[AVIS D’EXPERT] While most major banks are reducing their branch networks, JP Morgan Chase is doing the opposite. Decryption with our expert Guillaume Almeras, founder of monitoring and advice site Score Advisor.
Thirty years back or five years from now when the first world bank was betting on opening branches and collecting deposits? JP Morgan Chase detailed its retail banking strategy on the occasion of the last Investor Day 2022. Two side-by-side maps from this presentation largely summarize this strategy. In fact, the first world bank has not stopped opening branches for five years:
However, these openings are mainly supported by a number: 75% of the deposits collected by the bank are made by customers who regularly visit their branches.
Agencies and warehouses have enough to make you rub your eyes! How can a bank adjust its strategy to these two leverages today? Has nothing happened for at least thirty years? Many will no doubt—especially on this side of the Atlantic—will therefore see the utterly archaic strategy of a banking juggernaut doomed to disappear more or less soon.
However, JP Morgan Chase’s results in retail banking are excellent. And it’s hard to describe as archaic an organization that has made a remarkable breakthrough in the challenging British banking market with its digital bank. What major European bank can boast of such success? Who, like Chase, has 46 million active mobile customers, half of whom use digital budget management and financial health tools? JP Morgan Chase’s strategy deserves careful scrutiny if we add that the American banking market is the one in which neobanks gain the most significant market shares.
The threat of neo-banks
First, this strategy is fairly new. Indeed, it has gained strength in recent years because JP Morgan Chase believes it is the best response to neobanks’ threats; especially when faced with this threat, many traditional organizations believe they have to close their branches in greed. In this context, Chase would see itself as the last bank to offer the most complete and varied services to everyone.
As the group has made really big investments in recent years in overhauling its information systems (these data centers are now completely reformatted and largely migrated to the cloud), they will be able to offer solutions comparable to those of new players (for example, a video interactive asset management application to be launched soon). The latter, on the other hand, will not be able to provide direct local contact to 85% of Americans, as JP Morgan Chase has targeted with its agencies.
Over the last five years, the group has opened 500, mostly in states where it doesn’t have 300 agencies, as the maps above show. Today, 6% of bank branches in the United States are younger than 5 years old. By comparison, 12% of Chase agencies are less than 5 years old. However, these branches have been resized and the costs associated with operating the network have fallen by 12% since 2017. New startups are expected to be profitable four years from now. This is much faster than is generally targeted in Europe. However, approximately 70% of Chase clients continue to visit the agency, including the youngest (Generation Y and Gen Z represent 45% of group clients).
However, as we have underlined, branches always seem to be decisive in collecting deposits. This is a priority area for this group because customers choose the bank with which they concentrate most of their deposits as their parent bank. Because it helps to build a long-term relationship such as a loan, investment, advice or service. And the collection, payment and reuse of deposits represents the weak points of new digital players, which are much more suitable for payments and short loans.
Thus, while we can now better assess what new players in the banking market have to offer, JP Morgan Chase is betting that the old universal banking model represents the best response to digital finance, provided it is updated. If you’re coming from a midsize organization, this might sound crazy. But the first world bank to approve it!