How can banks innovate and take risks without losing the trust of customers or running afoul of regulators?
That’s one of the weighty questions being pondered this week inside JPMorgan Chase, as employees around the world prepare for the financial services giant’s annual companywide hackathon. Employees participating in the event are thinking not just about the cool stuff they could build but also about the impact their projects could have — positive or negative — if they’re ultimately adopted by the company.
It’s a sign of the times, against a backdrop of heightened scrutiny and skepticism of tech giants and their use of personal data.
And it’s no idle question, given JPMorgan’s own push into new areas of technology. With a mandate from CEO Jamie Dimon to make innovation a priority, the company is investing $11 billion annually in tech, in areas like cloud infrastructure, AI and security. The company is recruiting engineers and drawing inspiration from many of the tech companies that have been blazing trails in these areas.
But these days, those tech companies are just as likely to serve as cautionary tales as role models.
This dichotomy was clear inside a packed JPMorgan Chase conference room in downtown Seattle on Monday morning, at a panel discussion held as part of the company’s global “Innovation Week” activities, leading up to the companywide hackathon on Thursday.
At one point, for example, the discussion focused on inspiration to be drawn from Amazon and other tech ventures. Speaking on the panel, Madrona Venture Group managing partner Tom Alberg, who recently stepped down from the Amazon board after 23 years, described Amazon’s efforts to shave its costs by as little as a penny per unit to offer lower prices to customers, and explained how Madrona engages with tech entrepreneurs and others to help identify problems to be solved by new startups.
But later, the discussion turned to lessons to be learned from Facebook.
Phyllis Campbell, the top executive for JPMorgan Chase in the Pacific Northwest, pointed to Facebook’s announcement last week of a new digital currency, Libra, saying it raised questions in her mind about trust and financial innovation.
“What trust does Facebook enjoy today as Facebook, with having a digital currency, vs. JPMorgan Chase with Chase?” Campbell asked, referring to the company’s retail and commercial banking operations.
In other words, as a financial institution, is a bank like Chase more trusted than a social network to launch a digital currency?
This is no idle question, either. While it didn’t get as much attention as Facebook’s Libra unveiling, JPMorgan Chase this year launched its own cryptocurrency, JPM Coin. It’s notable in part because of Dimon’s past criticism of Bitcoin, comments he subsequently said he regretted.
Campbell made it clear that JPMorgan approaches its relationship with regulators much differently than Facebook and other tech companies do, and with a much different history. At one point, an employee asked how heavily regulated industries such as banking and finance can balance the push for innovation with the need to operate within potentially outdated regulations.
“Today, we pretty much vet everything right away with our regulators,” Campbell said. “In other words, they become partners.”
She explained, “Trust is the real currency that we own, the trust of our customers, the trust of our regulators and the trust of our public. And as a bank, that’s probably one of the most important things we can’t let go of.”
Facebook, meanwhile, is already facing Congressional and regulatory scrutiny as a result of its Libra announcement.
Alberg described Libra as a “very bold move” but said it’s an example of a “two-way door,” to use one of Amazon’s favorite metaphors — a move that can be reversed or abandoned later, perhaps with some embarrassment but without being fatal to the larger company.
“Maybe they were the wrong one to do it,” Alberg said of Facebook. “Maybe Amazon should have done it, frankly. Amazon’s done a bunch of things on payments, but it’s not succeeded in a big, bold move. And maybe they don’t need to. But when you think about fraud and innovation, it was smart for somebody to do that. And [Facebook] may fall on their face. This may be a disaster for them. Facebook’s faced a lot of challenges, but it’s not going to kill them. If it fails, it fails.”
Security plays an increasingly critical role in creating trust, and not just as a precautionary measure, said Jennifer Steffens, the CEO of IOActive, an independent cybersecurity firm based in Seattle.
“Security gets a bad rap for standing in the way of innovation,” Steffens said. “We are strong advocates for security enabling innovation. If you think about security early and often when you’re looking at designing something new, you can roll out a really cool new technology very quickly and more securely, which is ultimately a competitive advantage and goes to trust, too.”
The other big question to figure out, JPMorgan’s Campbell said, is whether customers are ready for whatever innovation the bank might develop.
She cited Zelle, a partnership of Chase and other major banks for digital banking mobile banking and payments, saying it has seen “slow acceptance.” Campbell said many customers are still devoted to physical branches and credit cards. Zelle’s payments app has also faced its own security issues.
Seattle is one of many JPMorgan locations around the world where employees are taking part in Innovation Week events. About 11,000 people from across the company will participate in the hackathon later this week, and more than 600 ideas have been submitted for potential hackathon projects.
The goal is for employees to return to their jobs with new motivation and a fresh perspective, “really just kickstarting innovation for the rest of the year,” said Christie Chaffee, a JPMorgan vice president who works on the Cybertechnology & Technology Controls organization at the company, who is also the Seattle site lead for JPMorgan’s Women on the Move initiative.
And for the employees who attended the internal panel, one tangible takeaway was a strong hackathon idea. IOActive CEO Steffens told the group that she would love to be able to use a bare-bones version of the bank’s app, with basic banking functions, suitable for use on low-bandwidth cellular data networks when traveling internationally.
A murmur of approval rose up from the crowd, hinting that the idea might just stand a chance of becoming a project during the hackathon later this week.