For many years, traditional banks have had little trouble attracting customers who needed to obtain loans. However, as most people can attest, the process can be stressful and time-consuming. Nevertheless, since that's the way business has always been conducted, there were few if any other options. However, as technology has found its way into the banking world, many online companies specializing in lending services have positioned themselves to take a bite out of how traditional banks do business. That has many people concerned, particularly JP Morgan's CEO Jamie Dimon. According to Dimon, Silicon Valley may forever change the way lending and other banking services are done.
What has Dimon most concerned appears to be the Silicon Valley startups that have plenty of money, knowledge, and determination to chip away at traditional banking services. The future of banking is starting to look more and more as if it will be comprised of lending businesses catering to individuals and small businesses. With the ability to make loans in minutes rather than days or weeks, businesses such as Lending Club and Prosper have valuations in the millions and have started to get the attention of not only customers but many of the world's biggest banking companies, such as JP Morgan. As online companies continue to make their services easy to use and offer competitive lending rates, banks such as JP Morgan realize developing partnerships with these businesses remains a real possibility in the future.
Bitcoin and the Competitive Threat
What has banks like JP Morgan very concerned about the future of banking services is how companies such as Bitcoin have experienced tremendous growth and sustained continued customer interest. Although yet to be considered mainstream, Bitcoin has received support from many large investors, such as the New York Stock Exchange. This has enabled Bitcoin as well as other similar businesses to further develop their business plans and models, which in turn has allowed them to continue taking more and more business away from traditional banks. Using such advantages as lower costs, improved encryption techniques, and real-time systems that have proven to be reliable and accurate, Bitcoin has staked itself as a prime contender to force banks like JP Morgan to adapt to changes or be left behind in the coming years.
No Free Ride
Another advantage startups have over larger banks involves the fees that come with moving money from Point A to Point B. While banks typically must pay these fees, many startup companies focusing on lending and payment services have so far found themselves not required to do the same. According to Dimon, this gives the startups an unfair business advantage that they use to entice consumers to use their services. However, Dimon argues that these companies misuse this when dealing with consumers. Payment systems such as the ACH system, which is controlled by NACHA, cannot function in real time yet is constantly misused by startups. By taking advantage of this free ride, startup companies have been able to stake their claim as a true business alternative to banks for consumers and gradually take away more and more customers from traditional banks.
While the future may appear dim for traditional banks, Dimon believes all is not lost. By analyzing the competition and then developing their own strategies through onboarding to compete with startups, Dimon sees the day when traditional banks will be able to compete with and perhaps even form partnerships with many of the tech startups. By having the good of the consumer as the top priority, banks like JP Morgan will stay strong in the face of increasing competition.