JPMorgan is reportedly planning a digital bank in the UK to rival Monzo and Goldman Sachs’ Marcus. Here’s why that’s a big deal.

Associated Press

JPMorgan is reportedly set to launch a new online retail banking project in the UK, according to TechCrunch.
The bank’s secretive project comes just weeks after it closed down its millennial retail offering Finn in the US, which left JPMorgan with plenty of lessons to learn.
JPMorgan has been reaching out to developers to build a product which could challenge Goldman Sachs’ Marcus and the competitive UK challenger bank scene, dominated by brands like Monzo.
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London’s fintech banking scene is booming and now Wall Street wants a bigger slice.

JPMorgan is reportedly in the initial stages of building out a new online banking project from London which could potentially run independently within the bank. First reported by TechCrunch, it comes just weeks after the bank shelved its millennial banking product in the US, Finn.

Details about the project are scarce, but JPMorgan appears to have woken up to the fact that it’s massively behind the curve on its digital banking offering in the UK, according to one London-based challenger bank CEO who spoke to Business Insider.

The UK’s neo-banking scene has been growing rapidly in recent years, and is now littered with unicorns, such as Revolut and Monzo. Wall Street’s Goldman Sachs launched its retail banking product Marcus in the UK last year and has seen rapid deposit growth to around $8 billion from 250,000 customers. It’s a lucrative market for newcomers and failing to move into the arena could see billions in lost revenue for JPMorgan.

JPMorgan will have learnt some valuable lessons from Finn. The app was supposed to connect to new audiences, but the offering was clunky, didn’t offer more than competitors, and had little brand recognition, say experts who spoke to Business Insider.

Neo-banks like Revolut, Monzo, Starling, Atom, Tandem, and N26 now have millions of customers between them and JPMorgan can leverage its $11.5 billion tech budget to aggressively compete.

"If you don’t innovate, there’s a strong likeliness that your customer base will keep eroding while you remain with old, error-prone and very costly infrastructure," says one European fintech executive.

Speculation indicated that if the bank opted for a software as a service (Saas) or more pure fintech play it would be a more ambitious move, but one London-based fintech contact noted that the bank would still be playing catch up. For the UK’s challenger banks, traditional banks noting features they like in their offering and copying them completely misses the point and misunderstands the success they’ve had so far.

This was in essence the point made by Monzo CEO Tom Blomfield in conversation with Business Insider reporters Alex Morell and Dan DeFrancesco about the failure of Finn earlier this month:

"If you think about the way that tech entrepreneurs are innovative and disruptive, banks are set up to kill that kind of activity," he said. "It is antithetical to the way these big banks operate. Not sure the two cultures can co-exist."

To be sure, executives at challenger banks have an interest in suggesting that only startups are capable of the kinds of innovation that drives rapid success. As a result, the success of Marcus in particular is likely to have caught JPMorgan’s eye.

Goldman Sachs has quickly built a UK consumer banking business built around savings. JPMorgan, which has 49 million active digital customers in the US, has no meaningful consumer banking presence in the UK meanwhile.

Monzo

TechCrunch reported that JPMorgan has been looking for developers and engineers for its new project who have had to sign NDAs. Interested parties are reportedly being advised that the roles are permanent rather than temporary contract work in order to avoid details leaking.

Beyond prospective initial hires on the product development side, JPMorgan has been delving into the regulatory and compliance issues behind its new project, according to the report. One fintech exec said the bank may be close to making a senior hire in compliance, having potentially beaten fintechs to the punch with a new hire.

There have been noises about a JPMorgan challenger proposition within the London finance community for a few months, but there is no guarantee of success. If JPMorgan looks to potentially emulate inroads made by Marcus, it would be good for consumers although one London-based banking source notes that the space is now more competitive given the "first mover" advantage enjoyed by Goldman Sachs.

"It is refreshing to see that traditional players are now becoming increasingly serious about creating fully digital solutions," Roland Folz, CEO at solarisBank told Business Insider.

"It will be interesting to observe, whether these incumbents will build their digital challengers in-house, or partner with … service providers. We also wouldn’t be surprised if incumbents start moving into the banking as a service space themselves, as there is still a massive potential to tap into here."

If JPMorgan does decide to join the party it will need a different strategy to the one employed for the ill-fated Finn.

JPMorgan and Goldman Sachs declined to comment.

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Source: Business Insider – cburroughs@businessinsider.com (Callum Burroughs)