Jamie Dimon is probably the most respected banking CEO on Wall Street today. And he should be. He was the guy that really didn’t need the bail-out money but took one for the team when asked to do it by the Secretary of the Treasury. He picked up the imploding Bear Stearns after some sweet talk by the Feds. And not so long ago, when it was popular for the politicians to bash all things big finance – he was about the only person to shoot back as most of his mates ran for cover (because the finance industry is important for the country!). And when Elizabeth Warren tried to slap him down he reportedly declared to her to go ahead and “hit” him with a fine because his bank could “afford it.”
But now he is warning about another threat to the castle of finance known as JPM and it is not another hit and run assault from a grandstanding politician inside the beltway. Silicon Valley is on the list of challenges to the old school mega-bank.
In his most recent missive to JPM shareholders, one that is 39 pages long, Dimon points to the emerging threat of innovators to the established realm of finance:
“Silicon Valley is coming. 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.”
Dimon is smart to consider partnering with the disruptive types of finance. But it may be even smarter to acquire. While the banking industry has been smothered by misdirected regulations that destroy productivity and eventually dump the cost onto consumers, innovative firms are disrupting the capital formation process. Be it peer to peer lending or investment crowdfunding -the internet finance industry is only just getting started. And Dimon is right, once again, to note;
“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…”