July 16, 2021

In Response - Jamie Dimon's Annual Letter to Shareholders

Article

Jamie Dimon, Big Data, and the Battle to be the Bank of the Future

J.P. Morgan CEO Jamie Dimon sent his annual letter to shareholders some weeks ago, encapsulating his reflections on the year 2020 and the challenges that he foresees lay ahead for the banking and financial services industry. "It was a time when companies discovered what they really were and, sometimes, what they might become,” said Dimon.

As a tech company with a product geared towards a distributed workforce, Boomtown did well during the recession (despite its myriad challenges). Mr. Dimon was right – the challenges we faced forced us to discover who we were, and what we will become. 

The tech industry has not suffered the damage and losses that the retail and restaurant industries have, but tech can work hand-in-hand with banks to improve the current economic situation for them, and us all. Mom-and-Pop shops shuttered. Historic restaurants and nightclubs closed for good. Landmarks boarded up. You need only walk around downtown San Francisco to feel that you’ve been transported to a ghost town, and this fact casts something else Dimon wrote into stark relief:

“We have long championed the essential role of banking in a community — its potential for bringing people together, for enabling companies and individuals to reach for their dreams, and for being a source of strength in difficult times.”

Banks provide credit products, loans, commercial banking services, business banking services, and increasingly, merchant services, all of which have a massive role to play in getting our economy back on track. Entrepreneurs will bounce back, and the service economy will once again thrive. As it has in the past, Banking will provide the foundation for a thriving, re-built economy – or so one would assume.

Necessity breeds innovation. This is something Fintechs know very well, as does Dimon.  They knew – well before the pandemic – that retailers and other merchants were incredibly dissatisfied with their own customer experiences in getting merchant processing equipment set up. They saw an opening to provide an efficient, streamlined onboarding process for those merchants – one that minimized the complexity of dealing with third-party organizations, such as the major processing companies. They knew that with flexible technological architecture and clean data flows, they could revolutionize the world of payments processing, and they did.

Dimon is well aware of the issue. To this day, banks leave piles of money on the table, struggling to keep up with Fintechs in supplying merchant processing accounts to the merchants that need them most. In doing so, they are failing to live up to the expectations they set for themselves, a major component of which is providing excellent customer experiences. Dimon says so himself. His words ring as true for banks as any company:

“To be healthy and vibrant, a company must do many things well: It must do a great job for customers; attract, develop and retain talented employees; and serve its communities.”
“To a good company, its reputation is everything. That reputation is earned day in and day out with every interaction with customers and communities. This is not to say that companies (and people) do not make mistakes – of course they do. Often a reputation is earned by how you deal with those mistakes.”

It bears repeating that companies live and die by their reputations. The challenges posed to banks by Fintechs in the merchant service arena – and, in truth, every other banking product – is not lost on Dimon; so much so that the entire fourth section of his letter – “Banks’ Enormous Competitive Threats - from Virtually Every Angle” – is dedicated to addressing these concerns.

It’s not even just Fintechs that are coming to eat banks’ lunch, but the entire Tech Industry. From Paypal offering checking accounts and credit lines to Apple issuing credit cards, the onslaught of challenges to traditional banking is coming from all sides. Part of the reason for this is the accessibility and transportability of data via cloud technology that Big Tech has pioneered, and that banks are still late to tap into. Dimon writes, 

“To go from the legacy world to the cloud, applications not only have to be ‘refactored,’ but, more important, data also must be ‘re-platformed’ so it is accessible. This availability of data – and banks have a tremendous amount of data – makes data enormously valuable and digitally accessible. All of this work takes time and money, but it’s absolutely essential that we do it.”

Re-platformed. That’s the key. The fact of the matter is that banks’ customer data isn’t just stored away in siloes – even if it were more accessible, the platforms in which it exists don’t have the sort of agile functionality needed to make it actionable, helpful, and efficient. As a result, many who work in banks, particularly in customer-facing roles, have their hands tied in terms of how much they can do to help a customer. This has massive implications for a bank’s reputation when it comes not only to customer service but also to “keeping up with the times.” Dimon is hinting that, while not inevitable, it is possible that banks will become relics of the past if they don’t compete.

Banks will continue to play an essential role in all of our lives, and in revitalizing the economy. The degree to which they are prepared to do that, though, is up to them. They can either continue to operate as if nothing is wrong, or they can face up to the challenges that Big Tech is bringing to them and respond accordingly. It’s time for banks to fight fire with fire – and that means getting smart on tech. Banks must be willing to adapt to the modern day by adopting technological solutions that build upon their present offerings. Those platforms will function to make static, siloed data more actionable and contextually relevant to the actors who need it, at their moment of need. In the process, they will deliver a level of customer satisfaction that they haven’t been able to since the early 2000s. Without that, they’ll be continually playing catch-up with the Fintechs, barely satisfying customers while Fintechs delight them. After all, mistakes are always going to be made, but, “... a reputation is earned by how you deal with those mistakes.”