JPMorgan uses its might to cut costs in credit card market

Tue Sep 8, 2015 2:16am EDT
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By David Henry

NEW YORK (Reuters) - JPMorgan Chase & Co. is cutting prices for a group of its credit card customers and getting Visa Inc to shoulder at least some of the burden of the lost revenue, underscoring how the largest U.S. bank's size can help it hang onto business in fiercely competitive markets.

At stake are the billions of dollars that banks receive annually from consumer use of a credit card to pay a retailer. Chase, which generated roughly $3.6 billion of revenue last year from those fees, is increasingly occupied with fending off banking rivals like Citigroup Inc, as well as Silicon Valley companies such as Paypal Inc and Square Inc.

Chase's revenue from those fees is showing signs of eroding. In the first half of 2015, fee income in the bank's credit and debit card business fell 2 percent from the same period a year earlier, even as the bank processed a higher volume of transactions. A person familiar with the matter said lower processing fees were a critical part of that decline. 

JPMorgan CEO Jamie Dimon pledged in an April letter to shareholders "to be very aggressive in growing this business." At a conference with securities analysts in February, he cited the credit card operation as an example of how JPMorgan has to cut prices and upgrade products to keep from falling behind competitors.

"In a capitalist world," Dimon said, "you've got to be giving the client more, better, faster, quicker, or you lose."

Credit card fees generated about 4 percent of the bank's revenue in 2014, but analysts said that much of that money has historically fallen to the bottom line, making it a critical support for the bank's $22 billion of annual profits.

To stem the decline, Chase is assembling a vast array of parts into what will become either a brilliant machine or a makeshift disappointment. A key part of the strategy came in 2013, when Chase inked a deal with Visa that allowed the bank to essentially lease Visa's network for 10 years at what industry sources said is a fixed rate.

There are some signs that the Visa deal is starting to pay off for Chase. This year, the bank won the right to process credit card transactions for customers of Marriott International at some 3,700 hotels in the U.S. and Canada and for Chevron USA at nearly 8,000 gas stations.   Continued...

A view of the exterior of the JP Morgan Chase & Co. Corporate headquarters in the Manhattan borough of New York City, May 20, 2015. REUTERS/Mike Segar