent.

These investments are leading to new product rollouts targeted for later this year including: end-to-end digital banking, a robo-advisor (or “automated advice” as they put it) and self-direct trading, and a more robust digital platform for the Investment Banking and Asset/Wealth Management divisions. The letter highlights newer initiatives around a developer API platform, and bill payments and business services.

Given the progress JPMorgan made in its data sharing agreement with Intuit, this year’s letter is much more muted. The 2015 FY letter dedicated a full page to the “dangers of financial aggregators”, while this year’s letter spent fewer than 200 words mentioning the topic. With other major banks striking similar arrangements, this trend seems likely to become much more common for the big banks this year. It is still unclear how mid-sized and smaller banks will be able to participate in the same type of data sharing arrangements.

As the 800-pound gorilla in financial services, especially after Wells Fargo’s current troubles, it is always interesting to see what is top of mind for JPMorgan. Anything that makes it into the letter is important and there for a reason, and, like the real progress made on data sharing agreements, we should expect much more to come throughout the rest of the year.

The more things change…
Fascinating Wired article profiling a fintech startup using cryptographic protocols to transfer money electronically. Also weaved into the story are electronic payments efforts by Citi, Visa, and Microsoft, and a convincing argument that widespread customer adoption of digital wallets is inevitable. The problem? The startup in question was DigiCash, and the article was written in 1994.

Online lending diverges in 2016
While not unexpected given the turmoil last year, the major US online/marketplace lenders grew volumes by 15% last year. However, a 9% decline in consumer loans is what brought down the overall number, as student lending and small business lending were each up 40-60%. Small business lending has seen the most consistent growth over the last few years.