Chase Makes Over $5 Billion On Credit Cards, Wants To Drive That To Zero

Chase earns over $5 billion in revenue from its credit card portfolio per year, but they’ve made it a corporate priority to build a product that’s intended to kill the credit card business. And CEO Jamie Dimon threatened to fire senior leaders who get in the way.

Facing growing pressure from nimbler fintechs, the chief executive of the biggest US bank pushed the leaders of his two largest divisions to put aside any differences and collaborate on a new payments processing system.

“If I hear that any of you aren’t sharing information with each other, or you’re hiding information, you’re fired,” Dimon told the 15 or so executives who had gathered for the meeting in New York, according to two people with knowledge of the remarks.

Chase is building a direct payment system – intended to route funds from a customer’s account straight into a merchant’s account and going live next year – bypassing credit card processing networks while running much faster than the current electronic funds transfer system. They internally refer to it as a “pay-by-bank” product. The commercial bank is building the product that competes with credit cards from the consumer bank, hence the concern over internal resistance to the project.

  • This is meant to be ‘creative destruction’
  • There’s going to be innovation, no point in ignoring that
  • So they want to be the one that innovates

In some sense this product already exists, and Chase is a part-owner of it: Zelle. However it hasn’t been broadly adopted by merchants. Chase sees their new system displacing payments “for rent and bill payments as well as cash, high-priced debit and cheques,” and not merely for credit cards, but “the bank is making sure it is ready for the potential demise of credit cards.”

Credit cards bundle payments, consumer protections, and lending – and are sticky not just because of habit but also loyalty marketing, they reward customers for their loyalty with rebates and benefits, sometimes from the bank and sometimes from their favorite brands.

Consumers also benefit from the credit card float – buy today, pay a couple of weeks after the end of your billing cycle. That’s not just free financing, it’s especially helpful for those putting business expenses on their cards and waiting to get reimbursed. (One of the greatest features of the old Diners Club card was 60 days to pay, precisely so you didn’t have to worry about whether your employer processed your reimbursement before the bill came due.)

Direct payments serve only one of these functions, though Chase is ‘working through’ what consumer protections would look like. While lower-cost to merchants, they almost certainly entail consumers giving up the same level of protections and rewards and unbundle the option for lending. While I don’t think you should focus on rewards if you aren’t paying off your credit card each month, for those who do revolve on cards it’s frequently better than the alternative.

At the same time, new payment technologies will compete down the cost of interchange – in ways that regulation won’t. Bipartisan legislation to regulate interchange exempts banks with under $100 billion in assets from caps. Market competition doesn’t exempt smaller banks, where credit cards would gravitate towards under mere legislative caps.

About Gary Leff

Gary Leff is one of the foremost experts in the field of miles, points, and frequent business travel - a topic he has covered since 2002. Co-founder of frequent flyer community InsideFlyer.com, emcee of the Freddie Awards, and named one of the "World's Top Travel Experts" by Conde' Nast Traveler (2010-Present) Gary has been a guest on most major news media, profiled in several top print publications, and published broadly on the topic of consumer loyalty. More About Gary »

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Comments

  1. loyalty marketing

    The new generations are not like the old generations, there is no loyalty to brands anymore, and for good reason. A brand will never love you back.

    Chase is making the right strategic move here, pity Dimon’s old school bullying tactics on his own execs, but what can you expect of an old straight white guy limousine liberal.

  2. This seems like it potentially could create more consumer debt. With faster payments there’s less time to transfer payments or wait for one’s own cash to come in. It also could penalize those who don’t keep careful enough track of their expenses. Potentially it might be harder to dispute charges too as there’s no reason for the credit companies to have your back. This could well be the future, but I seriously doubt if any merchants will lower their prices if their fees drop.

  3. Doesn’t Chase have a stake in Zelle? It does. In some ways that is like Swish in Sweden, a system set up by the Swedish Bankers Association.

    If you check how Sweden does Swish, you may find it has a c. 18-21 cents fee per transaction for business customers charged to the business customers. The participating banks can cut a better deal with their partner business customers accepting Swish transactions. When card processing systems go down at a business in Sweden, some businesses see a surge in Swish transactions or try to set up things quickly to handle Swish transactions until the card processing systems are back online. Card transactions still remain more popular than Swish transactions at traditional retail goods and service providers. The Swish thing is pretty much off limits to foreign visitors and others without a local bank account.

  4. Sharpay, your intolerance, prejudice, ageism, sexism and bias is showing. Dimon didn’t get where he is by being stupid.

  5. Dimon predicted that JPM will incur a few years of credit card losses until the business is restructured. Even though the new regulatory environment is still evolving, it is clear that the old business model of credit cards as a profitable standalone product is over.

  6. For any new transaction or payment processing system to succeed, it must be adopted by consumers as well as merchants. It may very well happen, but too early to tell if it will push out the consumer credit card payment offerings as we know it. Change will come, but hard to know what and when. We know why (some parties will profit).

  7. Chase Makes Over $5 Billion On Credit Cards…

    Doesn’t that undercut this site’s recycled claim about how Chase’s seismic launch of the CSR cost the bank a bunch of money, when the reality is that with a relatively small “investment” that did not make dent to its bottom line, Chase was able to launch a great rewards card that so spooked the competition it revolutionized the industry?

