How J.P. Morgan Chase & Co. Uses Leverage As a Strategy
To Dominate Merchant Acquiring and Grow Beyond the U.S. and Europe.
For those in the Payments industry the name J.P. Morgan Chase & Co., despite its larger-than-life position in Banking, is rarely put into the conversation with the likes of FIS, Fiserv, Adyen, or Stripe.
Some might say because they are an incumbent bank, and haven't shown any Technological leaps in Innovation that would justify it, while others would rather not say anything, for the off chance that they ever apply and get rejected, because they were too vocal talking about the Biggest Bank in the World.
Luckily, I don't have to worry about the latter, nor would I call them an incumbent bank, as I have come to understand through many conversations with current and ex-employees why J.P. Morgan Chase & Co. moves the way it does.
So in this Newsletter, I break down the Strategy they used to put them at the number one spot…
Why Is J.P. Morgan Chase & Co. the World’s Largest Merchant Acquirer
Despite not being on the front page of Techcrunch, or PYMNTS.com, weekly, J.P. Morgan Chase & Co., is the World's Largest Merchant Acquirer.
Expected to process over 120 Billion transactions, and in excess of $2.4 Trillion in 2023, while only having focused on the United States and Europe. An impressive feat, as most Merchant Acquirers, have had to expand Globally, to achieve even a fraction of that volume and size.
As they are producing their best year ever, they are even expanding their services into Asia including Singapore, South Korea, Australia, New Zealand, India, Japan, and Hong Kong. Areas that have been strategically selected, as they produce the most volume in e-commerce sales, and expected to continue to grow, and are hubs for internationally focused Merchants, who are currently already processing payments with J.P. Morgan Chase & Co.
To clarify, the wider business of J.P. Morgan Chase & Co. does more than just provide Merchant Acquiring (Accept, Manage, and Pay-Out), but as this Newsletter is solely focused on Payments, and not on Banking, I will focus my efforts on this specific section of their business.
Achieving this level of growth and dominance doesn't happen by accident, it requires a vision that requires focus, stamina, and determination to continue pushing, despite what the market says or does.
In other words, J.P. Morgan Chase & Co. developed a Strategy that was focused on Using Leverage.
Leverage as a Strategy
To use Leverage as a "Strategy", you need to understand that it is not just about the size of a company, but rather, the combination of a group of intelligent people who decide to focus on a specific problem or challenge, and put in their combined resources (sweat, monetary, time), and take deliberate steps to solving that problem or challenge.
To do that, J.P. Morgan Chase & Co. used their Market Expertise, to Predict where the Payments market was and is going to go.
Developing Market Expertise to Predict Markets
It might be cliché to say but to understand where Payments, or any industry for that matter, are likely to go, you have to "Follow the Money". As it helps a Strategist to gain insight into the behavior of the market, and the players and can help predict the movements, which can be used as an advantage.
So to develop a Strategy, as to WHAT to invest in, when it comes to Payments, being able to understand the money flows of those who are operating or interacting with Payments is of tremendous value.
With J.P. Morgan Chase & Co. being the top bank in the United States, data about the flows of money, couldn't be any clearer. From being able to analyze the volume that is coming in via its bank charters, as well as deposits coming from competitors into the bank accounts of key merchants.
By being able to facilitate conversations on the C-level with CEOs, and CFOs, as well as deep-analysis into financial transactions, and aggregated banking data, J.P. Morgan Chase & Co. has been in a position that most of their competitors could only envy.
So to turn all of that quantitive and qualitative data into a Competitive Strategy, J.P. Morgan Chase & Co. researched where the demand from existing and fast-growing merchants was going. In addition, instead of going into a battle with FinTechs, they also analyzed the structure of the Merchant Acquiring business and the challenges that their competitors had to deal with.
The outcome of this was an understanding that to compete within this market could be through Technical Innovation or through Leveraging relationships, market position, and selective markets.
Relationships with the Schemes, Governments, and Financial Institutions, where instead of marginalizing themselves, they Leveraged themselves by getting closer to them.
Instead of pushing against fee increases, they collaborate with the Schemes to launch new features and products faster. Instead of fighting against regulations, they embraced them and helped create them.
But most importantly, instead of competing with other PSPs, they offered them Merchant Acquiring services, which based on their volumes, would be exponentially cheaper than what those companies could achieve by themselves.
Developing the Market Expertise to Predict Markets, doesn't require the same size as J.P. Morgan Chase & Co., it requires a level of attention to detail to what is happening in the industry, what Merchants are looking for, what their preferences are in the way they want to integrate, but also understanding how others Payment companies are dealing with it, as well as the regulatory and technical changes that are happening in the market.
