The annual letter to shareholders can be an exercise in self-reflection for the CEO. In his shareholder letter last April, JPMorgan’s Jamie Dimon was calm and anxious about the future of the big banks. Of course. “Increasing competition among banks, shadow banks, fintechs and big techs is intensifying and is clearly leading to a diminished role for banks and listed company…” Dimon wrote.
From all sides he saw the threat of doom.walmart
Jamie Dimon sidesteps a key point: In some respects, the existential threats facing banks today are their own fault. They ignore and ignore small businesses, the backbone of job growth in the American economy. Two weeks ago, Wall Street Journal reporter Dion Rabouin wrote that small businesses (those with fewer than 250 employees) hired 3.7 million more people than they laid off since February 2020. Compared with the 800,000 net layoffs at large corporations over the same period, this may be a good time for fintech startups to continue attracting corporate talent and underserved customers. This, and the fact that the Biden administration is now looking to include the fintech startup option in the SBA loan program, provides optimism.
However, Chase and all the other big banks are too busy serving other giants to help small businesses thrive. US taxpayers bailed out too-big-to-fail banks from the 2008 crash, and now banks are giving small and medium-sized businesses (SMBs) a cold shoulder. Even with the Federal Reserve raising interest rates more than 13 times in less than a year, these giants have failed to share the wealth with savers, paying a paltry rate of less than 0.02% ). I recently appeared on Consumer Electronics in Las Vegas This was stated bluntly on several occasions during a panel at CES.
This stinginess of JPMorgan and other giants presents a $17 trillion opportunity for smaller, enterprising fintech startups. Although the companies are a fraction of the size of Chase, they are launching FDIC-insured bank accounts that offer a 4.00% yield on deposits; $400,000 is enough for a startup with $10 million in cash Three to four jobs. Or, with a Chase checking account, they’ll be lucky enough to earn just over 0.02%.
A new wave of fintech competitors argues that all businesses, regardless of size, should be able to benefit from rising interest rates in the same way as large corporations. But big banks are deliberately insensitive to the rates and services available, and startups or SMEs have to knock on the table to get rates above 0.02%. It’s like never being sure you’re getting the best deal at a car dealership.
Fintechs emerged to offer competitive lending and deposit accounts for small businesses that were long ago abandoned by banks. Traditional banks are offline, analog, saddled with legacy technology, and lack the incentive to innovate. Fintechs are digitally native, leveraging technology to deliver faster, better decision-making and business insights; for example, approving new accounts in 10 minutes instead of 10 days or more.
While these smaller, newer rivals are targeting banks from the ground up, banks also face formidable new competition from much larger technology rivals. Apple’s market capitalization of $2.5 trillion is six times that of JPM. Apple has more than 5 billion users on Apple Pay, and another 6.5 million on its new credit card (and Goldman Sachs is footing the bill). Now, Apple is entering the realm of “buy now, pay later,” payment processing, credit risk assessment, and person-to-person payments. The result has been a steady and continued decline in traditional banking.
Expect fintech to continue its inroads at the heart of the banking industry, as the largest U.S. banks struggle to innovate and accelerate their efforts to stay in business. The fintech sector fell sharply in the open markets, falling along with the FAANGs and other large tech stocks. However, this is only a temporary turmoil in a long-term uptrend. Watch out, Jamie, fintech is looking for you.