How JPMorgan's CIO decides which startups to partner with, which to invest in, and which to outright buy
- JPMorgan Chase is a giant on Wall Street, but it's also very engaged with the smaller players in the fintech world.
- The bank paid over $220 million to buy WePay in October, and led a $100 million investment in Bill.com weeks before that.
- CIO Lori Beer explained how and why JPMorgan decides to get involved with a tech startup - which can take the form of a residency, partnership, investment, or outright acquisition.
Last October, JPMorgan Chase made an unprecedented foray into the financial-technology space, inking its first major acquisition with the purchase of payments firm WePay for more than $220 million.
A couple weeks before that, the firm led a $100 million funding round for Bill.com, another payments company, which valued the firm at nearly $745 million.JPMorgan is a towering giant on Wall Street, but it keeps a keen eye on the industry's smaller players. It's traditionally done that by way of partnerships and smaller investments.
But as fintech startups have emerged at an increasingly rapid pace over the past decade, JPMorgan has recognized that engaging with companies that can potentially unleash industry-changing innovations at an earlier stage serves its interest in several ways.
How and why does JPMorgan decide to get involved with a fintech startup?
Business Insider recently spoke with Lori Beer, JPMorgan's chief information officer, about its strategy for working with companies in the fintech space.
The company is picky about who it works with, but for very young companies that it finds promising, it offers a residence program to build out their products within JPMorgan's ecosystem.
"Although we go through a very rigorous screening process, once we decide there's potential in a specific fintech we will bring them inside of our walls via the JPMorgan In Residence program," Beer told Business Insider. "These start-ups have access to our management team and our systems. We help them incubate and think about what their product is. We also carefully consider investment in these companies on a case-by-case basis."Some startups are fine scaling on their own, but JPMorgan's knowledge and resources can prove handy for firms dealing with the morass of complicated regulations on Wall Street. A payments company eyeing JPMorgan as a potential customer, for instance, faces a daunting challenge trying to sell its wares to the bank.
"In some cases, we saw in the fintech ecosystem that one of their challenges is the size, scale and complexity of a company like JPMorgan Chase. If you're trying to build out something in the wholesale payment ecosystem, you're talking about 200 regulators, $5 trillion dollars we process a day, over 120 currencies and countries. There are multiple layers of complexities considering anti-money laundering rules, fraud requirements and new sanctions. How do you understand that complexity if I'm a startup in the payment space in wholesale?"
These companies could later wind up with an investment from JPMorgan if all goes well.
For startups that are further along, JPMorgan may partner with them - Beer noted the bank has done this recently in the anti-fraud arena - or make a minority investment so it can help shape product development to better serve JPMorgan's business.
"Sometimes, we'll make a decision to invest because we want to be able to influence the product design and work together," Beer said.
To outright acquire a fintech startup, like it did with WePay, JPMorgan needs to believe the product or service is a game-changer - something that will give it a strategic advantage over competitors.
"In the case of WePay, we saw a strategic differentiator and we wanted to acquire," Beer said.But even if JPMorgan doesn't ultimately buy or significantly invest, it's still beneficial to start a relationship with startups it finds promising. It can help the bank think differently about its own products and improve its client experience.
Not to mention, the startup could become a client one day if it needs to raise capital or is looking to sell itself.