JPMorgan ventures into UK retail banking with its first digital only bank

For the past five years or so fintechs have been touted as the future of finance, and in 2020 alone they received over $138 billion in venture capital investment. Unlike traditional banks their slick customer experience and frictionless account opening processes mean that they can onboard new customers in minutes for almost zero cost, and serve tens of thousands of customers using just two rented servers in a datacenter at a tenth of the price that traditional banks can. In short, from a cost and efficiency perspective they seem like a no brainer, so it shouldn’t come as any surprise therefore that JPMorgan Chase, who've been busy automating everything from their legal teams to their operations, has just confirmed it will launch a long-rumoured assault on the UK retail banking market with the opening of a digital-only bank this year.

The new bank will operate under the Chase brand, and makes JPMorgan the second Wall Street firm to make a foray into the UK market in recent years, following the launch of Goldman Sachs’ Marcus business in 2018. JPMorgan’s early plans are more ambitious than Marcus, which has been limited to savings accounts in the UK. It said on Wednesday it would start by offering “a new take on current accounts”, and recent job adverts confirmed it was developing new lending products.

Daniel Pinto, JPMorgan co-president, said: “Our decision to launch a digital retail bank in the UK is a milestone, introducing British consumers to our retail products for the first time. This new endeavour underscores our commitment to a country where we have deep roots, thousands of employees and offices established for over 160 years.”

JPMorgan is entering a crowded market for digital banking in the UK. Local start-ups such as Monzo and Starling have gathered millions of customers over the past few years, but none of them have managed to build sustainably profitable businesses. Returns in the UK have historically been much lower than in Chase’s home market of the US. In 2019 JPMorgan’s consumer banking business earned a return on equity of 31 per cent, almost double the best-performing UK high-street lender.

JPMorgan chairman and CEO Jamie Dimon has also previously said that “it doesn’t make sense to do normal retail banking overseas” owing to low returns, but signalled a change in direction last year when he said that new technology could make it more appealing. The bank spends more than $6bn a year on technology and it hopes that this big investment will allow Chase to keep its costs low and be more profitable than more established British banks.

“Returns [in the UK market] are what they are because of cost structures; if we can find the right cost structure we don’t think returns need to be as low as they are,” said one person close to the project.

JPMorgan also plans to capitalise on its reputation as one of the world’s largest financial institutions to attract customers who may like the products created by fintechs such as Monzo but who are cautious of having their main banking relationship with a relatively untested start-up that has significantly less liquidity. If the UK initiative is successful, the bank will consider expanding its “international consumer” division into more countries.

Win Bischoff, the former chair of Lloyds Bank and the UK’s audit regulator, has joined the board of the new project, which JPMorgan has been working on in secret for several years. Sir Win, who also led Citibank at the height of the financial crisis and was previously chairman of JPMorgan’s main European holding company, will be head of the board risk committee, according to regulatory filings and people familiar with the situation. The appointment of a prominent City of London grandee highlights the resources the Wall Street giant is dedicating to the expansion plan.

The bank has also named Clive Adamson, previously a senior official at the Financial Conduct Authority, to chair the new business. It has assembled a team of longstanding JPMorgan executives to lead the launch. Sanoke Viswanathan, previously chief administrative officer in its corporate and investment bank, was announced as chief executive on Wednesday. He will be joined by Matthew Melling, the former chief financial officer of its UK markets subsidiary, as CFO, according to regulatory filings. Sanjiv Somani will become chief operating officer, while Michelle Scales, a veteran of JPMorgan’s US consumer bank, will be chief risk officer.

The new UK business will operate on a separate technology platform to JPMorgan’s US retail arm, and the group has hired several engineers from banking start-ups such as Revolut, Starling, Monzo, Mettle and Solarisbank. JPMorgan said about 400 people were working on the new bank, with further expansion planned.

Gordon Smith, JPMorgan chief of consumer and community banking, said: “The UK has a vibrant and highly competitive consumer banking marketplace, which is why we’ve designed the bank from scratch to specifically meet the needs of customers here.”

Which then leaves us with one question: Will the new bank be successful, or will it fall on its sword like Goldman’s Marcus did after t failed to attract significant UK interest? Time will tell.