Many people ask me why I love financial technology stocks so much. I used to have to explain how as a small business person I find the fintechs more valuable than regular banks. But I never had anything definitive until yesterday when Jamie Dimon was interviewed about the financial tech competition at a Morgan Stanley (MS) Conference Monday.
I don't want to put words in his mouth so let me tell you what he said, "So if you look at like some of the things we- I mean we got to be a little self-critical here, we could have done what Square (SQ) did and we didn't, okay", referring to the incredibly fast growing company that caters to small business and makes them stronger and more consistent so they can grow faster. He continues: "And so if you were at my management meeting, I tell them, we could have done it and we didn't. We didn't have the imagination to do it." It wasn't the technology, they just hadn't thought about it.
Later in the talk he does say that he's got legacy systems that have hurt them when it comes to this kind of development. He also says that unlike JP Morgan (JPM) , the tech companies have "no capital requirements, no liquidity requirements, no social requirements, no insurance requirements, no CCAR requirements, no resolution requirements," and a host of other hindrances that are necessary for the largest bank in the world with $2.2 trillion's worth of deposits. Maybe we want JP Morgan to not be unconventional.
But if he hasn't thought of it, how come American Express (AXP) has? When we talked to Steve Squeri yesterday, the CEO described in full chapter and verse that he is coming in to the Square world with a host of products from a company bought recently, Kabbage, that will be of great aid to small business and offer some real competition to Square and other companies who help small business make ends meet. That makes sense. There is no company as good as American Express when it comes to promoting small business.
Now I, among many others, hold Jamie Dimon and JP Morgan in high esteem. They have been my banker for most of my adult life. I think that it is terrific that he owns up to his bank's lack of an offering to compete.
But I think there's something else here that is bothersome. What kind of institution that is trying to serve its clients fails to offer something that he admits is simple?
I think that the real failure is the inability to grasp or focus on what small businesses need because they are working for big companies and making mass amounts of money doing so. Why take the risk of helping small businesses with an excess lifeline when there's much bigger money made elsewhere?
The failure isn't one of imagination, so much as deliberate omission. As a conservative banker in a world where regulators might look askance at loans that are backed up by receipts, I find the bank's behavior harder to fault. But the customer is always right and the customer needed these products and if Dimon didn't give it to them then it was obvious that he would ultimately lose a lot of business. I think that the market caps of the Squares and the PayPals (PYPL) , though, show that he should have found a clever way to make it happen.
Oh, and let's be clear, it wasn't like the other big banks jumped all over the opportunity to do so either.
So now when I profess my love for the fintechs you can better understand that without legacy rules and philosophies and systems rooted in the old days, it's better to be with the new.