Jamie Dimon, JPMorgan Chase chairman and CEO, cited fintech as one of the “enormous competitive threats” to banks in its annual shareholders’ letter released on Wednesday.
“Banks … are facing fierce competition from Silicon Valley, both in the form of fintechs and Big Tech companies,” Dimon wrote, such as Amazon, Apple, Facebook, Google and Walmart, and “it’s here to stay. “
Fintech companies in particular “are making great strides in building digital and physical banking products and services,” Dimon said. “From loans to payment systems to investments, they have done an excellent job of developing easy, intuitive, fast and smart products.”
This is partly why ‘banks are playing an increasingly smaller role in the financial system’, he said.
Fintechs, such as Stripe, Robinhood and PayPal, have experienced a lot of growth and success over the past few years, which can present traditional banking challenges.
While traditional banks have ‘significant strengths’, such as ‘brands, economies of scale, profitability and deep roots in their customers’, Dimon also acknowledged their weaknesses. Things like ‘inflexible’ legacy systems’ coupled with ‘extensive regulations’ could hamper innovation in banks, though it could also likely make banks a’ safer ‘option for consumers.
Without such barriers, fintech businesses could thrive, according to Dimon.
“Fintech’s ability to merge social media, use data smartly and integrate quickly with other platforms (often without the disadvantages of being a real bank), will help these businesses gain significant market share,” he said. he wrote.
“[M]any banking products, such as payments and certain types of deposits, move out of the banking system. In addition, loans in many forms move out of the banking system, ‘Dimon wrote.
Amid the Covid-19 pandemic, Americans in particular have become more willing to use fintechs, according to a survey by McKinsey & Company in 2020. The consulting firm found that fintechs “are catching up with traditional banks in terms of customer confidence.”
Young people in particular serve as a driving force in their adoption: “Gen Z and Millennials have had the most fintech accounts in general,” the report said.
” However, a large number of Baby Boomers rely on a kind of fintech account, which is contrary to the common belief that digital instruments are exclusively for younger people, ‘according to the report.
Fintech’s growth was also boosted by an increase in interest in cryptocurrency and blockchain technology.
For example, as Ethereum became more mainstream, DeFi, or decentralized financing, was introduced to the market.
Decentralized finance, or DeFi, is an emerging segment of the fintech universe that refers to a system of applications aimed at recreating traditional financial instruments with cryptocurrency.
Through DeFi loans, for example, users can borrow or lend a cryptocurrency, as you could with fiat currency at a bank, and earn interest as a moneylender.
There are, of course, many risks associated with DeFi, including the lack of regulation and protection.
The same goes for the rest of fintech.
“There are serious emerging issues that need to be addressed – and fairly quickly,” Dimon wrote. This includes “the growth of shadow banking services [and] the legal and regulatory status of cryptocurrencies. ‘
To that end, Dimon called for government regulations aimed at creating a “level playing field” for banks, fintechs and non-banks (financial institutions without a banking license).
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