J.P. Morgan Rushes To Modernize As Cloud-Native Competitors Move In On Its Payments Business


Jamie Dimon, Chairman and CEO, JPMorgan Chase, speaks at the Council on Foreign Relations Thursday, … [+] April 4, 2019, in New York. (AP Photo/Frank Franklin II)

Copyright 2019 The Associated Press. All rights reserved.

J.P. Morgan’s planned purchase of Renovite Technologies shows the U.S. leader in payment processing scrambling to stave off competition from nimble fintechs like Block SQ (formerly Square) and Stripe while it also seeks to expand its international footprint.

A key motivator for the deal, announced Monday, is Renovite’s cloud-based switch that will facilitate J.P. Morgan’s processing of new forms of payment. Incumbent banks’ existing payment switches require time-consuming and costly modifications to accept anything other than 16-digit card numbers as payment tokens, which are used during transactions as a security measure to protect bank account numbers. Renovite’s cloud-based switch makes it easier to support forms of payment like buy-now, pay-later or cryptocurrencies, because anything from an email to a wallet address can be used as a payment token.

Renovite is headquartered in Fremont, California, with offices in India and the United Kingdom. The company has been working with J.P. Morgan since 2021 and upon deal close will integrate with J.P. Morgan Payments. Terms of the transaction were not disclosed.

“In the New Age there is a lot of innovation at the customer touch point, whether it’s e-commerce, point of sale, an ATM with new payment methods or other new transaction types,” said Viren Rana, Renovite’s CEO. “Our switch has solved for that problem, so we have a flexible architecture, which helps clients to onboard new payment methods, new payment types, new transaction types, in a fraction of a second.”

Fintechs including Block and Stripe have gained an edge over incumbent processors like J.P. Morgan with small businesses and ecommerce by creating simple experiences with payment and customization options. From inception, these companies used cloud technology to manage accounts digitally, allowing them to create those sleek transactions for their customers and support a wider variety of payment options.

In 2020, Goldman Sachs caught on and launched its own cloud-based transaction banking services, which competes with J.P. Morgan’s corporate treasury business. While J.P. Morgan’s established business is formidable, these cloud-based competitors will keep gaining market share over time if they don’t upgrade their systems, according to David Donovan, executive vice president of financial services at digital consultant Publicis Sapient.

“As clients’ payment needs become more complex, more diverse and more global you’re seeing that even though J.P. Morgan still is dominant because of their brand, their scale and the breadth of business that they’ve had for decades, they are losing business to people like Square, Stripe and Goldman Sachs Transaction Banking, entities that have a more modern technology stack,” Donovan said.

J.P. Morgan has been the top payment processor in the United States for eight consecutive years, according to the Nilsen Report. In 2021 alone, JPMorgan processed $1.7 trillion of transactions. For comparison, Stripe processed $640 billion in 2021 and Amsterdam-based Adyen $516 billion. A technology upgrade at the New York-based bank could have wide-reaching consequences across the payments landscape, especially in e-commerce. Consumers may begin to see the expanded payment options popularized by fintechs available more widely.

“There was a big moment around crypto or bitcoin being accepted at point of sale or online for retail payments,” Rana said. “That’s a perfect example. Let’s say if a new payment token like crypto comes into play, it’s going to take ages to implement that on the legacy platform.ut for us, it’s another new payment token, and we will be able to implement that.”

The switch also makes it easier for J.P. Morgan to expand its international processing footprint by allowing the bank to support regional payment habits. As an example, in India, the Unified Payments Interface (UPI), is a real-time option that allows customers to send money directly from their bank accounts to a merchant. UPI is a leading form of payment in the country, with $940 billion worth of transactions, 31% of India’s GDP, processed in 2021. Renovite’s product can help J.P. Morgan such transactions by enabling them to accept bank account numbers, instead of their card numbers, as payment tokens. Other places where the switch could come into play would be integrating with products like Mercado Payments in Argentina or Boleto Payments in Brazil.

The Renovite purchase is the most recent in a string of modernization-focused fintech acquisitions from J.P. Morgan. Last year, the bank acquired or invested in around 30 companies, according to a Reuters report. Deals included acquiring U.S. college financial planning platform Frank, U.K.-based digital wealth manager Nutmeg and a 40% stake in a Brazilian digital bank C6. However, J.P. Morgan is fighting an uphill battle as it works to upgrade decades-old infrastructure.

“There’s always this challenge of trying to modernize while you’re also running the business,” Donovan said. “It’s not like you can go offline for like a year while you change your business. You have to build a new house while you have the existing house in place.”

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