What JPMorgan is doing with that $9.5 billion tech spend

JPMorgan Chase CEO Jamie Dimon once said Silicon Valley is coming to eat Wall Street’s lunch, but three years later, the banking behemoth is emerging as a leader in innovation among its legacy banking peers. The bank revealed in its annual report this week that it spent more than $9.5 billion in technology company-wide in 2016, or 16 percent of its total expenses. Compare that to the $809 million in tech and communications spending Goldman Sachs reported for the same year. Of that $9.5 billion, JPM allotted $3 billion to “new initiatives,” $600 million of which it spent on improving digital and mobile services and on fintech partnerships. The company has more than 40,000 technologists, and roughly 18,000 of them are developers creating intellectual property. “One of the reasons we’re performing well as a company is we never stopped investing in technology – this should never change,” Dimon said in his annual letter to shareholders. “The reasons we invest so much in technology… are simple: To benefit customers with better, faster and often cheaper products and services, to reduce errors and to make the firm more efficient.” JPM has been at the forefront of Wall Street’s relationships with fintech startups. In the last three years it has partnered with OnDeck Capital for small business lending, Symphony for communications systems, TrueCar for auto finance and Roostify for mortgages. It is currently collaborating with Zelle on a consumer payments system that could rival Venmo. Dimon also highlighted the bank’s Developer Services API store, which would allow third party developers of financial applications to access JPM’s suite of application programming interfaces, and vaguely alluded to some upcoming “bill payment and business services” functionality. Small business online lending has grown to $9.6 billion as of 2016, up from $1.6 billion in 2012, according to Brian Kleinhanzl, who covers universal banks at investment banking firm Keefe, Bruyette & Woods. While the dollar amount isn’t a huge increase, these figures still make for a 57 percent compound annual growth rate. To capture that market share, JPM has created a Chase Business Quick Capital, a white label offering that allows small businesses to complete a loan application in minutes and get funding the same day. “[JPM] is really trying to tie all services, such as deposits, payments and lending, across one platform so underwriting decisions are faster,” Kleinhanzl said. “There’s a tremendous value in being able to see across businesses to get a full picture of the client relationship. Ultimately JPM would like to own every part of the client banking relationship and the company is willing to spend to make that happen.” In the 2016 annual report, chief operating officer Matt Zames detailed the bank’s plans to automate basic processes and save costs by implementing robotics and machine learning. Perhaps the most astounding example of the latter is an intelligence platform that can analyze 12,000 legal documents in seconds. Previously, the process took as much as 360,000 hours, he said. “JPM really is like a large tech company in some respects,” Kleinhanzl said. “Basically, if you name a process the banks do, JPM is likely trying to automate that process and also grow market share.”