[AVIS D’EXPERT] While most major banks are reducing their branch network, JP Morgan Chase is doing the opposite. Decryption with our expert Guillaume Almeras, founder of the monitoring and advice site Score Advisor.
When the first world bank is betting on opening branches and collecting deposits, is it thirty years behind or five years ahead? On the occasion of its last Investor Day 2022, JP Morgan Chase presented its retail banking strategy in great detail. Two side-by-side maps, taken from this presentation, largely summarize this strategy. For five years, in fact, the first world bank has not stopped opening branches:
However, these openings are mainly justified by a figure: 75% of the deposits collected by the bank are made by customers who regularly visit its branches.
Agencies and depots, there is enough to rub your eyes! How can a bank today adjust its strategy to these two levers? Nothing has happened for at least thirty years? Many, no doubt – especially on this side of the Atlantic – will therefore see in this only the completely archaic strategy of a banking juggernaut destined to more or less soon disappear.
However, the results of JP Morgan Chase in retail banking are excellent. And one can hardly describe as archaic an establishment which, with its digital bank, is making a remarkable breakthrough in the difficult British banking market. What major European bank can boast of such success? Which one, like Chase, has 46 million active mobile customers, half of whom use its digital budget management and financial health tools? If we add that the American banking market is the one where neobanks have won the most significant market shares, the strategy of JP Morgan Chase deserves careful examination.
The threat of neo-banks
First, this strategy is fairly new. It has strengthened in recent years indeed because JP Morgan Chase believes that it is ultimately the best response to the threats of neobanks; especially when faced with this threat, many traditional establishments are convinced that they have to close their branches with a vengeance. In this context, Chase would see itself becoming the last bank to offer everyone the most complete and varied services.
Since the group has indeed invested heavily in recent years to overhaul its information systems – these data centers have at this stage been completely reformatted and largely migrated to the cloud – it will be able to offer solutions comparable to those of new players (such as an asset management app with video interaction soon to be launched). On the other hand, the latter will not be able to offer direct local contact to 85% of Americans, as JP Morgan Chase aims with its agencies.
Over the past five years, the group has opened 500 and, as the maps above show, mostly (300 agencies) in states where it was not present. Today, in the United States, 6% of bank branches are less than 5 years old. By comparison, 12% of Chase agencies are less than 5 years old. But these branches have been resized and the costs related to the operation of the network have fallen by 12% since 2017. It is expected that the new openings will be profitable after four years. This is much faster than what is generally aimed for in Europe. But nearly 70% of Chase customers continue to visit the agency, including the youngest (Millennials and Generation Z represent 45% of the group’s customers).
However, as we have underlined, the branches always seem to be decisive for the collection of deposits. This is a priority area for the group, because customers choose as the main bank the one where they concentrate their deposits the most. Because it helps build a long-term relationship, whether it’s credit, investment, advice or services. And because the collection, remuneration and reuse of deposits represent the weak point of the new digital players, which are much more relevant for payments and short credits.
Thus, while we can now judge much better what new players in the banking market are able to offer, JP Morgan Chase is betting that the old universal banking model, provided it is updated, represents the best answer to digital finance. Coming from a mid-sized establishment, that might sound crazy. But it is the first world bank which affirms it!