When the folks who run the LeBron James Family Foundation want to track the academic progress of students it helps, they turn to an unlikely developer of software programs: JPMorgan Chase & Co.
The New York bank, it turns out, is among the country’s biggest financial firms offering technology products created in-house that sometimes have little to do with their main business. Wells Fargo & Co. helped a mall operator improve its app to schedule holiday visits to Santa Claus. Goldman Sachs Group Inc. offers the equivalent of an app store.
“Financial assets are all digital,” said Steve Ellis, head of Wells Fargo’s innovation group. “That’s where your customers are and you want to be where your customers are.”
Amid the growing power shift in the U.S. economy from Wall Street to Silicon Valley, lenders are rolling out more technology services in an effort to build customer loyalty and buff their cool credentials. It’s also a defensive move, as a bevy of startups jockey to grab customers with new ways to lend and conduct mobile banking. Yet some lenders warn of the dangers of straying too far beyond core mobile and online products.
“People that are jumping to try and be more like technology companies than banks are making a really giant, risky leap, and I think they are getting confused in terms of what matters,” said Kelly King, chief executive officer of financial services firm BB&T Corp.
The services aren’t likely to produce enough revenue to offset such industry challenges as weak loan growth and slow trading volumes. And no one is claiming that banks will be the next Oracle Corp. But lenders see the initiatives as a way to differentiate themselves from rivals -- or at the very least as research or philanthropic projects that can help existing customers.
Wells Fargo created its Santa-software program for a client, a shopping mall operator, and has provided similar services to other customers. The LeBron James Family Foundation is a JPMorgan asset management customer. The bank’s tech workers donated about 4,000 hours of coding time to create the software, which will help chart academic progress for the 1,100 Ohio students the charity will send to college, according to bank spokesman Jeffrey Lyttle.
Goldman Sachs, which has almost a third of its employees in its technology division, has opened up an internal trading platform called Marquee to clients and offers 10 applications through it for services such as portfolio construction and designing and buying structured notes. The Web-based system gives trading customers the potential to use the bank’s data in building their own applications.
“Marquee gives them access to the same risk-management and analytical tools that we use in-house,” President Gary Cohn said at an investor conference in June.
American Express Co. offers retailers Plenti, a loyalty program the card company unveiled this year that lets consumers earn rewards when they shop at multiple stores. AmEx developed the infrastructure by building on top of the technology platform run by Loyalty Partner, a marketing firm AmEx purchased in 2011.
“We prefer to run our technology in-house as it allows us to more quickly service our partners and control and modify the program in real-time,” said Abeer Bhatia, CEO of U.S. loyalty at AmEx.
Banks also are moving to reach consumers by attaching their financial products to a variety of emerging technologies. U.S. Bancorp is testing ways that customers might be able to make automatic purchases of oil and parts when they use a new mobile-phone app that connects and monitors their car.
The goal is to stay competitive with companies that could disrupt the financial services industry, but not necessarily to create additional sources of revenue, according to Dominic Venturo, chief innovation officer of U.S. Bancorp.
“We want to figure out how to move the innovation needle to compete aggressively with fintech startups knowing that there is a lot of noise, only some things will matter and the failure rate can be extremely high,” Venturo said.
The initiatives have the added advantage of making banks look more like Silicon Valley to recruits. Wells Fargo plans to hire kids fresh from school and without a background in banking as a way to foster innovation, Ellis said.
“We do have some really smart people in the bank, with some ideas, and then you can bring some people in from outside,” Ellis said.
The moves come as more than 600 tech startups, backed by at least $15 billion in venture capital, are working on products in the financial-services industry, according to Boston Consulting Group. Banks are likely to acquire some of them as well as incubate their own expertise, said Andre Veissid, a BCG partner.
Still, some banking leaders say that firms shouldn’t go too far afield. For all his enthusiasm, Wells Fargo’s Ellis is quick to admit the bank’s expertise isn’t in developing applications for clients. In most cases, it makes more sense to act as a consultant and then enlist a third-party developer, he said.
“Banks are not quite disrupting themselves, but they’re partnering with their clients in ways they haven’t before,” said Veissid.