What started as a growing trend last year has now become a full-blown competition, as banks — from the biggest players to smaller institutions — dive headfirst into AI investments.
However, the stakes are high. As the industry pushes for clearer standards on AI risks and controls, it concurrently faces a new challenge: turning theoretical plans and investments into measurable successes. Investors are increasingly expecting banks to translate their AI-driven strategies into real-world results and tangible returns, whether through cost savings, risk mitigation, or new revenue streams.
AI is still in its nascent phase, especially within the banking sector, and whether it’s too soon to seek returns on these foundational investments is a different conversation altogether.
Today, we delve into:
The progress banks have made on their journey toward AI maturity
Are we jumping the gun by seeking ROI from banks’ foundational AI investments at this point?
The frontrunner and the runner-up in the AI race and the factors propelling their advancements
Brief rundown
J.P. Morgan Chase (JPMC) has secured the top position in this year’s AI Index, marking its third consecutive appearance in the top 10 across all AI advancement metrics detailed in a new Evident Banking AI Index. The report focuses on four essential AI evaluation metrics: Innovation, Leadership, Transparency, and Talent.
Given Jamie Dimon’s consistent advocacy for AI and JPMC’s recent strong advancements in the space, it’s not surprising to see the firm leading the charge in the AI race. However, what stands out is that it is closely followed by Capital One, the Royal Bank of Canada, and Wells Fargo, indicating that North American banks are leading the way for the most part in exploring AI’s potential.
One of the strongest pillars contributing to North American banks’ progress is talent acquisition, particularly in AI Development and Data Engineering. US banks are increasingly solidifying their positions in this area. The three US incumbent banks — Wells Fargo, JPMC, and Capital One — account for 17.5% of the current AI talent pool, reflecting a significant 19.4% increase from last year, according to the report.
The frontrunner
I’ve been closely following JPMC’s work in AI and its initiatives from Q4 2022 onward. Building on that research, the factors that likely contributed to the bank achieving a leading position in AI advancement across multiple pillars include:
As digital banking takes off, which institution will wear the crown?
The much-anticipated Q3 earnings season has officially kicked off, with major banks taking the spotlight this week and setting the tone for what’s to come.
The headline-grabber was the resurgence of trading and investment banking among Wall Street’s banks — a clear bright spot in an otherwise challenging landscape
While the timing of the Fed’s rate cuts didn’t allow them to negatively affect banks’ third-quarter net interest incomes, optimism is also building around their future effects. The rate cuts from the Federal Reserve and other central banks along with expectations of further cuts in the coming months could pave the way for more deals as reduced borrowing costs make capital more accessible.
Snapshot: Q3 investment banking earnings of major banks
A quick overview of investment banking earnings from the six major banks shows growth trends:
Wells Fargo‘s non-interest income grew by 12%, partially driven by higher investment banking fees and strong trading revenue.
Bank of America experienced an 18% YoY increase in investment banking fees, totaling $1.4 billion, as renewed client confidence encouraged more debt and equity issuance.
Goldman Sachs saw the fees of investment banking, its signature business line, rise by 20% YoY, reaching $1.87 billion, thanks to leveraged finance, investment-grade activity, and equity underwriting. The pipeline for investment banking fees also showed improvement compared to the end of the second quarter of 2024.
J.P. Morgan recorded a 31% increase in investment banking fees.
Citigroup also shined this quarter, with a 31% rise in investment banking revenue, largely fueled by investment-grade debt issuance.
Morgan Stanley‘s investment banking revenue surged by 56% compared to the previous year, amounting to $1.46 billion. This reflects the firm’s investment banking balance with its wealth management division, a major contributor to its overall earnings. The firm’s investment management division also reported a 9% revenue increase, reaching $1.46 billion.
The 2 recurring themes: Technology and digital banking
The financial services industry has historically been male-dominated, and the entrepreneurial and startup landscapes tell a similar story — not because there are fewer women founders, but because they face fewer opportunities than men.
This doesn’t diminish the talent and capability of women entrepreneurs, whose presence in the business world continues to rise. From 2019 to 2023, the number of women-owned businesses grew at almost twice the rate of those owned by men. As of 2024, women own 39.1% of all businesses—more than 14 million—employing 12.2 million individuals and generating $2.7 trillion in revenue. Despite this progress, significant challenges persist: men still hold a larger share of business ownership, and only 7% of unicorn founders are women, according to a recent J.P. Morgan study. These figures are even starker when it comes to minority founders.
