Chase’s Playbook to Beat PayPal and Square in Digital Payments

The fast-growing market for small business digital payments has been dominated by a few large fintechs. Now traditional banks are leveraging technology, relationships and trust to regain market share. A J.P. Morgan managing director explains why the ability to blend payments and customer analytics within a banking platform is a strong attraction for small businesses.
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Banking got a rude awakening when it realized the market valuations of PayPal, Stripe and Square (now Block) trounced those of even the biggest banks. Jamie Dimon’s four-letter description of how scared he and his board should be about these fast-growing fintechs made headlines in 2021.

Dimon described these fintech powerhouses as strong and smart — they often ride the banking industry’s payment rails. Asked by an analyst how Chase would compete, Dimon said “we have plenty of resources, a lot of very smart people. We’ve just got to get quicker, better, faster…”

He wasn’t blowing smoke. J.P. Morgan, the commercial side of JPMorgan Chase, already had a competitive response well underway in the fast-moving market for digital business payments at the time Dimon made his remarks.

Playing to Strengths:

Chase and other banks regain ground lost to Stripe and other big fintechs by integrating banking, payments and business services.

It’s a critical market for banks as many small businesses are looking to the digital payments ecosystem as a marketing tool and revenue driver. Large fintechs like Square, PayPal and Stripe dominate the small business digital payments space, but J.P. Morgan, TD Bank and other big banks are now catching up, with new offerings that combine banking, payments, and other services under the same roof.

The Financial Brand caught up with Brad Brodigan, Managing Director and Global Head of SMB Payments at J.P. Morgan, who revealed insights into Chase’s latest initiatives.

Digital payments are becoming more secure, easy and convenient, the executive states. “We’ll continue seeing more migration to digital payments,” he predicts. “Small businesses want technology that enables them to manage their business 24/7, but they also want the ability to talk to someone they know and trust. That combination gives us a great advantage.”

Fast Processing and Digital Identity

Small businesses are flocking to digital payments for convenience, cost and ease. Nearly three-quarters of small businesses said accepting new forms of digital payments is fundamental to growth in 2022, according to a Visa survey. Almost 60% say they already are using — or plan to use — only digital payments within the next two years.

The greatest benefit for businesses has been speed and access to funds. While waiting three to five days to access funds was the accepted norm a decade ago, new fintech options have made many businesses question the delay. Square, for example, offers a fast settlement option that enables small businesses to instantly access sales funds for an additional 1.5% fee.

Not to be outdone, Chase has its QuickAccept service, which enables small businesses to accept and process payments on a contactless mobile card reader or directly from a computer. It offers faster access to cash with no-fee, same-day deposits.

The data and digital identity aspects of digital payments offer many unique use cases and applications for the 30 million small businesses in the U.S., says Brodigan. Many companies now tie phone numbers and loyalty programs to payment methods. Some have also used these identities to store forms of payment and make the purchasing process easier for customers.

“Consumers can use that digital identity to pay in a fast, easy, but secure way,” Brodigan states.

“Buyers and sellers are finding ways to make the payment a frictionless part of the buying experience.”

— Brad Brodigan, J.P. Morgan

Other Chase applications are also tying identities to digital payments. In 2021, J.P. Morgan acquired a majority stake in Volkswagen Payments, which offers in-vehicle payments for things like parking and tolls. “I think we’ll find payments becoming more about digital identity and enabling interesting new ways to buy and sell than we ever thought possible,” Brodigan maintains.

Read More: Chase Reveals Its Strategy for Dominating Retail Banking

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If You Can’t Beat Them, Acquire Them

If Chase’s recent moves sound straight out of a fintech playbook, it’s because they are. The bank has invested heavily in fintech capabilities and talent in recent years. Brodigan is a prime example on the talent side. Before coming to Chase in late 2020, he served as the Chief Commercial Officer at BlueVine, President of Dosh, and Global VP of Middle Market & Retail at PayPal.

Besides Volkswagen Payments, Chase has made other notable investments in the payments space, including a 49% ownership stake in Viva Wallet, a European small business payments platform and the acquisition of Renovite a cloud-based fintech serving the merchant acquiring market.

Traditional institutions can significantly benefit from fintech-type merchant capabilities because they bring legacy trust to the table. The J.D. Power 2022 U.S. Merchant Services Satisfaction Study found large banks have gained headway against fintechs in providing low-cost, user-friendly merchant services solutions. Bank of America and Chase Merchant Services took the top two spots, ahead of Square.

“It’s a matter of being able to trust the brand,” notes Brodigan. “They know we’ve taken care of the safety, security and scalability. It’s also the ability to provide live support, so when they need an agent or that community branch, it’s there.”

Measures such as two-factor authentication, text message confirmations, and geotargeting are making digital payments increasingly secure, Brodigan explains. Combined with the backing and trust of a major bank, these innovations are making digital payments even more safe than traditional payments.

Read More:

All-in-One: Payments, Analytics and Banking

As part of its research into the small business market, Chase found through its surveys that 70% of small businesses are looking for their financial service provider to provide them insights to help them run their business more effectively.

Rebundling:

Small businesses have been seeking relationships with fewer service providers who can provide an integrated menu of banking, analytics and accounting services.

In June 2022, Chase launched Customer Insights, a business intelligence platform with analytics to help small business owners better reach customers and manage their bottom line. The solution enables a small business to track daily sales and historical trends, understand customer demographics and purchasing habits, and discover how customer shop with similar businesses in the industry and by location.

“We offer them the ability to learn about their business and how they compare with information that small businesses typically don’t have,” says Brodigan.

Chase also found businesses are seeking fewer suppliers to provide the range of services they needed. Many now expect fully integrated services, including banking, payment processing, marketing analytics and accounting from one source without requiring a separate login and user interface.

“We bring a lot of that together in an integrated account,” Brodigan explains, “that gives small business owners the ability to access their payment account, make payments in or out, manage their finances, access their credit card and manage their business more seamlessly.”

Chase is not alone in this approach of bringing multiple business services within a bank platform. TD Bank has taken a similar approach to the small business market, leveraging its network of branches with digital capabilities. It introduced TD Online Accounting, for example, a solution that integrates payments and accounting, enabling small businesses to process payments, customize invoices, and access a treasury management platform within their online banking account.

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