
In JPMorgan's earnings call last week, the largest US bank reported record profits and a plan to build 400 new branches. But it also said it was increasing its yearly technology budget to $12 billion. That's up from $9.5 billion in 2020.
Analysts had a hard time accepting the big increase in tech spending. The increased tech budget pushes total expected expense growth to 8%, which could cause the firm to miss profitability targets this year and perhaps in 2023. They want to understand the growing tech budget better.
CEO Jamie Dimon was tough with analysts who wanted more clarity and specifics on the firm's expanding tech spending, including an understanding of when the firm expects these investments to yield profits.
"A lot of you want payback tomorrow and stuff like that. We'll not disclose those numbers, but we are there for the long run. We're going to be adding products and services and countries for the rest of our lives. So I doubt, over the long run, we'll fail."
What's in the budget
For a bank the size of JPMorgan, defining what's a technology investment and what's not is a bit tricky. That's because it spends a lot of money on just keeping the technology lights on, managing its legacy systems. And while this might seem like necessary maintenance, moving technical investments to the cloud may ultimately enable the bank to make more money in the future.

Defensive and offensive spending
JPMorgan likes to split out its investment in technology into two categories, which it calls run the bank and change the bank. Run the bank technology spend has to do with maintaining the legacy infrastructure, keeping the lights on -- "foundational and mandatory" spending. Change the bank spend is about investing in the future. The bank will split its $12 billion tech budget this year about evenly between the two types of technology investments.

The bank will continue to spend on regulatory-related investments, modernization and the retirement of technical debt. Jeremy Barnum, the bank's CFO, cautioned analysts and investors not to look at this type of spending as merely "defensive".
"I wouldn't actually describe retiring technical debt as playing defense," Barnum said during the firm's latest earnings call. "I think that's actually a great example of the whole point of this conversation, which is that retiring technical debt is an easy thing to not do if you're applying defense focused on short-term targets. But if you're playing offense for the long term, it's exactly this type of decision that creates some of the frustration... that's critical for the long-term success of the company."
2022's technology spending includes:
- Modernization, which includes migrations to the cloud, as well as upgrading legacy infrastructure and architecture. Jamie Dimon said that this year, roughly 30% to 50% of the firm's apps and data will be moving to the cloud.
- Data strategy that enables the bank to extract value in its proprietary data by cleaning it and staging it and deploying modern techniques against it
- Attracting and acquiring top talent with modern skills
- A "product operating model"
CFO Barnum said the product operating model was "a popular buzzword... that reflects the simple reality that the best products get delivered when developers and business owners are working together iteratively with end-to-end ownership. Underpinning all of this is our continued emphasis on cybersecurity to protect the firm and our clients and customers, as well as maintaining a sound control environment."
Late in 2021, Rohan Amin, Chase's Chief Product Officer, shared some insights on the firm's product operating model. This includes shortening the product development lifecycle to be able to deliver more value to customers more frequently. Chase embarked on a transformation project to organize its technology, product and design teams around structured areas of focus so that the organization wasn’t shifting resources around in a typical project with a waterfall-based structure. It also wanted to create more collaboration across the product design and technology teams, so that they could deliver faster and better with a customer experience focus. Lastly, the transformation project would extend all the way through the organization.
“You have to be comfortable with change because change is constant. And so why not have an operating model that actually is built around the fact that everything is changing around you?” Amin told Tearsheet.
In addition to maintenance spending, the other half of JPMorgan's investment spend is intended to drive innovation across its businesses and with client-facing products.
"We believe it's critical to identify and resolve customer pain points and improve the user experience. And we're attacking the problem with a combination of building, partnering and buying," said Barnum. He cited Chase's digitization of existing product offerings with apps like Chase MyHome, the firm's digital home mortgage offering, and its launch of a cloud native digital bank in the U.K.
The firm has also extended its tech budget to include tech-adjacent spend, reflecting its recognition that tech means more than software development. It also means data and analytics, AI, as well as the physical aspects of modernization, like data centers.
Tech spending is also earmarked to partner with and acquire fintech firms. In 2021, JPMorgan acquired 55ip and OpenInvest to build an algorithm-based digital platform for tax-efficient and ESG investing. It also bought Nutmeg, a digital wealth manager, to complement its UK retail investment platform. And in September, it partnered with Thought Machine to migrate the firm's core banking software to the cloud.
"Bobbing and weaving"
JPMorgan is also spending to compete with big tech's aspirations in finance and banking. To compete, Dimon says his firm is battle-engaged. "Some of these people do a very good job. But we have the capability, the economies of scale and all these things," he said.
"Look, the competition is very bright. They're bobbing and weaving."
With 59 million digital Chase users, JPMorgan somehow continues to position itself as a scrappy underdog, competing against fintech and big tech. It continues to pony up the money to ensure it stays competitive with its products and services, according to Barnum.
"So taken together, our strategy and investments are critical to ensuring that we can compete with the most innovative players out there, whether we're the ones pushing the envelope of innovation or responding quickly to the creativity of our competitors but doing so at scale," he said.