Creating a level playing field isn’t just a matter of fairness; it can be a stepping stone for sparking innovation and unlocking economic growth. Ethnically or racially diverse founders can tap into new markets and address the unmet needs that drive sustainable progress. Closing the revenue gap for diverse entrepreneurs could bring in an additional $667 billion, while bridging the gap between women and men-owned businesses could generate an additional $7.9 trillion for the economy, according to a recent research by Wells Fargo.
So, what’s holding back this change?
We know that investor confidence tends to increase when a founder fits a particular mold — whether that means the founder’s gender, ethnicity, or simply having a white male co-founder on the team. But beyond these age-old biases, how are established banks working to narrow this divide and create a more equitable environment for all entrepreneurs in today’s day and age?
“It starts with the investment in a broad national startup banking business,” Ashraf Hebela, J.P. Morgan’s Head of Startup Banking told me in our recent Tearsheet Podcast episode.
“Most of the underrepresented minorities as entrepreneurs are sitting at the early stage, and that means having to invest in an early-stage business.”
Ashraf highlighted the tangible measures financial institutions could implement to tackle this gap and something JPM has been mindful of:
Taking a page from the challenger bank handbook, JPM is diving into the UK market with a modern twist
In the US, large incumbents like JPMorgan, Morgan Stanley, and Citi have long maintained a stronghold, making it difficult for new entrants to break through and compete with these well-established, resource-rich institutions. The status quo has not changed much to date.
By comparison, the UK’s banking landscape is gradually opening up with more room for new players to challenge their incumbents. In fact, the last couple of years have seen UK challenger banks pulling out all the stops to make a powerful push in the banking industry.
The US has a more fragmented regulatory environment, involving both federal and state-level oversight. This complexity, combined with a larger number of dominant traditional banks, has made it more challenging for neobanks to establish the same presence they have in the UK. Moreover, British consumers have been more receptive to digital and mobile banking solutions with improved UI/UX, embracing these services early on.
The pulse of UK challenger banks
UK challengers like Revolut, Monzo, and Starling are among the leading names making notable progress. Although their valuations may have dwindled, they continue to achieve strong revenue growth. Starling continues to hold its ground as one of the UK’s leading neobanks in terms of profitability. Revolut achieved a record profit of $545 million in 2023, while Monzo reported its first annual profit for the year ending February 2023.
While deposit volumes of these digital banks may not match those of traditional banks, they have benefited from three significant factors contributing to their revenue growth in recent times:
Growing customer base
Rise in interest rates
Expansion to new markets
The case of Revolut: Take Revolut, for example; although individual deposits may average only a smaller amount from millions of customers, the size of its growing user base means these amounts collectively make an impact. Expanding into new markets and regions has enabled the neobank to reach 45 million global customers, over 9 million of whom are based in the UK. This growth directly leads to an increase in payment volumes and foreign exchange transactions, resulting in higher revenue from fees and commissions. This coupled with interest income on deposits and loans has been a crucial catalyst for accelerating Revolut’s revenue growth.
In 2023, Revolut reported a total revenue of $2.2 billion, a significant jump of 95% from 2022, when the neobank recorded its lowest revenue growth.
This July, Revolut achieved a major triumph by securing a UK banking license, albeit with some restrictions, after a three-year wait for the approval. Although this development could be concerning for established UK banks such as Barclays, Lloyds, HSBC, and NatWest, it creates a clearer pathway for Revolut to directly compete with these major institutions. This advancement also brings the prospect of an IPO closer to reality for the neobank, which is already on its radar.
We spotlight how J.P. Morgan Payments, Fifth Third, and Wells Fargo are targeting embedded finance
Tearsheet recently hosted its The Big Bank Theory Awards, shining a spotlight on the game-changers in banking and embedded finance. This year’s awards brought together a dynamic mix of established industry incumbents, innovative startups, and key players shaping the future of financial services.
In no specific order, the winners feature:
J.P. Morgan Payments takes home Best Overall Embedded Finance Platform
Wells Fargo is recognized for Best New Embedded Finance Product (for platforms)
SoFi is awarded Best New Product
DailyPay is crowned Best Payments as a Service Platform
April is honored for Best Customer Implementation of Embedded Finance
nCino wins Best SaaS Banking Platform
Alkami receives Best Banking App
Signature Bank of Arkansas is celebrated for the Serving the Underserved Award
Newline by Fifth Third is recognized as the Best New Embedded Finance Platform
CorServ clinches Best Card Issuing Platform
Zeta’s Sparrow secures the Best Banking Card Product
Themis is named Best Banking Service Partner
We offer a front-row glimpse into the exciting developments unfolding in the industry. While some winners are household names attracting media attention, others are quietly making their mark and leaving a lasting impact behind the scenes.
