Benjamin Godfrey is a blockchain enthusiast and journalists who relish writing about the real life applications of blockchain technology and innovations to drive general acceptance and worldwide integration of the emerging technology. His desires to educate people about cryptocurrencies inspires his contributions to renowned blockchain based media and sites. Benjamin Godfrey is a lover of sports and agriculture.
Dimon advocated for a regulatory field for all active participants in the financial system to compete in order to thrive.
Jamie Dimon, the Chief Executive Officer of American investment bank and financial services holding company JPMorgan Chase & Co (NYSE: JPM), has identified the growth of Fintech (Financial Technology) as one of the “enormous competitive threats to traditional banks and related institutions. Dimon revealed this in his annual shareholder letter published on Wednesday, wherein he noted that banks are usually bound by their own bureaucracies in an attempt to welcome new innovations.
The advent of the coronavirus pandemic accelerated the push to embrace financial systems that offer more flexibility and a reduced need to interact physically with banks, and fintech companies were well-positioned for this. The provision of easy access to banking products such as loans, cheaper funds transfer amongst others by these new financial service providers makes banks less relevant per the role played in the broader ecosystem.
“Banks already compete against a large and powerful shadow banking system. And they are facing extensive competition from Silicon Valley, both in the form of fintechs and Big Tech companies (Amazon, Apple, Facebook, Google, and now Walmart), that is here to stay. As the importance of cloud, AI and digital platforms grows, this competition will become even more formidable. As a result, banks are playing an increasingly smaller role in the financial system,” Dimon explained.
The JPMorgan boss also highlighted the areas in which banks have their core strength which include the availability of regulatory measures that give some clients confidence to build business relationships as well as deep roots with the customers, however, he believed the rate of innovation amongst Fintech, due to the imbalance in regulations gives them an upper hand.
“We believe that many of these new competitors have done a terrific job in easing customers’ pain points and making digital platforms extremely simple to use. But growth in shadow banking has also partially been made possible because rules and regulations imposed upon banks are not necessarily imposed upon these nonbanks. While some of this may have been deliberate, sometimes the rules were accidentally calibrated to move risk in an unintended way. We should remember that the quantum of risk may not have changed – it just got moved to a less-regulated environment,” he said.
In all, Dimon advocated for a regulatory playing field for all active participants in the financial system to compete in order to thrive.
Fintech Threat to Banks Extends to Crypto, DeFi
While the obvious mainstream fintech companies are payment firms including Paypal Holdings Inc (NASDAQ: PYPL), and Square Inc (NYSE: SQ), the terrain is seeing the influx of blockchain-backed cryptocurrency outfits with some seeking to rollout decentralized finance (DeFi) products.
DeFi is a term used to define the broader scope of cryptocurrency players designing financial offerings that seek to compete with what traditional financial institutions have to offer in a decentralized manner. DeFi’s revolution is also a nemesis to Fintech, as it seeks to neutralize the powers of the middleman in rolling out the financial products to members of the public through Peer-2-Peer transaction models. This crypto niche has gained traction in the past years with the total value locked (TVL) on DeFi smart contracts topping $49 billion according to an analytics platform, DeFiPulse.