Chase Ramps Up Its Community Banking Push. Can Local Brands Compete?

Chase is leaning into its community banking model nationwide, with major expansion plans on top of its existing campaign to open new branches in promising markets. Experts warn this is a wakeup call for other banks and their retail distribution strategies.

By Steve Cocheo, Senior Executive Editor at The Financial Brand

Published on October 14th, 2024 in Branch Strategies

JPMorgan Chase is beginning to look like the player who walks into the casino with a big bucket of chips, approaches the roulette table, and puts something on everything.

That would be a slight exaggeration, especially after Jamie Dimon, chairman and CEO, told analysts in the third quarter earnings briefing about how much capital was not being deployed, in favor of stockpiling cash and waiting for the right, good opportunities.

"If you look at it roughly, we have about a minimum $30 billion of excess capital," said Dimon. "And for me, it’s not burning a hole in my pocket."

But when it comes to branch strategy, it certainly feels like Chase is going all in. In February, Chase announced that it would open 500 new branches and renovate approximately 1,700 existing locations over the next three years, refining a branch network that now covers all 48 continental states. Chase has also begun opening J.P. Morgan Financial Centers, building on the network of the acquired First Republic Bank. Locations for these full-service branches, tailored to affluent clients, are operating in San Francisco and New York City, and in all more than 20 are slated to open through 2026.

Now, Chase has indicated that it is also investing in a network of more than 100 community-oriented branches in urban and rural markets that banks have typically been exiting.

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The centerpieces of this effort are flagship "Community Center" branches. The first such location opened in the Harlem neighborhood of Manhattan five years ago, and the bank reports that that community center has performed well in such measures as opening checking and savings accounts.

The company has already opened 19 Community Center branches in 13 states and the District of Columbia (see the map and listing). These locations offer banking services as well as facilities for consumer and small business financial education. The bank now plans to open nearly 100 new branches in these markets, as reported by the Wall Street Journal. (In October, no map or listing of coming new locations was available from the bank.) Some will be the full-fledged centers and others will be smaller community branches.

To support this effort, Chase announced plans in October to hire 75 community managers by 2030. The intent is to hire these officers locally to promote outreach, education and financial independence, according to the bank — the job is not a product promotion role. There are presently 150 community managers and the 75 additional hires are intended to establish at least one community manager in each of the 48 continental U.S. states served by the bank.

"This is not just ‘do-gooding,’ this is business," Dimon told the Journal in an interview. He insisted that the community banking model is producing customers, deposits and investments.

"There’s wisdom to a baseball metaphor from years ago, ‘Hit where they ain’t’," says Steven Reider, founder and president of Bancography. "We can all point to a suburban market we know that has 15 to 20 branches of different institutions clustered in a quarter-mile strip. Even if you get your fair share in that market, no matter how big the pie is, it gets divided into really, really small slices."

Reider thinks Chase is going where the slices of pie can be fatter, while maintaining multiple additional strategies.

The Financial Brand talked to a cross-section of branching experts to get a sense of the potential impact of Chase’s community-oriented expansion and of how other institutions could react to the push of the nation’s largest bank.

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Putting Chase’s Plans into Perspective

The Chase push into community banking has multiple facets. On one hand, it represents an outreach to people in present or developing "banking deserts."

"What Jamie Dimon is doing is democratizing banking, bringing it to everybody," says Ken Thomas, longtime Wharton banking lecturer and CEO of Community Development Fund Advisors. "The whole point of the Community Reinvestment Act was for banks to take care of their entire community — low- and moderate-income people, the middle class, and the upper income people. A lot of bankers preach that, but they don’t actually walk the walk. They talk it, but they don’t walk it."

Thomas says there’s good business to be done in low- and moderate-income neighborhoods and that Chase seems to agree. It’s not unlike Walmart’s strategy for meeting the needs of working class customers, he says.

"These are large, untapped markets," says Thomas. He has friends who live in unbanked markets in his home state of Florida who tend to use check cashers and payroll lenders. Chase’s plan has some ready adherents, he suspects.

The current network of 19 Chase Community Center branches is expanding. Left, the center on The Bronx’s Grand Concourse. Right, a financial literacy class in progress at the bank’s Harlem community center branch, which launched the effort in 2019.

On the business side, Leo D’Acierno, senior advisor at Simon-Kucher & Partners, sees multiple advantages, including reputational benefits and better revenue opportunities than many recognize. But he also sees an advantage that hinges very much on Chase being Chase.

"At the size that Chase has reached, it’s very difficult for regulators to countenance Chase getting any larger," says D’Acierno. The emergency acquisition of First Republic Bank, in 2023, was an unusual opportunity for the megabank.

"However, if you grow into underserved markets, no regulator is going to want to quibble with you about that," says D’Acierno. "They want those markets to be better served, and if it can happen without them having to impose it, they’re probably going to applaud. It’s a way that Chase can achieve its aspirations without causing regulators to want to put a governor on its growth."

"In a way, what Chase is doing is doubling down on the regulations and almost celebrating them," says Gina Bleedorn, president and CEO of Adrenaline. "It’s satisfying regulatory requirements exponentially."

Dimon Means It When He Says This Isn’t About Charity

Experts and analysts say Dimon’s stress on the model producing results isn’t bluster.

