Jamie Dimon, chairman and CEO of JPMorgan Chase, included fintech technology as one of the “huge competitive threats” to banks in its annual letter released Wednesday by shareholders.
“Banks … face extensive competition from Silicon Valley, both in the form of fintechs and high-tech companies,” such as Amazon, Apple, Facebook, Google and Walmart, Dimon wrote, and “that’s here to stay “.
Fintech companies, in particular, “are making great strides in creating digital and physical banking products and services,” Dimon said. “From loans to payment systems to investment, they have done a great job in developing easy-to-use, intuitive, fast and smart products.”
That’s why, in part, “banks are playing an increasingly small role in the financial system,” he said.
Fintechs, such as Stripe, Robinhood and PayPal, have experienced great growth and success in recent years, which can present challenges to traditional banks.
While traditional banks have “significant strengths,” such as branding, economies of scale, profitability, and deep roots with their customers, Dimon also acknowledged their weaknesses. Things like “inflexible“ inherited systems ”along with“ extensive regulations ”can hinder innovation within banks, although they can certainly also make banks a“ safer ”option for consumers.
Still, without these hurdles, fintech technology companies have been able to thrive, according to Dimon.
“Fintech’s ability to merge social media, use data intelligently, and quickly integrate with other platforms (often without the disadvantages of being a real bank) will help these companies gain significant market share,” he said. he wrote.
“[M]any banking product, such as payments and certain forms of deposit, among others, leaves the banking system. In addition, lending in many ways is coming out of the banking system, ”Dimon wrote.
In the midst of the Covid-19 pandemic, in particular, Americans have been more willing to use fintechs, according to a 2020 McKinsey & Company survey. The consulting firm found that fintechs are “catching up with banks. traditional in terms of customer confidence “.
In particular, young people act as a driver in their adoption: “Gen Z and Millennials had the most fintech accounts overall,” the report said.
However, “a substantial number of Baby Boomers rely on some sort of fintech account, which contradicts the general perception that digital tools are exclusively for younger people,” according to the report.
Fintech’s growth has also been driven by increased interest in cryptocurrency and blockchain technology.
For example, as Ethereum has become more common, decentralized finance or DeFi has been introduced to the market.
Decentralized finance, or DeFi, is an emerging segment of the fintech universe that refers to an application system with the goal of recreating traditional financial instruments with cryptocurrency.
Through the DeFi loan, for example, users can borrow or borrow cryptocurrency, as you could do with fiat money in a bank and earn interest as a lender.
There are, of course, many risks associated with DeFi, including its lack of regulation and protections.
The same goes for the rest of fintech.
“There are serious emerging issues that need to be addressed – and quickly,” Dimon wrote. Among them is “the growth of shadow banking [and] the legal and regulatory status of cryptocurrencies “.
With this in mind, Dimon called for government regulations to be aimed at creating “a level playing field” for banks, fintechs and non-banks (financial institutions without a banking license).
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