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Jamie Dimon’s Next Act? Wall Street’s Top Tech Mogul

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Jamie Dimon delivered an almost upbeat message on the US economy on Monday: Recession worries and inflation were storm clouds that could blow away, not the kind of hurricane that struck in 2008.

But attendees at JPMorgan Chase & Co.’s investor day weren’t there to hear the chief executive officer discuss that, even if the message did boost the stock by 6% on Monday. What they wanted was to understand the bank’s big hike in costs. Its investment budget for this year is $14.7 billion, up one-third from 2021. It includes a 20% jump in technology spending to $6.7 billion.

The expenses came as a shock when JPMorgan announced them in January. Investors raised questions about Dimon’s cost control. This likely contributed to last week’s shareholder vote against his mammoth pay package. 

Some were hoping Dimon might lower his forecasts on Monday, but it wasn’t to be. The bank is throwing so much money at so many areas that it’s hard to keep track of what is going where, let alone what the payoffs will be. After a full day of talks and details, one analyst still had to ask why Dimon is spending all of this money now. The CEO was exasperated.

What Dimon and his team are trying to do is think like the big tech companies, such as Inc. and Google-owner Alphabet Inc., and exploit the same “winner takes all” principles that helped them dominate in their fields.

At a high level, JPMorgan is doing two things. First, it is modernizing its IT systems to make them cheaper, more flexible and more adaptable to changes in products or across borders. This is about moving data and systems off of old mainframes and onto the cloud. Second, JPMorgan is building tools or buying businesses that are meant to knit together different types of customers and products. The first part makes the second possible, because on cloud-based systems, all its businesses can be interconnected, and data and transactions more easily shared.

Think of a bank as managing large networks of consumers and merchants, investors and corporations, and savers and fund managers. JPMorgan, I believe, is trying to exploit all those interconnections. The bank is looking for new ways to win customers, as well as new ways to serve them across multiple businesses. It is cross-selling, but on digital steroids.  

Consider the example of digital payments. The young, fast-growing Buy Now Pay Later companies such as Klarna are built around network effects: Winning consumers to a platform means it can offer more potential sales to merchants, and winning more merchants means more offers to customers, including special discounts.

JPMorgan is spending a lot on all forms of payments. The field is competitive, but a bank the size of JPMorgan already has vast numbers of consumers and merchants, it just needs to knit them together better.

A new area where it hopes to get in front of rivals is what it calls “embedded banking for e-commerce market places.” Think banking services inside platforms such as Amazon or Etsy — i.e., access to payments, bank accounts, financing and foreign exchange for merchants as part of signing up to a marketplace. The simpler these are to use and the more merchants join, the more JPMorgan can entice its retail customers to shop at those marketplaces. In Europe, the bank is buying a business called Viva Wallet to help with this.

A slightly different example comes from asset management. JPMorgan is buying Global Shares, a software firm that manages employee-ownership schemes for global companies. The idea is that employees with shares to manage can become wealth management clients, whether on a simpler, lower-margin platform like Nutmeg in the UK or all the way up to a full-on private banking client. Goldman Sachs Group Inc. is doing something similar in its workplace wealth-management business, Ayco, which will expand further with its pending acquisition of NextCapital.

In investment banking, the biggest players have already seen increasing market share thanks to the benefits of scale and networks. The top-five global banks for trading stocks, bonds and other assets have a 45% share of the market, up from 39% five years ago.

The biggest banks keep gaining share because they can more easily absorb high fixed costs, while the size of their client base means they can sell securities faster and more reliably. Technology investment in automated electronic trading and risk and pricing software has accelerated this further, as the biggest banks have been able to develop better algorithms and systems, becoming quicker and cheaper than smaller rivals.

JPMorgan could extend its lead as it continues to invest billions in trading tech. Moving its core IT infrastructure for trading to the cloud means it could do risk calculations 30% faster and at 80% less cost. 

The principle of networks and scale is going to spread across all areas of finance that are routine, lower margin and can be automated. But there are areas where “winner takes all” just won’t happen — intensive advisory work for corporate takeovers, for example, or for the wealthiest individuals. These clients will likely always want a second, third, even fourth opinion. Very large loans and complex trades that involve bigger risks are likely to require multiple counterparties, too.

Retail banking will also be tough to dominate. Many people have had the same bank for years, even decades, and are unlikely to move their accounts just because a competitor has a whizzier app. But if one or two banks can become the preferred choice of Millennials, Generation Z and whoever is next, they might get to hook those customers into all kinds of other services for the rest of their lives. JPMorgan said 45% of its US consumer banking and credit-card customers are now from these two generations. That sounds like a lot, but it is in line with the share of the population, so it doesn’t seem like the bank is far ahead of peers yet.

There were some simple numbers to take away from Dimon’s team on Monday: The bank should save 15%-20% in IT infrastructure costs annually, and it expects $1.5 billion in software productivity and cost savings over the next three years, too. But the main message was that everything it is doing will increase market share and revenue gains across its businesses in the longer term.

There is a technology arms race in finance, and the banks that can afford to spend the most have a strong chance of reaping the biggest rewards. Governments are already uncomfortable with the market power of firms such as Amazon and Facebook-owner Meta Platforms. The more JPMorgan resembles a tech company, the more likely antitrust problems will follow.

More From Bloomberg Opinion:

• Lagarde Gives the Dollar What It Needed — a Peak: John Authers

• What Fantasy Football Can Teach Money Managers: Marc Rubinstein

• Jamie Dimon’s UK Startup Is Really a Global Story: Paul J. Davies

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Paul J. Davies is a Bloomberg Opinion columnist covering banking and finance. Previously, he was a reporter for the Wall Street Journal and the Financial Times.

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