Chase’s Success With Its U.K. Digital Bank Could Become a Global Model

The megabank loves its branches in the U.S., but everywhere else, digital-only is its mantra. Strong results from its Chase U.K. digital bank are helping to quiet investor concerns (so far) over the parent's massive tech budget, and point the way to further expansion.

JPMorgan Chase’s U.K. digital bank (known simply as Chase) is still in its infancy and a long way from home — nearly 3,500 miles away from its parent company — but it’s amassing successes to accompany its big tech investments. Headquartered in Canary Wharf in London, the new brand was launched in September 2021.

In less than a year, U.K. Chase has attracted roughly half a million customers. It also boasts over $10 billion in deposits and has processed 20 million payments.

“We have been watching in which markets customers are really ready to do their banking primarily through digital channels,” Sanoke Viswanathan, Chief Executive Officer of the U.K. Chase brand told Reuters. “The U.K. frankly leads the way in this respect.”

Chase U.K. doesn’t have any branches, only a single “purpose-built customer contact center” based in Edinburgh, Scotland.

The success of the megabank’s U.K. unit has been a relief to the bank’s shareholders. But, investors and industry experts weren’t always on board with Chase CEO Jamie Dimon’s decision to set up a digital bank in a new market. As the Washington Post pointed out in an article on the new venture, “Britain doesn’t need another online-only bank. It already has a host of scrappy upstarts making little headway against a handful of dominant traditional lenders.”

Not to mention that Chase’s similar U.S.-based digital startup, Finn, lasted only a year before being folded.

So, what’s the thinking behind this new digital bank? Can Chase give the already-concentrated U.K. digital banking market a run for its money?

Pushing Ahead Despite Grumpy Investors

At the time the new U.K. brand launched, Chase’s Viswanathan observed that low overhead is key to making a digital bank work in the U.K.

“The market structure in the U.K. is such that you have to generate economies of scale; there are profits to be made but if you are subscale or have a high-cost infrastructure, you’re not going to make it work,” Viswanathan said.

Generating scale requires significant investment in technology. This ran into some serious investor pushback when Dimon told investors early in 2022 the technology budget for the bank would be hefty. The Financial Times reported at the time that major JPMorgan shareholders were “concerned with the bank’s plans to increase spending on new projects in 2022 by 30% to nearly $15B, of which the largest proportion is directed towards technology.”

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“I’ve not talked to one investor globally that has disagreed with our conclusion that JPMorgan needs to provide better transparency on where, why and when they will spend this record amount,” Wells Fargo Analyst Mike Mayo told the Financial Times.

A Rocky Start:

It took some convincing to win over analysts who were concerned about digital bank dropouts — particularly one of Chase Bank's own failed trials.

Given the bank’s history with Finn, it’s understandable that investors and analysts would be skeptical. Many challenger banks have faltered in the United States, which industry experts attribute to a lack of demand. JPMorgan Chase never revealed how many customers Finn onboarded, but Cornerstone Advisors estimated the U.S. digital bank picked up only 47,000 customers in its time in the market.

How Chase Justifies the Digital Bank Investment

There was radio silence for several months after Dimon’s spend announcement, which made the industry uneasy. Then, during the bank’s Investor Day, Viswanathan revealed more details about the investment in technology for Chase U.K.

“JPMorgan Chase expects to lose more than $1 billion in the next few years on its new digital-only international consumer bank that began operations in the U.K. last year,” Viswanathan said, adding the executive team hopes the digital Chase business will break even by 2027 or 2028.

Learn More About Chase’s U.S. Retail Strategy

“Roughly 70% of its costs [are] largely fixed in nature,” writes Motley Fool about the U.K. digital bank. “The platform can also support multiple products and scale to millions of customers at a low marginal cost.”

In addition, Viswanathan noted that once the company is on its own two feet, it won’t require the same scale of investments to move into other geographic markets.

Only time will tell — but skepticism is likely to hover around the brand for some time. As eMarketer points out, “the bank’s projections for Chase [U.K.] are likely an attempt to appease investors who called for more clarity regarding the rationale behind launching the digital bank.”

More About the Strategy for Chase U.K.

Like most of the digital banks crowding the market in the United Kingdom, Chase purposely chose not to build branches into its digital bank’s infrastructure.

“There’s no chance that JPMorgan will put 100 branches in Mumbai or Hong Kong or London or anywhere and actually compete,” JPMorgan CEO Jamie Dimon said at the investor day.

But, there’s more to the digital bank’s strategy than just a branchless footprint and a mobile app. It started with a free checking account, accompanied by a bevy of personal finance management and budgeting tools. Then, it added savings accounts with a variable interest rate of 1.5% in March 2022, when inflation hit highs in the United Kingdom.

That’s not even the most impressive part, however, points out the Motley Fool.

“JPMorgan claims it has gathered twice the amount of non-interest-bearing deposits than digital challenger banks in the U.K. one year after launch,” it says. “Non-interest-bearing deposits … are considered more sticky than other deposits in a rising-rate environment, making them the best kind of deposits a bank can have.”

Deposit Winner:

To help justify its large tech investments, JPMorgan says its Chase digital bank is collecting more noninterest bearing deposits than other U.K. neobanks.

In addition to attracting a swarm of new customers, Viswanathan said that nearly a third (30%) of its U.K. customers are “highly engaged” with Chase’s products.

“These are customers that are using our debit cards multiple times a day, [and] making payments in and out multiple times a week, including bill payments in the form of direct debits,” Viswanathan explained. “They’re making regular credits into their accounts — including salary credits, and they’re putting in substantial savings.”

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Where Is Chase Digital Banking Headed Next?

The opportunities are limitless for JPMorgan and its digital divisions in the company’s international plans, said Viswanathan.

“It’s a $1.3 trillion revenue pool that’s projected to grow at 6% a year for the next several years,” he continued. “Historically, banks have struggled to do well in markets outside their home markets in retail banking. But we think this is changing with digital.”

The megabank has placed bets on other digital banking ventures as well. Ahead of launching its digital U.K. Chase brand, the bank acquired online investment management bank Nutmeg. It also bought a 40% stake in C6 — Brazil’s third largest digital bank.

“Brazil is the third largest retail banking market in the world, and it’s one of the most aggressively digitizing markets,” Viswanathan said. He said the C6 investment is a great resource and entrance into the Brazilian market.

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