JPMorgan’s New Free Stock Trades: Different Product, Same Strategy

(Source: www.forbes.com)

JPMorgan is rolling out a new feature in its mobile app that lets users make free trades.

JPMorgan is rolling out a new feature in its mobile app that lets users make free trades.ASSOCIATED PRESS

JPMorgan is adding a new feature for its banking customers: starting next week, they can make up to 100 free stock, bond, mutual fund or ETF trades a year through its mobile banking app. The initiative is a new prong in its strategy to recruit Millennials and sink more hooks into its current customers.

The bank wants to pull people away from other trading apps like Robinhood, which has recruited four million users in five years. But more broadly, young consumers are on JPMorgan’s mind. It has launched its new digital brokerage service, You Invest, to a limited number of users, and the thousands that have signed up so far are 15 years younger than the typical Chase financial advisor customer, a statistic the bank has been keen to highlight.

Two years ago, JPMorgan launched the rewards-heavy Chase Sapphire Reserve credit card and made the cover of Businessweek for its success in winning over affluent Millennials. The card has generated more buzz than any in recent history, and Harvard Business School even wrote a case study on it.

You Invest isn’t likely to make waves nearly as big, especially since the rewards offered by Sapphire Reserve dwarfed those of other cards in the market. But it’s part of the same broad strategy to release a splashy product and appeal to younger consumers. Less than 10% of JPMorgan’s retail customers reportedly have investments with the bank, so there’s much upside. The stock-trade feature may also make current clients—JPMorgan has 47 million customers who log into their online accounts monthly—stickier.

“We view this as an ancillary product for JPM and a means of gaining a greater share of its existing banking clients’ wallet,” Jefferies analysts Daniel Fannon and Gerald O’Hara wrote in a research note on August 21. “We do not view this as much a threat to existing brokerage clients at [Ameritrade, E-Trade, Schwab] … but more likely to have an impact on new account growth over time (i.e. millennials).”

Any JPMorgan customers who exceed 100 trades in a year will be charged $2.95 a trade, but You Invest is primarily a customer-relationship play, not an effort to create a new source of revenue with brokerage commissions. Customers who hold $15,000 at the bank can get 100 free trades every year, and Chase Private Client customers with at least $250,000 in holdings get unlimited free trades.

The big-bank strategy of trying to add new customer touchpoints is nothing new. In 1975, when the SEC abolished fixed stock commissions, competition heated up in financial services, and discount brokerages like Charles Schwab emerged. Since then, banks have been competing fiercely to serve customers in an increasing number of ways. Two years ago, Wells Fargo famously got into hot water for being too ambitious with cross-sell tactics, to the point that associates were creating fake accounts.

More recently, upstart fintech firms have been moving toward legacy banks by offering broader sets of features. Monzo, a digital-first, U.K.-based “challenger bank” whose initial product was a prepaid card, today aims to become a “financial hub” for customers. It launched a consumer lending product earlier this year.

Spencer Lazar, a fintech-focused partner at venture capital firm General Catalyst, thinks JPMorgan might be reacting to this trend. “There will be a great convergence between traditional banks and these new-generation fintechs who ultimately want to be the single finance app that you check,” he says. “JPMorgan wants to do anything they can to hold onto customer deposits.” A spokesperson for JPMorgan disagreed, saying the You Invest initiative is part of a broader, mobile-first strategy the bank has been pursuing for years.

In January, JPMorgan will also unveil a robo-advisor product under the You Invest umbrella, and signs indicate it will initially be free. JPMorgan executive and You Invest CEO Jed Laskowitz said the robo-advisor pricing structure will be “similar” to what it’s offering with the new stock-trading feature. And according to a research note by boutique investment bank Keefe, Bruyette & Woods (KBW), JPMorgan CEO Jamie Dimon said at a 2016 conference, “…when you talk about robo-investing, well, we can do that. We can do it and give it away for free if we want.”

It’s too early to estimate the impact these features will have, but KBW isn’t convinced it will be a game-changer. “Overall, the e-broker and robo offering are a way for JPM to collect incremental AUM that may have moved away from the company but we expect margins on the business to be low,” reads the research note. “And how JPM will monetize the AUM is uncertain given a portion of the investor base could have unlimited free trading.”

More Info: www.forbes.com

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