In this episode, Max Neukirchen and Umar Farooq explore the incredible transformation of J.P. Morgan Payments over the past decade. From the integration of treasury and merchant services to the rise of real-time payments and biometrics, they highlight the challenges and opportunities in an ever-evolving payments landscape.
In this episode, Max Neukirchen and Umar Farooq explore the incredible transformation of J.P. Morgan Payments over the past decade. From the integration of treasury and merchant services to the rise of real-time payments and biometrics, they highlight the challenges and opportunities in an ever-evolving payments landscape.
Disclaimer:
The views and opinions expressed herein are those of the author and do not necessarily reflect the views of J.P. Morgan, its affiliates, or its employees. The information set forth herein has been obtained or derived from sources believed to be reliable. Neither the author nor J.P. Morgan makes any representations or warranties as to the information’s accuracy or completeness. The information contained herein has been provided solely for informational purposes and does not constitute an offer, solicitation, advice or recommendation, to make any investment decisions or purchase any financial instruments, and may not be construed as such.
Narrator (00:02):
Welcome to Pay It Forward, a podcast by J.P. Morgan Payments for J.P. Morgan payments. Get to know our business and gain a better understanding of where we sit at the intersection of technology and finance. Did you know, we move nearly $10 trillion globally each day through over 170 countries and 120 currencies at more than 5,000 transactions per second? Join us as we take you inside the stories, technology and people that make it all happen.
(00:39):
Coming off a record year of earnings, we are diving straight in with J.P. Morgan Payments global co-heads, Max Neukirchen and Umar Farooq. This conversation got started the minute we hit the record button, so I'll let Max jump right in to talk about his career journey.
Max Neukirchen (00:55):
I joined J.P. Morgan in 2013 as head of strategy, and after many great years in that role, at some point, Jamie said, "Enough time spent telling people what to do now it's time to do it yourself." And my first foray into payments came in early 2020 just before COVID when I became the CEO of our merchant services business. And that evolved after a few years into payments and commerce solutions. And then since this summer, I had the pleasure and honor to be co-head with my friend, Umar, here of our global payments business.
Umar Farooq (01:34):
And in my case, I joined J.P. Morgan in 2009. Actually, I joined Chase in the business banking division. So, I was in the CCB organization, which is our retail organization. Started out working in business banking and spent the first four years working in various parts of business banking, consumer banking, before making the transition over to what was then the corporate investment bank, and worked with our technology operations, and controls and the infrastructure teams on the CIB side. And in 2017, I transitioned over to back then the treasury services business. And subsequently had various roles in treasury services on the digital side in the clearing product side, correspondent banking, sales, etc.
(02:23):
And after seven years in the business, I had the pleasure of finally being able to co-run the business with Max, who I've known since Max joined. And we have done lots of work together in many different forums. One other thing, which has always been there, some people think it's my main gig, some people think it's a hobby. But starting at about 2014, we started dabbling in blockchain solutions for the bank. Since then, I grew that team from what used to be, I think, one or two people back then to now a team of more than 200 people that build at scale blockchain solutions for all of our clients. And that organisation is now called Kinexys by J.P. Morgan.
Max Neukirchen (03:04):
There is actually another interesting story to share here. Umar and I, we both spent a good amount of our early career at McKinsey. And I think you left McKinsey to work for specialty finance company, CIT. And the first time I remember that we have met was around the financial crisis. CIT ran into financial challenges.
Umar Farooq (03:29):
That's one way of putting it, but yes. Yeah.
Max Neukirchen (03:31):
And then McKinsey at least tried to help or oppose. And then there was a big meeting at this office on Fifth Avenue where you and I definitely met, I still very vividly remember this. And then obviously we worked together very closely over the years.
Umar Farooq (03:47):
Yes. And I think that's always been a thing that for Max and I, it's been a sort of common bonding factor, which is both of us with the earlier part of our careers going through the same organization, helps us at least anticipate, and work together and think together in a way which is very synchronised.
Max Neukirchen (04:06):
How have you seen the evolution of payments and where we have opportunities?