We explore how this year’s Tearsheet TBBT award-winning incumbent banks are navigating the embedded finance landscape with APIs, partnerships, and proprietary solutions to strengthen their position and adapt to market changes.
Industry players share their strategies for building stronger partnerships
Common threads run through partnerships in dating, dance, and bank-nonbank collaborations alike. While luck may factor in, thorough research, diligence, clear role definitions, and established boundaries can be crucial to taking effective, tangible steps forward and making these relationships successful.
Although the financial services industry has its share of bank-fintech partnerships that have faltered, there are also success stories where rivals have evolved into collaborative partners, working together for mutual benefit.
Over time, every bank or fintech discovers what makes or breaks a partnership for them. This experience of being on both ends of the spectrum leads them to adopt a more cautious and deliberate approach to partnerships. That said, what benefits one organization might not apply to another, as effectiveness varies with the type, nature, and scale of the partnership.
We look at how to manage key aspects and avoid pitfalls to keep partnerships strong, based on perspectives from different players in the financial services industry.
We’ll also delve into the recent twists in one of the most hotly discussed partnerships of late.
Bank of Hope is building a unified network of banks through mergers — but is it enough?
Last week, we delved into the story of East West Bank in Southern California, founded by Chinese Americans in 1973, and how it evolved into SoCal’s largest publicly traded bank. Not all SoCal-based minority-owned regional banks, however, share this success story. While some began with strong foundations, they now face challenging conditions, particularly those that have been heavily invested in commercial real estate loans. Bank of Hope, a Korean-owned regional bank based in LA and a subsidiary of Hope Bancorp, finds itself in a similar predicament.
Genesis and the challenges encountered since
Originally founded as Wilshire Bank by Korean immigrants in 1980, the institution merged with BBCN Bank in July 2016 and was rebranded as Bank of Hope, with Hope Bancorp as its parent company. Initially centered on the Korean American community, the bank gradually expanded its lending to include other immigrant groups, a shift that signaled its growth. This evolution transitioned the institution from a traditional community bank into a regional bank that now serves consumers, small businesses, and commercial and corporate clients.
Mergers and acquisitions played a key role in the creation of Bank of Hope and remain central to its growth strategy. But its focus on commercial real estate loans has fueled much of its growth and expansion. Little did the bank know that the pandemic would have a major impact on its growth. The pandemic brought a sharp blow to small and mid-sized lenders, leaving the Bank of Hope burdened with a large number of problematic commercial real estate loans.
The tale of how a group of Asian Americans chose to defy the norms in 1973
When mainstream banks fall short of serving minority communities or immigrants, these groups often face prolonged struggles, waiting for more inclusive solutions or settling for the bare minimum. But in 1973, a group of Asian Americans decided to challenge the status quo. They sought to address these unmet financial needs and took a decisive stand to change this reality.
Some of the founding figures of the East West Bank management; Image via EWB LinkedIn
Building a bank from the ground up was a formidable challenge for this minority group. To overcome obstacles, they sought support from friends and allies within the Italian American community to become part of the founding organization, as the government policies at the time did not acknowledge Asian Americans as bank founders.
This is the story of how East West Bank came to be, evolving into the largest publicly traded bank headquartered in Southern California, the 36th largest bank in the US by assets, and the biggest minority depository institution in the country today.
It’s nearly been a year already — How is Chriss’s journey progressing?
As fall approached last year, PayPal began a major transformation: a change in leadership. While CEO transitions are not uncommon, this one stood out for PayPal. Daniel Schulman, who had been steering the ship since 2014, was departing. Schulman’s tenure was marked by pivotal moments, including the company’s spin-off from eBay and its evolution into an independent, publicly traded entity. Under his leadership, PayPal redefined itself and expanded its global reach. His departure left considerable expectations for his successor, who would need to navigate not only the legacy of Schulman’s transformative years but also address the company’s challenges at the time, including its underperforming stock that had lost nearly 20% value year-to-date and dwindling active user numbers.
On September 27, 2023, PayPal began a new chapter with Alex Chriss stepping into the CEO role.
