In 2021 JPMorgan decided to follow Goldman Sachs steps and open a (sort of) retail branch here in the UK. While GS strategy revolved so far around a cash-saving product called Marcus, JPM built something closer to an online-only bank. Today I will illustrate to you the my pros and cons of this new banking app and in particular, the debit card that comes with it.
What is Chase?
Chase is the brand that JPMorgan uses for its retail services. The full name of the bank is actually JP Morgan Chase & Co but I guess everyone on this side of the Atlantic ocean knew the bank as JPM because….they never had a retail operation in Europe before. The origin of the name goes back to 2000 when JP Morgan & Co merged with Chase Manhattan Corp. Mystery solved.
When years ago I read about Goldman’s plans of opening a retail branch, I dreamt about going around with a GS-branded card to pretend I was part of the 1%. Turns out banks did read luxury brands’ manuals and kept the two services clearly distinct. You can bank with JPMorgan BUT you have to be Adam Neumann rich to do so…otherwise you are left with Chase.
Why Chase
Do you remember the last time you visited a bank branch? Did you go because you wanted to go or because your bank forced you to?
I have to switch my driving license and the process here in the UK requires me to mail documents with a check. Checks, a relic of the past themselves, are the only reason why I had to interact with a person for my banking needs in the last five years. I remember the days when, if you were a commercial RE landlord, your best tenant would have been a bank. It is time to update your manual, dude.
Having an online-only bank saves the bank a lot of costs. Ideally, some of these savings should drizzle down to you, the customer. Some of these ‘savings’ might come in the form of enhanced productivity.
My current bank offers me a saving account on top of the standard current account. I have different needs that can be covered by that account: emergency funds, my apartment service charges, holiday savings, planned home fixings. Right now I can only dump all my needs in that account and then maintain an Excel file where I account for each objective balance. Why in 2022 I cannot have a saving account for each of my goals? Because my bank infrastructure is linked to a past that is no more. Sometimes is not even a bank fault; in Italy, a bank (therefore its customer) has to pay a tax for each bank account it has on its ledger. While a Government in the 1950s might have designed this rule as a close-to-painless way to raise funds, this relic is potentially stifling innovation in the (20)20s.
Chase solved this issue because they started from scratch, they were born online instead of having to morph a structure that was designed two centuries ago.
The numberless debit card is another example. Your debit/credit card has embossed numbers because fifty years ago retailers used this machine to accept credit cards (I am so bad at blogging that I could not even manage to upload a gif, sorry):
Having your card number only on the app and not on the card itself has only upside, mainly saving you from fraud risks. Chase is basically copying what Apple did with their credit card…except that the Apple card is available only in the US.
These are obviously only marginal improvements to a standard bank account but show well the opportunities of starting from a blank page. The real killer feature is the 1% cashback on the debit card.
Customer Acquisition Cost
1% cashback might sound like a bad deal to Americans but it is the best we can aim for in the UK. Amazon offers a 0.25% cashback and Revolut 0.1%. Amex just reduced the rate on its cashback cards from 1% to 0.75%.
Why Chase is so generous? And why do they do it on a debit card? Customer acquisition costs.
The cost to acquire a customer for a neo-bank or a fintech service, in general, can be as high as $500. Even if you spend £1000 per month, which is a big amount since you cannot debit on your card big items like rent, Chase is going to spend ‘only’ £120 on your cashback. Financial services are willing to pay such a high acquisition cost because they know that once you are in, it is really difficult for you to change your mind and go away. I mean, you can change your mind pretty fast but you would prefer 200 other chores than going through the motions to change from one bank to another.
It is the same reason why Amex cards have such great welcoming perks to new card members. The Chase 1% cashback is indeed a promotional rate, it lasts only one year and Chase can cancel it even before that date. They offer you such a deal because they know you will stick around…but will you? The value here is jumping around and harvesting all these small bonuses here and there, provided that the time it takes you to open/close this contract is less valuable than what you are getting back.
In this case, an extra £120 is probably going to allow you to retire only 2.8 seconds faster…but they are close to free money as they can get: you can open the account online while watching Netflix.
The Points Guy
thepointsguy.co.uk is basically the Bible for this type of activity. I linked the UK version but the website was born in the US, where the competition between credit card issuers is fiercer and therefore the opportunity set for jumping between them juicier.
Amex for example will consider you as a ‘new customer’ only if you cancel your last card two years prior. If you have a partner, this means you can have a welcome bonus each year for the family, provided there are two programs to rotate in and out; to get the most out of it, you have to use the newest card for all the eligible family expenses (if only I could pay the nursery by card…).
I wanted to digress on TPG because I discovered it too late and I wish someone put it on my radar when I was in my 20s. I love to travel and my wife does too. We spent the best part of our time together hopping on and off planes around the world. We were not exactly frugal in our travels but we definitely wanted to optimize our cost, getting the very best out of every franc spent (we were living in Switzerland at the time). This basically means chasing Business Class ticket upgrades and lounge accesses for free.
