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JPMorgan has a plan to help Amazon and Airbnb look more like banks

American Banker | Nov 6, 2019

jamie dimon - JPMorgan has a plan to help Amazon and Airbnb look more like banksJPMorgan Chase has long feared that technology giants will act more and more like banks. The firm’s surprising solution: help them do it.

The bank has spent the last year developing an e-wallet tailored for companies such as Airbnb, Lyft and Amazon that it says could help online marketplaces and companies in the gig economy defend against getting cut out of the businesses they helped create. In the process, they’ll look a little more like banks.

The JPMorgan product would give tech companies the ability to provide millions of customers virtual bank accounts and to offer perks such as car loans or discounts on home rentals to those who keep money stashed there. The more customers use their virtual accounts to pay for services, the less the companies would have to spend on payment-processing fees to third parties such as JPMorgan.

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“A company’s biggest fear is that once they establish a commerce-type relationship, they can’t maintain the end user, and they leave the ecosystem because they now have a direct relationship with the seller,” Matt Loos, a managing director in the JPMorgan’s global payment strategy and product group, said in an interview. The goal is to create incentives for customers to stay, he said.

It sounds counterintuitive to help tech companies wade deeper into financial services. The catch is the companies can only use the offering if they let JPMorgan handle all payment processing and cash movement for them. It’s all part of a move to bolster a fast-growing wholesale payments business that on its own contributed 10% of JPMorgan’s $109 billion in revenue last year, and which moves $6 trillion of cash every day for corporations around the world.

Killing the middleman

The largest players in the gig economy and the biggest global banks are grappling with the same existential threat known in industry jargon as disintermediation — being pushed out of transactions entirely. For cautionary tales, they could look to the travel agencies and bookstores that their own technology has helped consumers sidestep.

In payments alone, banks over the next five years risk losing 15% of their revenue — around $280 billion — due to escalating competition from nonbanks such as Adyen and massive tech companies from PayPal to Apple, according to a September report from Accenture.

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The nightmare for the U.S. financial industry is that a technology company replicates the success of Alipay and WeChat in China, where money flows through digital systems without the need for banks at all.

“There’s no doubt in my mind that e-commerce platforms are thinking about how to do what you would call traditional retail banking or insurance products more than they did in the past,” Takis Georgakopoulos, who runs wholesale payments for New York-based JPMorgan, said in an interview.

For JPMorgan, the path to survival involves ceding some control in order to build a moat around its global payments offering, a business that McKinsey has called “the beachhead” of the entire banking relationship.

“The same way a company like Amazon wants to keep everything under their control, we want to keep as much money movement as possible under our control for each individual client,” Georgakopoulos said.

Pay in, pay out

Many U.S. companies feast on fees from accepting and processing payments, but JPMorgan is the only U.S. bank that has businesses that do both. Its merchant-services operation collects a fee on so-called “pay in” — when a customer pays for a good on the platform — while its treasury service unit generates revenue handling the “pay out” to the supplier or seller on the other side.

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JPMorgan said it’s targeting the 10 biggest e-commerce and gig economy companies, a group that includes Amazon, Uber, Airbnb and EBay, among others.

“We’re talking to all of them,” Georgakopoulos said. “We want the whole industry to use it.”

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