JPMorgan Views Cryptocurrencies As An Existential Threat
JPMorgan Chase has joined Bank Of America in stating that it feels threatened by cryptocurrencies. Jamie Dimon, the CEO of JPMorgan who previously referred to Bitcoin as a “fraud”, has now adopted a more serious approach to the crypto-market. In fact, as Core Media reported, JPMorgan published a very detailed 71 page report which went over all the details pertaining to digital currencies. In its crypto write-up, the bank even wrote that cryptocurrencies are “unlikely to disappear.”
Although we’ve already (previously) examined several key parts of JPMorgan’s extensive document, it deserves another review. That’s because it addresses quite a few crypto-related issues from the perspective of centralized financial institutions. For instance, the bank noted in its report:
“Both financial institutions and their non-banking competitors face the risk that payment processing and other services could be disrupted by technologies, such as cryptocurrencies, that require no intermediation.”
These comments suggest that large banks have begun to view digital currencies as a competitive threat. There are a number of developments in the cryptosphere which indicate that steps are being taken to encourage payments using cryptocurrencies. For example, Litecoin just introduced Litepay, a crypto-payment platform intended to make cryptos as usable as fiat currencies.
JPMorgan Says Its Expensive To Keep Up With New Tech
Besides being anxious about crypto-platforms competing with their services, JPMorgan and Bank of America have said that they’ve had to use a lot of their resources just to keep up with all the latest banking and payments technology. This, according to the banks, is likely to continue if they expect to retain their existing client base.
Moreover, Danny Masters, a former JPMorgan trader who now works as a Bitcoin fund manager, recently remarked:
“Banks have sat on their laurels for 30 years. I just threw out my chequebook, it looks exactly the same as it did in 1985. Why should I still have it when I’m doing Uber instead of cabs, Airbnb instead of the Sheraton? They have absolutely failed to innovate in any way, shape, or form and now they’re paying the price.“
Masters seems to have a point here. Traditional financial institutions should have looked into improving their services a long time ago. However, just why banks have not invested more time, money, and effort into enhancing their business processes with the latest technological trends is not a simple question to answer.
Possible Reasons Banks Have Failed To Innovate
There are likely a number of reasons why banks have failed to innovate. According to a very pertinent three year old article posted on The Financial Brand website, the inefficient hierarchical structure of management, that traditional financial institutions still use, causes “ideas to easily get lost or forgotten” due to the “complex chain of command.” The extensive article then points out that these are the real “drivers of innovation.”
Although ineffective channels of communication might not be the only factor that has contributed to the outdated business practices of banks, it might serve banks well if they can keep track of valuable information conveyed by their employees. Another noteworthy point made by the article is as follows:
“Innovation requires a culture of short cycle failures and improvement iterations, which have to be learned and accepted. These methodologies go against the typical long term planning found in banks.”
While not being willing to engage in some potentially innovative trial-and-error processes might be detrimental to a bank’s long-term success, not all banks have been reluctant to experiment with change. For example, a large number of banks have begun to test Ripple’s new payment technology as a better alternative when it comes to cross-border financial transactions.
There seems to be enough time for centralized banks to “play catch up” when you consider that the current crypto-market is nowhere near the size of the world’s traditional, multi-trillion dollar financial markets.