JPMC is bringing down the cost of cards for some of its customers — made possible by a network agreement with Visa struck last year.
Chase, on average, racks up $3.6 billion in revenue from the swipe fees merchants pay to accept its cards. Chase is almost the very definition of “the big bank” but are facing an increasingly competitive landscape — both from other major financial services players like Citigroup and from the ever-proliferating army of Silicon Valley startups bent on disrupting the game.
Fees fell during the first half of 2015, losing 2 percent in income taken in from credit and debit fees from the same time period a year before. And that dip is not a result of falling transaction volume; in fact, the number of transactions processed rose during that time period. A source close to the matter noted that the drop in revenue is a result of those lowered swipe fees.
Two percent may not seem like a major dip; however, those card fees are big business for Chase. Reuters reports that card fees generated about 4 percent of the bank’s revenue in 2014. Because much of that money flows directly to the bank’s bottom line, it is a critical support pillar for a firm that clocked in with $22 billion in profit last year.
“[JPMC plans] to be very aggressive in growing this business,” JPMorgan CEO Jamie Dimon pledged in an April letter to shareholders.
“In a capitalist world, you’ve got to be giving the client more, better, faster, quicker, or you lose,” Dimon said at a conference with securities analysts in February.
Those falling fees, and the costs associated therewith, create a burden that is at least partially shouldered by Visa. In 2013 the bank and card network made a deal that essentially lets Chase lease Visa’s network at a flat rate. This essentially allows JPMC to function a bit like American Express does in the marketplace, according to The Wall Street Journal.
The strategy was considered bold and extremely high risk, though some early signs indicate the concept may have some legs. Earlier this year the bank snapped up the the right to process card transactions for Marriott International in the U.S. and Canada and for Chevron USA.
“Payment processing is such an important part of the business. You’re going to go with the provider that has the technology and the customer base and is investing,” noted Michael Cullen, a finance executive for Marriott International. He further noted that Marriott ultimately believed that going with Chase would net the hotel chain the best path to savings.
The new deals have also bolstered confidence in the plan.
“Fizzle was the watchword until they got the Chevron deal,” Steve Mott, an independent payments consultant, said.
And, it should be noted, for some, “fizzle” remains the watchword.
“So far, there is no evidence that it has mattered in a way that changes market share,” said veteran card company analyst Craig Maurer of Autonomous Research.
But according to Chase Executive Mike Passilla, those changes are forthcoming as the bank can leverage its relationship with the card network to gain better insight into its customer base.
Retailers who sign on with Chase for processing are also allowed entry into ChaseNet, which means when customers pay with Chase-issued cards, the bank can process the entire transaction and thus lower fees.
Neither Visa nor Chase, which is the biggest issuer of Visa cards, have disclosed the terms of their deal.