Investments

JPMorgan Offers Roadmap On Investor (And Tech Investment) Returns

Banking giant JPMorgan Chase will look to invest more money in its credit card business, continuing a trend of technology initiatives focused on mobile in the mid-term while eyeing returning cash to shareholders.

That will add to a cost structure that will increase, and yet executives stated at the company’s annual investor day that its costs-to-revenue ratio will be 55 percent. In presentation materials to the investment community released by JPMorgan, the bank said that returns on common equity — a yardstick for eventual returns on costs incurred, from staffing to technology — will be 15 percent.

And though the headline numbers and data and sentiment speak to the positive outlooks at the confab offered by Jamie Dimon and others, some projections remain the same. For shareholders, the returns via payouts have been given a range, if not a number, as 55 to 75 percent of net income that will be returned to holders.

The implication here is that the bank feels comfortable enough with its investment horizons (spending as much as $9 billion on technology annually), then the estimated returns on those investments and the ability to satisfy capital requirements are converging at the same time and in positive ways.

And while the Street may parse dividend talk and book value estimates, and all of this is important — we at PYMNTS took, and take, note of the consumer and community banking efforts and goals laid out at the same event. In remarks by Gordon Smith, CEO of those operations at JPMorgan, the card business as a whole was projected to have a net revenue growth rate of 11.2 percent, in line with prior projections with a net charge-off rate of about 300 to 325 basis points. Looking at the overall credit book, the executive noted that households were up 4 percent, far outpaced by the 16 percent growth in active mobile customers at a 26.5 million tally. New accounts were up 20 percent year over year in 2016 and are running higher in the mid-teen growth rate into 2017 thus far, he said.

The cumulative spend on technology and marketing investments tied to this unit reached $1 billion across 2015 and 2016. The digital initiatives, according to the firm, are helping improve customer attrition rates. And over the span of four years, digital initiatives have led to a swing upward in the percentage of households engaged with those platforms, up 18 percent, while small businesses have boosted their own interactions by double-digit percentages over the same period.

Speaking to the audience about Chase Pay, Smith said that conduit “delivers value to the merchant.” And as for Sapphire, the executive said the card has benefitted from “tremendous” PR buzz, and the profile of the user here has FICO scores of 765 and significant asset portfolios.

Investments are continuing into the P2P space and via QuickPay with annual transactions most recently numbering 94 million. Separately, noted Smith, commerce solutions continue to gain traction, with $1 trillion in processing volume annually.

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