Finn, JPMorgan's failed millennial-focused app, was plagued with internal skepticism and uncertainty. It shows how hard it can be for Wall Street to disrupt itself.

Associated Press

JPMorgan CEO Jamie Dimon's Finn app was not a hit with millennial customers.

• JPMorgan's digital-only banking app, Finn, was plagued internally with uncertainty around how it would operate and the impact it would have on the bank's traditional Main Street offering, sources told Business Insider.
• Consultants estimate the cost of the project to be between $50 million to $100 million.
• Finn, which was shuttered less than two years after it launched, illustrates the issues that can befall Wall Street firms when they try to disrupt themselves.
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A house divided against itself cannot stand, and neither, it appears, can two competing banking apps within a firm.

And while the rise and fall of JPMorgan's digital-only bank, Finn, didn't quite lead to a civil war, it did illuminate the issues that can crop up when Wall Street firms with entrenched lines of business attempt to disrupt themselves.

Finn was meant to be JPMorgan's introduction to digital-only banking, and a way for Wall Street's biggest bank to attract a demographic - millennials - it felt it was at risk of losing to upstarts. Less than two years later, the banking app is on its way out thanks to a lack of coordination regarding how it was set up, skepticism around how it would operate and uncertainty over its impact on the bank's traditional Main Street offering, three people briefed on its operations told Business Insider.

In early June, JPMorgan notified Finn customers their accounts at the digital-only bank, which launched its pilot program in St. Louis in October 2017, would be rolled over to traditional Chase accounts by August 10. Wall Street analysts suggested the product seemed somewhat doomed from the start, questioning why JPMorgan, which is one of the most well-known names in banking, chose to create an entirely separate brand for its new offering.

Others in the market did too.

"Lots of people in fintech thought they were essentially running an A/B test," said Ahon Sarkar, vice president of product and strategy at StoneCastle, referring to the practice of running an experiment with two versions or variables to see which one performs better. "While they've had decent adoption of mobile with the 50-plus crowd, the shuttering seems to confirm that breaking into the millennial digital-only arena didn't quite pan out."

Most importantly, that sentiment was shared internally, according to the people. Some senior executives at the bank were not completely sold on the concept of Finn, according to one person, unsure of why it was sanctioned and how it would operate. Others in the bank's traditional retail unit weren't involved in some of the key decisions, the person said. At times, the two groups - Finn and the traditional banking unit - didn't talk to each other, according to a second person.

Read more: 'Who is Finn?': JPMorgan's banking app for millennials seemed destined to fail from the start

Pablo Rodriguez, a spokesman for JPMorgan, said in an emailed statement: "Our retail business was involved throughout the entire process of Finn."

One reason for the lack of organizational buy-in, according to the people briefed, was due to the fact Finn was established completely separate from Chase's traditional consumer banking group. The Finn app wasn't even built internally by JPMorgan. Instead the bank worked with several third-party contractors to build it out, including Virtusa, the Southborough, Massachusetts-based consulting firm, one of the people said.

Frank Palermo, an executive vice president of global digital solutions at the consulting firm, did not return repeated calls for comment.

Building the app separately, in theory, gives more room to those working on the project to innovate and go in a different direction than what JPMorgan's brand might dictate. But in this case it meant key executives in the traditional retail banking business, the largest in the US, weren't completely brought into the project, one of the people said.

'JPMorgan is sitting on 50 years of COBOL and Fortran'

Finn operated as a stripped down version of JPMorgan's banking app, but with a different user interface and features that made it easier to save and track spending. It also allowed users to rate their transactions with emojis, which some people didn't understand. Despite all that, the app was designed as an added layer on top of JPMorgan's decades-old banking infrastructure.

"I understand that they tried to separate the tech as much as possible from the JPM core, but they still had to run it on that core," said Todd Baker, a senior fellow at Columbia University and managing principal at Broadmoor Consulting LLC. "JPMorgan is sitting on 50 years of COBOL and Fortran," he said, citing old programming languages.

That makes it more expensive and sets up a cost structure that's even more prohibitive than what a startup might face, according to Robert Sears, a consultant and former BBVA exec in charge of open banking and head of product for new digital businesses. Big bank compliance policies and vendor management issues would also make it more expensive.

"You can build a cool startup but you have to behave like the mother bank in matters that cost a lot," he said.

Sears estimates that it would likely cost between $20 million and $50 million to develop an app like Finn, and that's just development costs. Marketing would likely add another $10 million to $15 million to the tally. Three other consultants surveyed by Business Insider estimated a cost of between $50 million and $100 million. JPMorgan declined to provide a figure. To be sure, this is a small sum for JPMorgan, with an annual tech budget of $11 billion.

The bank also declined to say how many accounts signed up. Estimates vary widely, with a survey conducted by banking consultant Cornerstone Advisors ranking Finn 11th among the top US digital banks, citing an estimated 47,000 deposit accounts. Sensor Tower estimated that just 232,000 people had downloaded Finn onto their mobile phones, according to the Wall Street Journal. Other early stage efforts, like Goldman's Marcus unit or banking startup Chime, have millions of customers.

Assuming the bank spent $15 million on marketing to acquire the number of customers that Cornerstone estimates, JPMorgan may have spent something like $319 to acquire each customer. By way of comparison, a recent study by HSBC found customer acquisition costs for robo-advisors to be around $300.

But JPMorgan really needed to get customer acquisition costs below $100 to succeed, Sears said. Finn relied on card swipe fees to generate revenue, and the bank needed customers to spend about $1,500 each month to break even, he estimates.

"You have to get it down to under $100 to really scale one of these things and survive," he said. "If they don't happen to hit the mark with the marketing and branding, those costs stay high. Somebody like Chase, they can pump money in for a while, but at some point they're going to get frustrated."

In any case, the app never gained traction. App store reviews, closely watched by industry experts for signs of social and viral pickup, were no more supportive. Finn received just 6,973 reviews in Apple's app store, compared to nearly 2 million that PayPal's app has collected.

Zero-sum game

Perhaps Finn's biggest shortcoming was how the potential threat it posed to Chase's traditional checking account was felt internally, one of the people said. The two sides were in a zero-sum game in which a new account on Finn could mean a missed opportunity for Chase. More than half of Finn's users already had relationships with Chase, a spokesman told the Wall Street Journal last month.

"Imagine if you were running the checking account business for Chase and then some other group is like, 'I'm going to launch a checking account, but don't worry, it's just going to be for millennials. I swear it won't impact your business,'" the person said. "And you, as the head of the checking account business, have no say into what it is, how it is structured."

See more: JPMorgan is shuttering its banking app for millennials after one year. We got ahold of the internal memo announcing its demise.

The broader discussion around fintech probably matters too, according to payments expert Patricia Hewitt. When Finn first launched the industry dialogue focused on how incumbents had to protect themselves from fintech disruptors. It's since shifted based on a realization that existing players will be harder to dethrone than some thought.

"Finn was conceived in a time when there was this idea that you had to have this snazzy sexy brand for your mobile products," she said. "What they're finding out is they don't, it's all about the feature and functionality."

The consultants and industry insiders were quick to point out that JPMorgan's main banking app will be enhanced by the learnings it got from Finn.

"They failed fast and they were able to acquire customers, knowledge, intelligence and technographic profiles that were very attractive," according to Crone Consulting's Richard Crone. "If anything they self selected their most prized mobile banking customers."