"Jamie Dimon isn’t doing this out of the goodness of his heart," says Alex Johnson, commentator and publisher of the Fintech Takes blog. "They’re not going to throw good money after bad if it doesn’t work out."

And Reider sees the expansion of the Chase community banking effort as a natural accompaniment to its broader branch expansion plans.

"You can’t add that many branches without ensuring some proportion of the bank’s branches serving low-income communities in fulfillment of CRA obligations," says Reider.

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Chase Doesn’t Sit Still When It Comes to Branches

It’s important to understand that Chase branching decisions and operations aren’t cast in concrete, according to Bleedorn.

"When Chase comes into a market, they don’t always stay there forever," says Bleedorn. "They’re in for a period of time to get the customers, get the deposits, get primary financial institution relationships and loans, and then they thin out over time."

She suggests in some markets Chase may open community centers and thin out unproductive locations nearby. In time, depending on market developments, the bank could pivot. The key goals aren’t the actual location, she continues, but building outreach, trust and reputation with potential new retail and small business customers. Chase plays a long-term game, but that doesn’t mean that it will plant a flag and leave it in one spot for good.

This is where there is a difference between bank branches and other retail businesses, according to Bleedorn. Gas stations, fast food restaurants and similar businesses depend on physical location for repeat sales, but banking, a relationship business, less so.

On the other hand, says Bleedorn, Chase has recognized that digital banking services are table stakes, but not the whole deal. What Chase is doing, she says, "is a wakeup call in many ways to the banking industry at large. Banks have to be paying fanatical attention to retail delivery strategy."

Will Other Big Banks Follow Chase’s Trail into Banking Deserts?

Will Chase’s community banking moves set a trend among larger institutions — or is the bank going its own way?

"Historically, we’ve been a pretty copycat industry," says Bancography’s Steven Reider, formerly an AmSouth marketer. He believes Chase will draw in its peer institutions, perhaps even the top 20 banks, into doing more to provide services to low-income neighborhoods and underserved rural communities.

As evidence, he points to Capital One’s announcement in late 2021 that it was eliminating all NSF and overdraft fees. "In the six months that followed, 18 of the 25 largest banks in America reduced or waived either their NSF or overdraft fees, or both," says Reider.

Ken Thomas thinks the ability to match Chase goes a little way down the industry’s ranks, but not far. The community center branches in The Bronx and Brooklyn in New York City, for example, cost millions before they could open their doors, he says. He thinks Wells Fargo and Bank of American could manage it.

"A lot of banks might be willing to do it, but they don’t have the ability to put up these kinds of facilities and then plan on doing 100 more. Chase is going to hire 75 more people just to do community outreach. That’s pretty impressive," says Thomas.

Gina Bleedorn thinks it’s important to think of the concept of what Chase is doing, rather than the scale, which she agrees is hard to match.

"What Chase is doing is what everyone should be doing, in a way," says Bleedorn. "They need to be creating community-oriented centers that are focused on advice and building financial literacy.

Competing with the Deep Pockets of Chase in America’s Communities

Bleedorn does worry that what Chase is doing could eat into the territory left for community banks.

"Locality is the superpower of community banking institutions," says Bleedorn. But Chase has been demonstrating it can get locality right, she says, and as it expands its efforts and other big players join the fray, "that is a threat to the lifeblood of community banking institutions across the country."

The experts say there are some countermeasures that community players can try. Among them:

1. Find opportunities in locations big banks leave behind.

As larger players rightsize and downsize, they may be leaving good opportunities on the table. "Some closed branches represent wonderful opportunities for community banks," says Thomas. "People are loyal to a branch, a physical location, not to a bank. They don’t care what name’s on it."

2. Think outside of the box — the branch, that is.

Reider says serving an underserved market physically may not demand an actual fixed branch. He knows of banks that serve some communities with mobile branches that follow a schedule much like urban food trucks. Other institutions send bankers to conduct local banking on a day or more each week at some community oriented location. Sometimes it’s just a matter of outfitting a banker with a tablet or a laptop and a desk somewhere to sit in. This could be at town hall or the local chamber of commerce office.

Alternatively, branches with a small footprint can be put in branch deserts, especially in rural markets. Reider says these can include some live staff as well as ITMs, which can serve needs with a remote human functionality. Customers with needs for special advice can obtain it via video from other offices that have an expert on staff.

3. Trade branch quantity for branch quality. Bleedorn says sometimes a strong move can seem counterintuitive. Case in point: Instead of hanging onto locations because the bank has always been there, take a realistic look at the operations. Bleedorn says sometimes bank ¬— and customers — can benefit by doing a "two-for-one."

"Let’s say you have two old, crusty branches and Chase is opening one of their new community centers nearby," says Bleedorn. "Close both of them. You’ll save on staff and operational costs. Take those savings and open something new that’s relevant, flexible, localized with local people and local outreach.

What’s the Downside for Chase?

Is there any way this push into community banking, into serving banking deserts and the underbanked, could go south for Chase?

One potential problem is one of optics, says Simon-Kucher’s Leo D’Acierno.

"When a bank opens branches in underserved areas, that’s a public relations positive," D’Acierno explains. "When you close branches in an underserved area, that’s a negative. There’s the risk that if this doesn’t meet expectations, it will be disappointing and — I don’t want to overstate this — be a blemish on Chase’s otherwise sterling record."