Self-Directed Investing, Embedded Finance May Be Key Areas as Banks Battle FinTechs

J.P. Morgan CEO Jamie Dimon’s letter to shareholders laid bare the competitive threats facing the banking sector generally.

And it is in the banking giant’s ongoing initiatives that we see some of the key battle lines being drawn between digital-only companies (the nonbanks and the FinTechs) and the traditional brick-and-mortar/omnichannel names that have been around for decades.

“The growing competition to banks from each other, shadow banks, FinTechs and large technology companies is intensifying and clearly contributing to the diminishing role of banks and public companies in the United States and the global financial system,” Dimon wrote.

The nod to the fact that banking stalwarts are seeing a “diminishing role” speaks to at least some of the success that nontraditional players have had against J.P. Morgan and its peers. And it’s not just the smaller firms that are making inroads. Advanced technologies are making it possible for all manner of companies to break down silos in consumers’ imaginations and offer financial services.

Dimon made mention of Walmart’s move into bringing “banking-type” services to users, and he wrote Apple is making strides with Apple Pay and the Apple Card.

“The large tech companies, already 100% digital, have hundreds of millions of customers, enormous resources in data and proprietary systems — all of which give them an extraordinary competitive advantage,” Dimon wrote.

Along the way, banks’ market caps have declined, and they have only 8% of the total U.S. debt and equity markets, down from 11% a bit more than a decade ago. The neobanks have garnered 50 million accounts in the U.S.

Read more: JPMorgan’s Dimon: Competition Between Banks and FinTechs Is ‘Intensifying’

The letter details many of the key areas in which J.P. Morgan has been spending time and money — and, writ large, where the key jockeying for consumers’ minds and wallets will stand as banks fend off the challengers.

Banking’s Transformation

We’re headed toward a widespread transformation of banking — let’s label it Banking 3.0 — as detailed recently by Netspend President Kelley Knutson. Many FinTechs don’t want to become full-service banks, Knutson said.

See more: Consumers Want, Expect Interconnected Banking and Embedded Finance

But they do want to get involved in at least some banking mainstays, including moving money and (possibly) lending. Knutson stated in his comments to Karen Webster that banks and FinTechs can “lean in together” to broaden financial services access for consumers and businesses. By and large, consumers want sales financing, short-term lending and access to rewards and loyalty-based offerings.

In a separate interview with Webster, i2c President Jim McCarthy said that as digital upstarts began building out their various offerings, they had to find traditional banking partners that would be willing to act as underwriters and ensure compliance — offering up the form and structure to provide checking accounts and cards.

Read more: Banking-as-a-Service Paves Way for New Revenue Streams, Financial Super Apps

The emergence of platforms has brought, in some cases, banks and FinTechs together, McCarthy said. For the banks, there’s the advantage of leveraging the platforms to market compliance and issuance as services and to set up an incubator inside to test out their own digital initiatives. For the FinTechs, there lies the advantage of sidestepping the hassles of hunting down partners.

The “if you cannot beat ’em, join ’em” model is but one approach, and FIs with scale and experience may indeed opt to go it alone.

Dimon’s letter this week seems to underscore J.P. Morgan’s desire to go head-to-head against the FinTechs, leveraging advanced technology and an immense amount of data to realize those embedded banking and enhanced service offerings through more than 1,000 application programming interfaces (APIs) and self-directed investing, in which Dimon said the firm has 800,000 new investment accounts totaling nearly $60 billion on the platform.

In the end, the battle between banking and FinTech may be decided by giving customers the most intuitive, self-directed experiences possible, while remaining just a text (or phone message) away from a bit of assistance. The firms (be they banks or nonbanks) that can string several services and products together are the ones that will differentiate themselves.

PYMNTS’ own research shows that 67% of consumers in the U.S. — which translates to 173 million people — want an app that manages their digital activities, while another 11% want an app that manages their entire digital lives.