Digital Innovation in Online & Mobile Banking at J.P. Morgan Chase
The evolution of online and mobile banking has transformed an industry – and Chase has been at the forefront for some time. But with the rise of companies like Venmo, what’s next?
One of the industries I am particularly interested in focusing on as it relates to digital innovation is consumer banking. It’s especially relevant to me as consumer banking is often touted as a prime example of digital transformation in comparison to an industry I’m quite familiar with work in – namely, healthcare. While I won’t dive into the specific comparisons made between the two industries here – I’d like to explore some of the factors that have made and continue to make consumer banking especially ripe for digital transformation by zooming in on digital innovation winner Chase Bank. Chase doesn’t have a presence in Boston, but having banked with them personally for the last decade I’ve been able to observe their digital transformation and early adoption of technology firsthand. Here I’ll focus on the evolution of online and mobile banking, which have separated Chase from the pack, at least temporarily, in this fast moving industry.
Years ago, Chase was one of the first large institutions to offer online banking – which was an incredible innovation because it created immense and immediate value for both consumers and the bank. With simple things like transaction history and account balances at their fingertips, suddenly consumers didn’t have to go through the mundane task of balancing their checkbook anymore, saving a great deal of time and effort on a daily basis. Value also accrued to Chase, as fewer consumers needed to use in-branch teller services with the advent of online banking, resulting in value creation and capture for Chase in the form of immediate labor and facility cost savings. Chase quickly moved to develop electronic bill payment services to build on the online banking capability, further reducing in-branch and manual check processing costs and increasing convenience for consumers. Progressing further up the value chain, more recently Chase has introduced QuickDeposit – a functionality enabling consumers to deposit checks via a mobile device, and eliminating one of the last reasons customers might need to visit a branch. This was an enormous step, creating substantial value by enabling someone like me to bank exclusively with Chase despite the fact that they have no branches or ATMs in the greater Boston area. Similarly, before there was Venmo, Chase had a first-mover advantage with their QuickPay functionality. QuickPay enabled Chase customers to seamlessly send electronic payments to one another for free – an enormous convenience as we all know.
The key point here is that Chase is able to offer all of these services for free to customers and still capture value for two primary reasons. First, their investments in digital infrastructure have kept customers out of branch locations and resulted in a disproportionate reduction in Chase’s physical infrastructure (i.e. branch) costs. Secondly, Chase attracts more customers based on the value of convenient, technology-enabled banking. More customers means value capture through the incremental dollars Chase can hold and invest, as well as additional revenue opportunities through credit cards and loans.
Admittedly, competition in this market means Chase’s technological advantage is almost always short-lived. However, the company continues to harness digital transformation even within the walls of the traditional branch. Out of an innovation center in (my hometown!) Columbus, Ohio, Chase is starting to overhaul its branches in a new format, orienting the space around re-vamped ATM’s with features previously only available at a teller window (see video), and recognizing a customer via his or her fingerprint, integrating the physical with the digital. These continued investments in digital innovation will make Chase a winner into the foreseeable future. The challenge, as I mentioned previously, is that the industry is fiercely competitive and catches on quickly to new technologies. The double-edged sword of digital innovation in this market means that while Chase can simultaneously offer consumers a convenient set of online and mobile features for free AND reduce their own costs, there is an incredibly strong incentive for competitors to make the same investments. Chase will have to find a way to differentiate some of their innovations in the future to sustainably stay ahead of the market, but I am confident in their ability to win in the future by continuously introducing value-creating technology to the industry.
Student comments on Digital Innovation in Online & Mobile Banking at J.P. Morgan Chase
I’m also fascinated by how the consumer financial industry is going through a digital revolution. I’ve been a user of Ally Bank for a while now, so it’s interesting to hear about what Chase offers.
One thing that’s struck me about online banking is that it’s actually still far from being a full-featured “port” of brick and mortar banking onto the digital space. In other words, there are still a number of banking actions that can only be done at a branch with a real person. These banking actions tend to be rare but very important in life, actions such as sending wires, obtaining loans, etc. In the long run, this could mean a couple different things. One outcome is that online banking develops all of these capabilities, and brick and mortar branches will no longer need to exist period. A more likely outcome, I think, is that the number of physical branches decreases significantly, but certain, complex banking “features” will still only be available in person.
I think this second outcome is actually potentially bad for consumers – it would make it a lot more inconvenient for consumers to do these rare but important banking activities, and it would probably inhibit the adoption of online banking (because consumers “have to” have a brick and mortar account for certain important tasks, so why even sign up for a second bank account?).
There are certainly companies that are trying to digitize the entire banking experience, and now we see the rise of startups in the lending space that can give people loans without face-to-face interaction. However, these are generally separate from the online banks doing deposit-keeping functions. What will happen to this space in the future? Will every consumer have to interact with a “constellation” of consumer fintech startups, each specializing in a different banking activity? Will one online bank start acquiring these startups and form the first super-powerful completely-online bank? Or wiill a brick-and-mortar bank like Chase push to digitize all their actions and make their own physical branches obsolete?
These are all good points, but as you mentioned, competition in this area is rapidly evolving and Chase will have to continue to innovate to stay ahead of the market. My greatest concern here is that I don’t see strong reasons for customers to stay with Chase. In the past, most customers selected a bank based on proximity, wide availability, and convenience of retail or ATM locations. As you mentioned, with online banking, Chase has been able to drastically reduce its’ physical presence; however, my concern is that this move makes customers less sticky to Chase. Secondly, you mentioned that Chase customers are able to pay each other electronically, but what about payments to non-Chase customers? It seems like Venmo is rapidly taking over this space, making that feature not so important to Chase customers. It sounds like Chase has done a good job of innovating compared to some other banks, but I’d like to know more about their initiatives to retain customers to gain conviction that they’ll really be a winner in the long term.