Turning Insights into Focused Effort
But understanding and being able to Predict the Markets isn't enough to apply Leverage, it also needs to be aimed at specific problems and challenges with a set of focused resources and action to achieve the targeted result.
As the competition in the Payments industry increased, how merchants were being targeted changed as well. The times when new Merchants who signed up for a bank account, would set up Merchant Processing was rapidly decreasing.
E-commerce businesses, who through digitization, were now able to open up bank accounts online, also started searching for Payments Processors who would understand how they operated.
A change that J.P. Morgan Chase & Co. couldn't move on fast enough, due to their Legacy systems and processes.
So as the Insights of their existing clients, and market research became stronger and more definitive, three waves of change were happening.
Their existing Enterprise merchants, who noticed the impact of new entrants, were putting extensive resources into offering E-Commerce, and or Omni-Channel solutions, to meet the demand of their customers.
The providers who were able to develop services for these new merchants would still require a Merchant Acquirer, who could handle the payments that needed to be processed.
The rise of Platforms was increasing from eBay to include vertical-specific ones such as Etsy, Shopify, and AirBnB.
To create leverage around these insights, J.P. Morgan Chase & Co. developed their Strategy to focus on:
Enterprise
Strategic Partnerships
Embedded Payments
The mistake that most companies make, is placing too many Strategic bets, instead of developing Focused Efforts.
A Focused Effort, leverages the insight to channel the resources and organization on a specific target that will have the largest chance of success and the longest positive impact on the company. Especially, if based on the unique set of components the company has, it will be able to better fulfill the needs of those who will be looking for it, than those, who are yet to develop those capabilities.
Narrowing Focused Effort To Make an Impact
Focused Effort can still be too large to make any type of impact on an industry. Therefore, Narrowing Focused Effort, increases the potential returns that can be generated.
These returns are achieved by actually putting limitations on the types of Merchants an organization allows itself to go after. Too often Payments companies, who don't limit the types of Merchants they go after, are not able to prioritize one over the other, which doesn't provide their prospective Merchants with any differentiating insights, which they would benefit from if they chose them.
Despite the size of J.P. Morgan Chase & Co., resources and capital are still restricted to the actual return they can achieve. So instead of trying to go after every single Merchant in the market, they choose to restrict themselves to only a few industries, where their relationships, and market position would benefit them, compared to their competition. A Strategic decision, that has done well for them.
Where most Payments companies, have gone after exciting and fast-growing markets, J.P. Morgan Chase & Co. have steadily gone after;
Automotive
Consumer and Retail
Financial
Healthcare
Public Sector
Technology
Overall, these markets impact millions or even billions of customers, but from an Enterprise, Partnerships, and Embedded Payments perspective, limit the number of targeted Merchants and Partners, so that their Sales, Marketing, and Account Executives, can focus.
By Narrowing Focused Effort, J.P. Morgan Chase & Co. management teams benefit from this, as they can still look at the overall market, but develop themselves and their teams to focus on specific problems and challenges for these sectors, their Merchants, and their partners, without having any ideas that they are "missing out" on anything.
Conclusion: How You Can Use Leverage
To Use Leverage as a Strategy, you need to be in a position to use it.
The type of Leverage J.P. Morgan Chase & Co. used, is the accumulation of decades or even hundreds of years of being in business, great leadership, and experience in the Banking industry.
But as we have seen from dozens of other industries, this is leverage that can be built up by leveraging emerging technologies better than the incumbents.
We have seen Bill Gates, leverage his ability to develop an Operating System to turn Microsoft into the Biggest Software Company in the world.
We have seen Steve Jobs, leverage his vision and experience, to start, and turn around Apple, to now being the Biggest Integrated Software and Hardware company in the world.
We have seen Elon Musk, leverage government mandates to transition from fossil fuels to alternative energy sources, to attract Billions in loans and funding, to build the Biggest Electric Vehicle company in the world.
And more recently, we have seen Sam Altman, turn his understanding of where Technology is going, especially Artificial Intelligence, into the Biggest Artificial Intelligence company in the world.
J.P. Morgan Chase & Co. strategically leveraged their Market Expertise and what would most likely happen, their understanding of what is most crucial, and pore resources into a focused area that could benefit from it, without being distracted by third parties, or outside forces, into becoming the Biggest Merchant Acquirer in the world.
Imagine, what a Payments company could achieve, who decides to develop that same mindset, and can anticipate where the market is going, what will be most crucial to succeed in such a situation, and can focus effort and resources on making it happen.
That company might just become the Next Biggest Payments company in the world.
Thank You for Reading, feel free to Like, Comment, Share, or Post on Your Socials, as I appreciate all the feedback I can get.
Dwayne Gefferie