Airlines’ loyalty programs are bullshit if you do not travel for work. One year we traveled twice to Asia, Japan and Bali, and all Emirates gave me was a free ticket to watch The Derby in Milan (Emirates was the jersey sponsor of A.C. Milan). This is what happens when you play it fair. When I was working for a cruise company, a colleague once told me that one year he calculated how much the company spent for his airline tickets: 200k. He was not referring to lifetime spending, it was just the cost for that year; and the company had discounts on tickets and he was not senior enough to travel Business. That’s the people you were competing with. At least before COVID. Maybe in the future business travel will really diminish and airlines will have to readjust the value of their miles.
In reality, loyalty programs have some loopholes and TPG is the best, non-hacker place, to look for them. The hard truth is that those tricks work as long as you do not have kids…I mean, at least until they are able to travel autonomously in Economy while you chill in Business. The dream for me and wife is therefore over for at least the next 14 years (I guess there is not even an ‘unless…’ because there is not a single, even remote scenario, where one of our investments explodes so much that we will pay Business out of our pockets. If you pay the Business sticker price you are honestly out of your f’ing mind because it is the worst value trade EVER…that’s why is so lucrative for airlines).
If you are a couple and love to travel, the very best, by miles, credit card you can get in the UK is the BA Amex Premium Plus Card. The reason is the Companion Voucher, which is the closest you can get to “buy one Business Class ticket, get one for free”. At almost half price (you still have to pay taxes on the Voucher ticket because…there is always a tax to be paid) Business Class becomes a reasonable expense, at least if you are into this type of experience. It is like someone offers you to buy a Bored Ape right now:
Someone will see it as a bargain at a 50% discount; someone will see it as a waste of money no matter what.
Conclusion
If you repay your credit card balance in full at the end of each month (as you should), the difference between a debit and a credit card is really small. Just remember that you need a credit card for certain things like renting a car. I have some utility bills on my debit card and moving them around will probably require more time than whatever cashback I would get over a year: do not try to ‘overoptimize’ everything.
Even if it is not 100% related to this post, here a very important advice for the youngsters out there. While you jump around to harvest bonuses, cultivate a long-term relationship with a bank that can lend you money, in particular a mortgage. As much as banks pretend they have quantitative risk models to drive their lending decisions, banking is a relationship business. If you have history with a bank, a good one where you always pay debt on time and never go overdrawn, they are more likely to take a risk on you. It is great to have a cute app or a flashy-orange card but at the end of the day, all that is bs if the bank cannot help you for serious stuff like buying a property. Yes, there are services like credit scores that spread information about you to the whole system but that usually cover only bad behaviours; you need someone to hold positive news about you.
Lastly, an overdue comment on referral codes in general.
Referral codes are nothing but another effective marketing strategy. Chase does have one in the US but decided not to use it to promote its UK venture. And yet I am here talking about them to you. Judging a financial service on the single basis that “ah, that’s a scam because they give you free money to lure you in” or someone on “ah, they are like the others because they have referrals on their blog” is a bit stupid. The world is not black or white (BUT there is only ONE scientific method so vaccines work, there is no race theory, Earth is not flat, and on and on. Get over it).
There are fundamentally three types of referrals:
- the one to launch a business. Every business needs a critical mass to be profitable and referrals are just a boost to get to that stage sooner. Once that stage is passed, you should expect to see no more referrals. If they are, there might be a problem.
- as part of a marketing strategy. Referrals get paid only once the customer effectively enters your business. In that sense, they are more effective and less expensive than random Google and Facebook ads, if used correctly. They are a tool in a toolbox. If I run a biz and I know that once I got you, your relationship is going to bring me £100 every year, I should not have a problem to pay even £100 as a one-off.
- to compensate high churn. Think about betting or trading companies. They have a high customer turnover because most of the users stop showing up; not because they do not want to, but because they have no more money.
All of them can be good or bad but mostly depends on the use you do of the product and the relationship you have with the person that is giving you the advice (maybe I am too influenced by Euphoria, the episode where Fez grandmother justify to him why selling drugs is fine). Getting free drinks from a casino is not bad per se, it is bad if it pushes you to lose more money. Should we ban free trading because it nudges people to overtrade? My opinion is no but there are a lot of respectable professionals that have a different view. Is it me giving you a referral to use Robinhood good or bad?
Ultimately it is your responsibility to decide if the person in front of you is providing a valuable hint. I was pushing Viventor on this blog AND it turned out to be a scam (after a change of ownership) AND I lost money. Was my advice bad? Yes. Was I knowingly pushing you to lose money so I could gain some? It is up to you to decide.
What I am reading now:
Follow me on Twitter @nprotasoni
If you liked this post, please consider subscribing to the mailing list. If you did not like this post but are a good soul, please leave a comment: it is all about learning for me!