JPMorgan Chases’s tech spending priorities for this year include investments in both data centers and cloud computing, digital consumer experience, and data analytics.
JPMorgan Chase & Co. spent $2 billion on new data centers last year, even as the multinational investment banking and financial services company continued to move data and applications to cloud platforms run by AWS, Google, and Microsoft.
The $2 billion is part of the firm’s total annual spending on technology, which amounted to more than $12 billion last year, according to details shared in JPMorgan Chase’s fourth-quarter and full-year 2021 earnings presentation. Looking at the current year, the firm expects to increase its tech and tech-adjacent spending by roughly 20%. IT priorities in 2022 will be consistent with prior years and will include increases in cloud capabilities, data centers, digital consumer experience, and data and analytics.
“So we spent $2 billion on brand new data centers, okay, which have all the cloud capability you can have in private data centers and stuff like that. We’re still running the old data centers,” said Jamie Dimon, JPMorgan Chase’s chairman and CEO, in a January conference call with financial analysts. Most of the applications and data housed in the new data centers are cloud-eligible, Dimon added.
Meanwhile, the firm continues to broaden its multi-cloud footprint.
“We’re running a whole bunch of major programs, which I don’t think we disclosed, on AWS, and we’re working with Google and Microsoft to run some of the stuff in the cloud because we want to have multiple cloud capabilities,” Dimon said. This year, between 30% and 50% of the firm’s applications and data will be moving to cloud platforms, he said.
“This stuff is absolutely, totally valuable…If you sat in this room and looked at the power of the cloud and big data on risk, fraud, marketing, capabilities, offers, customer satisfaction, dealing with errors and complaints, prospecting—it’s extraordinary.”
Dimon cited fraud prevention as an area that’s been improved by the firm’s technology investments. “For example, with all the fraud and all the cyber and all the ransomware, our fraud costs were down this year. There’s a reason for that. It’s because we’ve deployed huge capabilities in those things.”
Tech spending and priorities
Roughly half of JPMorgan Chase’s annual technology spend falls into the investment category, “or as we sometimes call it, ‘change the bank’ spend,” said Jeremy Barnum, JPMorgan Chase’s chief financial officer.
The investment category includes regulatory-related projects, modernization efforts, and the retirement of technical debt, he said. Global technology initiatives include migration to the cloud; upgrading legacy infrastructure and architecture; investing in the firm’s data strategy; attracting and acquiring top talent with modern skills; and enhancing the firm’s product operating model.
“Underpinning all of this is our continued emphasis on cybersecurity to protect the firm and our clients and customers, as well as maintaining a sound control environment,” Barnum said.
The other half of JPMorgan Chase’s tech spend is allocated to driving innovation across the firm’s businesses and with its client-facing products, Barnum said. For example, the firm has worked to digitalize existing product offerings with projects such as its Chase MyHome consumer lending application, and it launched cloud-native digital-banking capabilities with its recent Chase UK launch, he said. On the wholesale side, the firm continued to develop its Execute trading platform and commercialized its Onyx blockchain-based platform.
“We believe it’s critical to identify and resolve customer pain points and improve the user experience, and we’re attacking the problem with a combination of building, partnering, and buying,” Barnum said.
Will tech investments pay off?
During the call with analysts, JPMorgan Chase’s senior leaders addressed the perennial challenge of tying technology investments directly to financial performance and being able to attach a tangible revenue outcome to those investments.
During the question-and-answer portion of the call, Jim Mitchell, an analyst at Seaport Research Partners, asked what the firm is seeing in terms of a return on its investments, and in what timeframe that payback is expected.
CFO Barnum explained how payback is easier to measure in an area such as card marketing, “where every dollar that we put into card marketing investment is part of a very sophisticated, extremely data-driven, highly measurable set of decisioning to ensure that all of those are accretive.”
At the other end of the investment continuum is tech modernization, Barnum said. “Those things are things that are just—we obviously need to do them. If we don’t do them, we’ll be clunky and inefficient and hamstrung in the future when we’re trying to compete. And it’s impossible to prove, in some narrow financial sense, that there’s a tangible return payback from that, but we know that they’re absolutely mandatory.”
Looking ahead at the firm’s revenue outlook, “we are certainly assuming that many of the investments that we’re making now and that we’ve made over the last couple years will produce the revenues that we expect in that time horizon,” Barnum said. “But a lot of what we’re doing is not of that nature. And in some sense, those are actually the most important investments because they’re the hardest decisions to make.”
In response to another question about quantifying savings associated with moving core businesses to the cloud, CEO Dimon shared metrics related to JPMorgan Chase’s retail credit-card business.
“Card runs on mainframe, which is quite good,” Dimon said. The mainframe platform is efficient, it’s economical, and it handles more than 60 million accounts. “It’s been updated for years. But it’s a mainframe system in the old data center. When it gets modernized to the cloud, the cost savings by running that and marginalizing it will be $30 million or $40 million a year,” Dimon said.
But “that isn’t the reason we’re doing it,” Dimon said.
The real value isn’t in the immediate cost savings, it’s in the ability to more immediately mine the data and make it available to other systems. “… once you get that to the cloud, the databases that it uses to feed its risk, marketing, fraud, real-time offers and stuff like that become accessible to an enormous amount of machine learning,” he said.
Another benefit of moving the credit-card system to the cloud is that it’s a more accessible platform for developers.
“When you touch a mainframe system, you’ve got to be a little careful when you go into it and make some modifications,” Dimon said. “In the old days, you used to modify that mainframe system four times a year, [for] big releases and stuff like that… Now you can go in and modernize a little piece of it every week, every day. And so that’s why it’s so important to do this. And it’s also why it’s hard to quantify the benefits and the costs.”