News today that JPMorgan is launching a free investing app is a case study in the cadence of technological disruption when it occurs in mature, regulated industries. If you haven’t seen the particulars of this announcement, here are the highlights:
- Starting next week, anyone currently using the Chase banking app or website will be able to open a brokerage account. There are no balance minimums and funding from Chase checking/savings will be instantaneous. The whole account opening process should take 3 minutes.
- Customers will be able to execute 100 trades for free in the first year. After that, trades will cost $2.95 apiece. Accounts over $15,000 will have no-commission trading past year one.
- Users will also have free access to JPMorgan stock research and a portfolio-building tool.
No, none of this is exactly “new” to the brokerage industry. Startups like Robin Hood offer web/app enabled free trading. Robo-advisors (think Wealthfront and Betterment) run a similar model, with low cost tech-enabled investment platforms delivering advisory services and no/low minimum investments. JPMorgan will have one of those early next year as well, according to today’s news.
Imagine for a moment if Walmart had launched a robust Amazon competitor in 1996; this is the closest analog we can think of to JPMorgan’s move today.That would have been a year after Amazon started shipping books, but a year before its IPO. No doubt the world would look very different today had executives in Bentonville chosen to aggressively pursue online commerce rather than stick primarily to brick and mortar retail.
At first blush, JPMorgan might look late to the party with its new service in the same way Walmart has struggled to catch up to Amazon. One difference is that financial services are more heavily regulated than online retail, so fresh-faced competitors tend to grow more slowly. Then there is the inherently single-point and conservative nature of consumer banking/brokerage. You may try out a new shopping site to see if you like it, but you are much less likely to shift your IRA to a startup or open multiple trading accounts with app-based trading services just to check them out.
So now that the floodgates are open, what can we expect next? A few thoughts:
- When it comes to retail brokerage commissions, the race to zero is over and consumers won. Expect to see major online brokers match JPMorgan’s pricing structure soon.
- Other retail banks will have to consider adding a similar service, even if they are not in the brokerage space currently. We suspect the typical consumer will see merit in consolidating their banking and brokerage accounts in one place, especially when that location is a smartphone app.
- JPMorgan’s move also means the opening of M&A season on FinTech companies (and perhaps online brokers as well) that offer app/web trading, as retail banks search for technology partners to offer this service rather than build it on their own.
You might be wondering how JPMorgan (or any other financial institution) plans to make money NOT charging for their services. Just consider:
- Integrating a customer’s entire financial life, from their credit/debit cards to mortgages and (now) investments gives a financial institution the chance to collect an entire data-driven picture of what other services they might want. That allows for more intelligent cross selling and new product development.
- Banking is a mature industry, which means market share drives growth. Customer acquisition costs are high, but switching costs are low. Giving consumers an end-to-end financial solution should make them stickier and more likely to migrate to your platform.
- Younger customers – think millennials – have been slow to enter the investor class since they are often burdened with student loans. A no-minimum brokerage account that conveniently links to their bank account on one app is an appealing offering to this important cohort.
Our summary: JPMorgan has shown it will not willingly be “Amazoned”. How much the rest of the US banking industry responds to today’s news remains to be seen.