FIs Leverage Trust, Security to Compete in EU Neobank Space

JPMorgan Chase is banking on digital to help grow its business in Europe.

Less than 18 months after it launched its digital proposition Chase in the U.K., the global banking group is reportedly preparing to launch a digital bank in Germany, using its Berlin base, as part of a push into consumer banking in Europe.

While there has been no official announcement on the bank’s plans yet, it is worth looking at Chase, which was launched in the U.K. in 2021, for clues as to why the digital banking model could be the way to go.

During an investor day presentation in May, Sanoke Viswanathan, CEO of international consumer growth initiatives at JPMorgan Chase, said the bank’s international consumer strategy entailed an “intense focus on high-quality customer service.”

But to do this, he added, “we need to obviously have the right digital and technology capabilities that can go toe-to-toe with the best attackers.”

And it seems the bank has tried to do just that. In fact, while admitting that it was too early to declare victory, Viswanathan told investors that eight months after launch, Chase was seeing non-interest-bearing deposit levels among its customers that were twice what its neobank competitors had experienced in their first year, “and in many cases even after several years in business.”

He went on to explain that the bank expects Chase to make a loss of around $450 million in 2022, a figure that will remain roughly the same in the next few years as it acquires customers and grows. From there on, the goal is to break even in five to six years and generate “significant income” thereafter.

Breaking even within that time frame could put it ahead of major neobanks in Germany, few of which have yet to attain the holy grail of profitability despite often talking up their plans to reach that milestone.

For example, nearly a decade since the company was founded, N26 has yet to turn a profit. And as recently as October of last year, the neobank’s CFO, Jan Kemper, wasn’t able to pinpoint exactly when N26 would break even, saying only that it had enough money in the bank to do so without having to raise additional funds.

“We are not committing ourselves [to say] if this will take 12 months, 24 months or 36 months,” Kemper told reporters at the time, per a PYMNTS report.

A Crowded Digital Banking Market

One major difference between the German and British markets that JPMorgan would have to navigate is Germany’s EU and eurozone membership status. As such, the country has been a prime target for non-domestic neobanks as they expand across the continent, with digital banking services from the likes of Bunq and Revolut also popular in the country.

In fact, despite being headquartered in London and not in an eurozone country, Revolut has made headway in the eurozone thanks to its multi-currency account that allows users to save and spend a variety of currencies including pounds and euros.

Likewise, Bunq has expanded beyond the Netherlands and is now available in every EU country as well as Norway and Iceland.

But while Europe’s neobanks have expanded across the continent, and now stand shoulder to shoulder with some smaller incumbents in terms of their customer bases, translating users into sustainable revenues has been challenging.

As PYMNTS has reported, fewer than 10% of consumers use FinTechs as their primary bank account, and traditional banks still hold a huge sway in the market for more profitable services such as mortgages and consumer lending.

However, Chase appears to be counting on trust in its parent brand to overcome consumers’ apparent reluctance to completely switch to digital banks for all their financial needs.

As Jennifer Piepszak, JPMorgan Chase’s co-CEO for consumer and community banking, commented during the bank’s last investor day, “we aspire to be the primary financial partner to our customers.”

Emphasizing the group’s established presence across payments, lending and wealth management, she added that “we pay close attention to the competitive threat of FinTechs, but no FinTech can match the breadth of these solutions or the trust and security we provide.”

For all PYMNTS EMEA coverage, subscribe to the daily EMEA Newsletter.