A recently released letter to shareholders written by Jamie Diamon, the CEO of JP Morgan, detailed how he saw the rise of FinTech in the financial sector as a direct threat to JP Morgan’s business. Mr. Diamon also said, “Banks are playing an increasingly smaller role in the financial system.” Showing just how the top banks are viewing the innovation the industry is dealing with.
On Thursday, April 8, CNBC’s “Squawk Box” hosted Rebecca Felton, senior market strategist at Riverfront Investment Group, and Dan Primack, business editor at Axios to discuss if what Jamie Diamon was talking about was a reality. They overwhelmingly agreed. Both commentators pointed to the headaches FinTech’s don’t have to deal with that many of the big banks do for example the regulatory regime that the government imposes. Ms. Felton was very adamant in saying that the requirements of bank charters, which is a charter that authorizes the operation of a bank, as well as no regulatory loophole banks can jump through that many FinTech’s can as reasons why big banks are being left in the dust. She also noted that besides JP Morgan most other banks don’t have any FinTech initiatives in place or at least in the product testing pipeline. This lack of innovation and handcuffing regulation is what will likely continue to allow FinTech to eat into more and more of big banks market share.
I believe Mr. Primack said it best that these FinTech are fast at realizing what’s best for their business and attacking in that direction. He gave an example of how Grab, a ride-sharing startup in Southeast Asia, grew from connecting drivers to people who need rides to now seeing it financial services side of its business becoming its largest. He also noted how Apple and its iPhone, which almost every adult has now, uses its own credit card services embedded directly into every iPhone to deter customers from using other forms of payment. These types of steps are making it harder for banks to retain customers, especially among younger people who are looking for convenience over loyalty.
Mr. Primack also brought up a fantastic point about when the last time really big and meaningful financial regulation was introduced in 2010 with the Dodd-Frank Act in the United States, most of these FinTech’s weren’t even around. This shows just how fast an industry can be flipped on its head and Ms. Felton chimed in to say that the regulation is not going to come anytime soon as government bodies are always too slow to react in a timely manner.
Finally, when asked if they thought these FinTech’s would grow so large that they could buy a bank, would they? Both scoffed at the idea as again the toxic regulatory environment of banks would surely destroy their business. Mr. Primack added that most of these FinTech’s were once startups that didn’t have to deal with constant government intervention and oversight, as they surely wouldn’t be in favor of giving that up.
“How FinTech Is a Threat to Big Banks.” CNBC, uploaded by CNBC, 8 Apr. 2021, www.cnbc.com/video/2021/04/08/fintech-vs-big-banks-jamie-dimon-letter.html.