JPMorgan is “aggressively” investing in the next generation of technology like blockchain and robotics and is one of its “major priorities” in 2016, according to an internal memo seen exclusively by Business Insider.
A note sent to employees by Daniel Pinto, head of JPMorgan’s Corporate and Investment Bank, shows that the lender wants to ensure its $9 billion (£6 billion) investment in technology continues in 2016.
Blockchain, big data, and robotics are the focus for JPM. Working groups are also being pushed to develop “market-leading platforms”, with no detail on what they might be.
Here’s an excerpt from the memo (emphasis ours):
As we look ahead to 2016, one of our major priorities will be to aggressively pursue the innovative technologies that we have been making investments in. Internal working groups have made significant advances this year and will be provided even more freedom to develop market-leading platforms in 2016.
We have also established teams dedicated to areas such as blockchain technology, big data applications and robotics.
Blockchain is a name for the software underpinning bitcoin that uses complex cryptography and distributed ledgers — copies of records in multiple places — to regulate, record, and enable transactions using bitcoin.
Right now, if you pay someone in pounds, one bank will have to get in touch with the other and tell them to update the balance. Then at the end of the day bulk transactions are moved between banks, via an intermediary, to make sure everyone has the right amount of cash.
With the blockchain, all that hassle is wiped out — you just pay another person directly into a digital wallet.
Banks are excited about the possibility of adapting this technology for use in traditional financial services, using bitcoin’s blockchain or, more likely, a replica system — a private blockchain. This would allow banks to enjoy the benefits of the blockchain when dealing with each other.
JPMorgan has been instrumental in trying to bring blockchain to the mainstream, becoming one of the first banks to sign up to the R3 partnership. R3 is a startup convening the banking industry to develop sector-wide standards and use cases for the blockchain.
On Thursday software non-profit The Linux Foundation also “announced a new collaborative effort to advance the popular blockchain technology,” involving JPM.
In his note to employees, Pinto expresses his “thanks and appreciation to all of you for the outstanding work,” and says 2015 saw JPM evolve alongside the “momentous transformation” of the banking industry. This was done by radically growing investment in, and focus on, technology.
He goes on:
Being the industry leader means driving change, not following it, which is why we have also been working and investing alongside established technology companies, as well as ambitious, young start-ups that are looking at a wide range of technological advancements.
JPM has invested in peer-to-peer lender Prosper and payments startup Square among others.
‘The momentous transformation’ of the banking industry
Pinto’s memo fits with the warning from JPM’s CEO Jamie Dimon in his annual letter to shareholders in April.
Dimon said that “Silicon Valley is coming” and if banks don’t up their game, then tech companies will take over the industry’s business.
“There are hundreds of startups with a lot of brains and money working on various alternatives to traditional banking,” Dimon wrote. “The ones you read about most are in the lending business, whereby the firms can lend to individuals and small businesses very quickly and — these entities believe — effectively by using Big Data to enhance credit underwriting.
“The ones you read about most are in the lending business, whereby the firms can lend to individuals and small businesses very quickly and — these entities believe — effectively by using Big Data to enhance credit underwriting.
“They are very good at reducing the ‘pain points’ in that they can make loans in minutes, which might take banks weeks. We are going to work hard to make our services as seamless and competitive as theirs. And we also are completely comfortable with partnering where it makes sense.”
“Rest assured, we analyse all of our competitors in excruciating detail — so we can learn what they are doing and develop our own strategies accordingly.”
Dimon’s warning and JPM’s push into blockchain, open data, and robotics come at a time where banks are starting to feel the pressure from the tech industry.
Ex-Barclays CEO Anthony Jenkins warned earlier this year that banks are facing an “Uber moment” that could reduce headcount by up to 50%. There are sign this could already be happening — 11 big banks have cut a combined 10% of their staff this year.
Analysis by the Financial Times showed that almost 100,000 banking jobs were cut this year, equivalent to 10% of the combined staff of the 11 big European and US banks that announced cuts. But much of this was due to a decline in client activity and cost-cutting in the face of stricter regulation.