As the industry digitizes, PayPal’s board sought a leader with a blend of expertise in global payments and technology to drive the company’s growth. When Chriss, who was employed at Intuit, was appointed from a pool of nine candidates, the board expressed strong confidence in their choice. However, the broader industry and analysts had a relatively tepid response, reflecting a cautious curiosity about how Chriss would steer PayPal into its next phase
A year into his tenure, we take a look at Chriss’s journey at PayPal through key events.
LOYAL3 first burst onto the investing scene a couple of years ago with a simple premise: connecting people with the brands they love and providing an easy, cheap way to invest in them. The company provides a creative model that’s fee-free for investors. LOYAL3 has grown to include IPO and secondary stock offerings to its investors.Stephen Klein, Chief Marketing Officer of LOYAL3, joins Tradestreaming for an interview about the company’s roots, how investing in stocks has changed and is changing, and how LOYAL3 is approaching product and distribution in 2016.
What is LOYAL3 and what was the genesis story (what was the inspiration the founders had to start the company)?
Stephen Klein, LOYAL3LOYAL3 is a financial technology company that is transforming the capital markets and concept of stock ownership. For small retail investors, our platform provides a new, easy and affordable way to invest in today’s top brands, and gain access to IPOs at the same time and price as large institutions and investors, with no fees to buy or sell stock. And for companies, we provide an innovative way to engage their affinity groups and allocate IPO and public stock to their employees, customers, partners and fans.
The idea for LOYAL3 stemmed from the thesis that ownership builds loyalty, and that enabling employees, customers, etc., to own shares of a company’s stock creates a net positive— for companies, individual investors, and the investing model as a whole. Ownership is a powerful branding and behavioral currency, and everyone should have the ability to invest in the companies they have an affinity for. In short, people care more about things they own than things they don’t, and this principle works for brands.
Has electronic trading and indexing changed the way investors think and behave with individual stocks?
Definitely. There’s been a fundamental shift in the way individuals invest. Investors are more engaged and want to have greater direct control over how they invest. There used to be a very limited set of investing options. But now, there’s a growing array of solutions that simplify the process, reduce or eliminate the fees charged by traditional brokerages, and cater toward each individual’s own personal investment needs.
Are you targeting experienced investors or investors newer to the markets?
We believe investing should be easy and affordable for everyone, so we designed our platform with newer and smaller investors in mind—ease of use, no fees to buy or sell stock, and the ability to purchase fractional shares of coveted stocks with high per-share prices. LOYAL3’s platform also attracts more experienced investors, but because we do not permit short selling or share lending and batch our trade orders, this limits the appeal to institutional investors or active traders.
What’s your IPO offering? How would investors invest in IPOs before using LOYAL3?
Historically, the ability to “invest in IPOs” had been limited to Wall Street and their core clients. It was nearly impossible for the general public to purchase shares before the first day of trading, unless they had a brokerage account and met “requirements” set by that firm, which were most always large sums of money in the investor’s accounts. Now, through the LOYAL3 platform, small retail investors are able to gain new access to IPOs, with the ability to purchase shares for as little as $100, at the same price and time as these institutions and large investors.
How are firms selling their stock via IPO using this service?
IPO issuers work with LOYAL3 because they see the value of offering IPO access to the people who really care about their company, employees, customers, partners, etc., and will bring us into the IPO process as a co-manager or part of the selling syndicate. They see this as a way to thank the people who made their success possible in the first place. So in essence they’re using IPO stock as a powerful and new brand engagement currency. We provide the same IPO services as a traditional investment bank, but also develop customized, branded digital content that enables B2B and B2C companies to engage these groups during their IPO in a more personalized way.
Is your success, in a way, a throwback to what investing used to/should be: affiliating with brands we love, etc.?
Investing has become cumbersome, expensive and overly institutionalized, and we wanted to change that. The idea of being able to own a piece of a brand you know or love makes sense and really resonates with people. It’s the difference between investing and speculating. It’s such a simple concept—if an individual already has an affinity for a company, why shouldn’t they be able to affordably invest in it? We would love to see a day where everyone is able to “own” a piece of the companies that matter most to them.
What’s next for your product service? What should investors be looking out for in 2016?
LOYAL3 regularly explores different types of opportunities that will facilitate new ways for people to invest and will be complementary to our existing offerings. We’re really excited by the possibility of stock loyalty rewards and custodial accounts, and we hope these are two things we’ll be able to offer in the future.
