It was January 2021, and JP Morgan’s CEO Jamie Dimon had a message for his management team on a conference call to discuss fourth quarter earnings. Dimon, who is known for his directness, said he told his management team they should be “scared shitless” about the threat from a new generation of fintechs like PayPal, Square and Stripe. Then, in a shareholder letter issued three months later, Dimon further noted the diminishing role of banks in the global financial system. Banks, including JPMorgan Chase, were under enormous competitive threats from every angle, Dimon wrote. He pointed to fintechs and big tech companies like Amazon, Apple, Facebook, Google and Walmart, as having made great strides in building digital and physical banking products and services. Acquisitions were in JPMorgan Chase’s future and Dimon said deals could come in payments, asset management, data, and relevant products and services.
More than two years later, a dive into JP Morgan’s acquisition binge reveals an aggressive push to bolster its capabilities in areas like payments, AI and ESG investing. It also reveals one major misstep: the 2021 purchase of millennial founder Charlie Javice’s startup Frank, which JP Morgan Chase is suing alleging she made up fake customers. (Javice, for her part, has claimed that JPMorgan Chase knew what it was buying, but rushed into acquiring Frank because it wanted access to the coveted young student demographic.) Following the Frank debacle, JPMorgan’s dealmaking has attracted the attention of regulators. The Office of the Comptroller of the Currency is scrutinizing JPMorgan Chase’s due diligence of recent acquisitions, the Financial Times reported April 7. The OCC, which supervises national banks, has scheduled a specific audit of JPMorgan Chase’s dealmaking, after the bank acquired dozens of small companies in 2021 and 2022, the story said. JPMorgan and the OCC declined to comment.
Overall, the bank has invested in more than 80 companies since the beginning of 2021, according to JPMorgan Chase. This includes the bank’s buy of restaurant review site The Infatuation, JPMorgan's partnering with West Lane Capital Partners to scoop up a majority of retailer Simply Organic Beauty, as well as its acquisition of Campbell Global, a forest management and timberland investing company.
JPMorgan, with $3.7 trillion in assets, is the largest U.S. bank by assets. It operates more than 4,700 Chase branches throughout the U.S., while employing over 290,000 people. Eric Compton, equity research analyst at Morningstar, said JPMorgan Chase, the largest bank in the U.S. ecosystem, will have a difficult time growing by taking share organically. “It’s a natural constraint when you get larger,” he said.
Most of JPMorgan Chase’s transactions for the past two-and-a-half years were investments and not outright acquisitions. Seventy of the deals were of JPMorgan taking a minority stake in a company or investing as part of the company's funding round. Roughly 13 were acquisitions.
Nowhere is this strategy more apparent than in fintech, one of JPMorgan’s biggest sectors. The bank has posted 43 fintech transactions since early 2021, according to Dealogic. JPMorgan was one of several banks that invested in Greenwood, a digital bank aimed at Black and Latino consumers, which raised $40 million in 2021. JPMorgan that year also invested in two separate rounds for TIFIN, an AI platform for wealth, that collected $22.3 million in Series B funding in April of 2021, and a $47 million Series C that October. (In May 2022, JPMorgan returned to take part in Tifin’s $109 million D round.)
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JPMorgan Chase has announced just eight fintech acquisitions since the beginning of 2021. Half of these buys took place in 2021 and were typically of small companies like Frank. Many of these deals didn’t even have valuations. In 2021, JPMorgan scooped up UK digital wealth manager Nutmeg Savings and Investments, 75% of Volkswagen Payments, as well as Frank.
JPMorgan continued this strategy in 2022, serving as an investor for fintechs like Wayflyer, Thought Machine and Ownera. Fintech valuations dropped dramatically in 2022 and the bank took advantage, posting some bigger deals. JPMorgan made three fintech acquisitions that Fortune identified, spending $730 million on Global Shares, a provider of employee share management products, and $800 million on a nearly 49% stake in European payments company Viva Wallet. It also bought payments company Renovite Technologies for an unknown sum last year. So far in 2023, JPMorgan has made just one fintech acquisition. After investing in Aumni’s $50 million round in 2021, the bank bought the provider of investment analytics software this year.
JPMorgan, with Dimon at the helm, is playing defense against the fintech threat, said Stephen Biggar, an analyst with Argus Research, in an email. “Fintech (including PayPal and Square) has grabbed a large share of the consumer payments space through innovation in person-to-person payments, in app transactions, serving micro-merchants, etc., so I don’t think [Dimon’s] concerns are unfounded,” Biggar said. Fintech companies are also trying to nibble away at other core bank businesses, such as providing loans and high-yield savings accounts, he said. JPMorgan’s game plan is “scattering [its] bets to hopefully acquire the next big technology or service that winds up providing an edge,” said Biggar. He agrees with JPMorgan’s strategy of investing to compete better in the space.
All the deals have helped cement JPMorgan’s place as a major investor and buyer of fintechs. It also appears to have helped JPMorgan stock; shares have rebounded from a low of $104.50 in September 2022 to a recent $140.55 Monday afternoon. Overall this year, the stock is up 7% while the S&P 500 is off 1%.
Dimon may be playing defense, but hey, when it works it can win championships.