  8. Chase Bank refuses to give me my money back I’ve heard they’ve done this new with other people. The check has cleared we verified and they still refuse to give me my money back. Every time I call the call center and give me a bunch of nonsense it’s been a year now

  9. drrichard’s comment is wrong. He says that he doubts that businesses will lower their prices with lower credit card fees. The converse is that businesses won’t raise their prices with high credit card fees but will eat the difference.

    This shows that drrichard has not run a small business before. There is no such thing as a free lunch. Higher costs results in higher prices in the long run and lower costs results in lower prices in the long run. Maybe in the short run, it won’t show up.

    All the cash back bonuses are not coming from the bank. Small businesses have to pay higher fees when you use a rewards card.

  10. Zelle is somewhat popular, and I’ve used it many times, to pay for home and car repairs and such. However, it lacks consumer protection, and there are many warnings from consumer protection folks about not using Zelle willy-nilly, paying someone you don’t know and so on. Because it’s hard if not impossible to reverse the transaction, or get your money back. It’s also vulnerable to scams and fraud, again, no protection.
    OTOH, the young are using PayPal and it’s subsidiary Venmo. Venmo’s personal account is free and is very easy to use.

  11. @ Gary — This is great news for fraudsters, who will be given more ways to rob you blind in an instant.

  12. Yes, the banking and credit industry is ripe for a disruptive innovation. There is a lot of money in 2-3% credit card transaction fees and even more in customers carrying out balances. If you are a large bank dealing with customers, why would you split a profit with an Airline?

  13. Won’t lots of customers just switch their spending over to Amex, Citi, Capitol One, etc? Maybe they’ll all ditch points/miles-accumulating credit cards, but I’d assume there will a competitive advantages in taking many billions of dollars of business away from Chase.

  14. To clarify, I mean the competitors will all keep their credit card options, with lots of customers shifting away from Chase.

  15. This is NOT innovation. Developing countries like India use this technology at any place to shop. It’s called Paytm. Every mom and pop shop in India accepts this, it’s a QR or Shop ID you scan on your phone and pay directly with the funds in your bank account, or paytm account. Transaction is instant and the shop owner or cashier sees the transactions instantly. This is been widely used due for years in India. Chase just needs to implement the concept that is already proven in a country with more than a billion people and low access to technology.

  16. Jamie Dimon is one of Wall Street’s most successful con artists. He defrauds clients and stockholders alike. JP Morgan would be proud.

    I dont understand why anyone does business with JP Morgan Chase. They will scam you if you give them the opportunity.

  17. Chase Makes Over $5 Billion On Credit Cards, Wants To Drive That To Zero
    Chase earns over $5 billion in revenue from its credit card portfolio per year, but they’ve made it a corporate priority to build a product that’s intended to kill the credit card business.

    None of that makes sense to me. Why would any for-profit company speculatively kill a proven “cash cow” in favor of an untested model, whose chances of success are anyone’s guess?

    Are we sure we clearly understand what Chase is up?

  18. What would be the incentive for consumers to give up miles and fraud protection? I see none.

    the only reason people use Venmo is because it’s easy to transfer money between friends or to avoid cutting a small check to a vendor. No way I would use it for any significant amount.

  19. After Chase acquired WePay, they are trying to transform WePay as their new platform for transactions. Therefore, what this article is saying is WePay. No secret at all.

    Chase is hiring everyone for WePay, no matter their ability. Locations could be Bay Area, Plano, or Jersey City. Don’t think it would work. You need to hire capable people, not establishing a huge but functionless team.

    My friend got 5 offers from JPM all associating with new payment platform. 2 or 3 offers are even at same building at Jersey City.

  20. What innovation? This is WePay in China or something similar in India. Put it in another way, this is streamlined Debit card payment. It is not forward, but backward!

    This may benefit some merchants and poor consumers paying with cash/check, but very bad for credit card holders (protections, rewards, delayed payments, etc.).

    Unless large merchants demand higher prices for credit card payments like some small gas stations, why anyone switch from credit card to this “new” system?

  21. So what’s the end goal here? It can’t be just forcing consumers to use a Debit Card/Zelle variant instead of credit card. There’s no money in that with pressure to lay off overdraft fees. They must want to create their own credit card lending option within it to cut Visa/Mastercard/Amex/Discover out. So Chase is your all-in-one payment system for personal and merchant payments. Lending or instant.

  22. The only reason any sane person would do business with Chase is through their credit card products. It’s laughable to watch this country turn into another third world Cleptocracy. Zelle for the poor and Chase Private Client for the rich. No other markets to worry about anymore folks..

  23. They are doing this because such direct transfers are the only way to collect overdraft fees today.

    Laws we’re put in place several years ago so if a transaction would overdraw an account, the transaction would simply be rejected, no harm, no foul.

    If the transaction is directly linked by routing/account number, then the overdraft check is NOT made, and overdraft fees on BOTH ends are charged to the customer, plus whatever other nasty consequences.

    So, what is happening is intended to bypass the protection law and get those overdraft fees rolling again

    Of course, that is some evil retro-BS that needs to be squashed.

  24. I suspect that most likely this will be a system that would ride on top of the Federal Reserve’s upcoming FedNow system which most banks are expected to use.

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