Big banks are under growing competition from Silicon Valley startups, complicated digital currency systems such as bitcoin’s and alternative lenders that can “make loans in minutes,” says the chief executive of this nation’s largest bank, JPMorgan Chase.
In his annual letter to shareholders this week, JPMorgan CEO Jamie Dimon warned investors and those in the banking industry of the growing competition out of Silicon Valley, including digital currencies and nonbank firms that can quickly lend to individuals and small businesses.
Dimon is primarily referring to the fast-growing, peer-to-peer lending industry. This is when a company serves as sort of a middleman between people who need to borrow money and investors who have money to lend. Several companies have excelled in this arena, such as Lending Club and Prosper. They are originating billions in loans and growing at breakneck rates.
Prosper Marketplace, the second-biggest U.S. peer-to-peer lender after Lending Club, just received an influx of cash that values the business at $1.9 billion.
Here are the highlights of Dimon’s comments on this growing competition:
On Silicon Valley:
“There are hundreds of startups with a lot of brains and money working on various alternatives to traditional banking. 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.”
On Bitcoin and other payments platforms:
“You all have read about Bitcoin, merchants building their own networks, PayPal and PayPal look-alikes. Payments are a critical business for us – and we are quite good at it. But there is much for us to learn in terms of real-time systems, better encryption techniques, and reduction of costs and ‘pain points’ for customers.”
On New Competition:
“New competitors always will be emerging – and that is even truer today because of new technologies and large changes in regulations. The combination of these factors will have a lot of people looking to compete with banks because they have fewer capital and regulatory constraints and fewer legacy systems. We also have a healthy fear of the potential effects of an uneven playing field, which may be developing. ”
On digital currencies and small business:
“We want to become the easiest bank to do business with, and we are working hard to speed applications, simplify forms and add digital conveniences. For example, we want a small business to fill out an application that can qualify it for Ink (our small business credit card), Paymentech, deposits and loans all at once. We believe that if we bundle the services that small businesses really want and also provide meaningful advice, we can dramatically grow this business.”