Umar Farooq (04:11):
I joined what was essentially the heritage organization called treasury services. And the path of that organisation starting from treasury services to what is now the payments business, is really the industry path in some ways. And we were the trailblazers in how we put that organization together. And many of our peers have now gone on the same journey. But if you really think about it, about seven, eight years ago, this part of the business, treasury services, was a bit of a sleepy cash cow-ish type business where you essentially serve large corporates, you serve large banks, and you help them store their money and you help them primarily move money around to other large institutions using wires or, in some cases, ACH. And those were really the two or three major products including some of the products like Glock Box and whatnot. So, heritage products in the treasury space.
(05:07):
I think one of the things we did at J.P. Morgan very proactively and very strategically was bring various assets together. So, for instance, Max just mentioned merchant services. Max came into the CEO of that business, but we were the first bank, I believe that had put treasury services and merchant services together to create an end-to-end platform where clients could not only pay into a large organization. So, if you're a large corporate, you can get the money in through merchant services, you can then manage your money with us, and then you could push the money out using various rails. So, what we've done is we've created an end-to-end product set that is no longer just a back office function to enable someone to manage their treasury funds better, but to actually build new business models.
Max Neukirchen (05:56):
Yeah, also think the journey of payments has been nothing short of fantastic over the last seven, eight years. I think in 2016, '17, if we first look at the top line financials, payments, revenues across the firm by maybe $6, $7 billion in treasury services, we had a global market share of just over 4%. And as Umar said, it was a relatively sleepy business. Fast-forward to today, payments is more than $18 billion of revenues. Our treasury services market share is now 9.5%. And payments is seen as one of the centers for innovation, centers for thinking about new solutions and also key for future growth opportunities of all of J.P. Morgan Chase. And that has been a tremendous transition.
(06:53):
And one area where I also see it, I still a couple of times a year join our recruiting team to find new hires for J.P. Morgan Chase holistically. And I still remember 10 years ago, most graduates were interested in investment banking, sales and trading. Today, they all want to join payments because they see the success, they see the new things we are trying, the investments that go here, and that has been a great transformation.
Umar Farooq (07:23):
And I also think, Max, to some extent, payments have become visible to people. So, all of us, if we look back again in our own personal lives, 10 years ago, 15 years ago, we tended to think of our primary way to make payments and interact was via sending checks out or going to a bank and doing a transaction, or going online and doing a transaction. Now we have so many different ways to transact, including things like Zelle that have come up in the last few years, including various wallets that you can pay with when you go to a merchant. I mean, all of us have gotten very used to single-click pay payments. We've gotten used to going to a merchant and seeing seven options, and you pick the option and you don't even have to do anything. You literally can pay with your face, with a double click or things like that.
(08:17):
So, in the imagination of all of us, payments have taken a bit of a different space. And I think that also plays into when you are a new person or someone who's looking to build solutions, you can see the vision of how much new innovation will be coming to the space. Not only what has already come, but frankly what is yet to come, and how quickly it's evolving. And that's true whether you're studying in the US, or whether you're studying in India with UPI, or whether you're sitting in, or Singapore or any place. Every country, both the financial infrastructure controlled by their authorities in most cases, national governments or private infrastructure, has just been exploding in terms of new use cases.
(09:01):
So, I think from our point of view, that's been one of the most exciting things for us, which is while we've expanded our business and we have now do business across more countries in many, many more ways than we used to seven years ago, it's almost an unending race to keep connecting more and more of the globe together to enable solutions for our clients who want to do business in 20, 30, 40, a hundred countries.
Max Neukirchen (09:26):
It's actually a great point that also reflects the different role that payments plays now for many of our clients. Historically, payments was the responsibility of the CFO and the treasurer, and it was managed as a function that needed to work. So, you needed to reliably move money from A to B and manage money, and it needed to be efficient. Now, more and more clients see payments as a key revenue driver, which means the CEO cares, the business units care, the tech team cares. And that evolution of payments is also one that we of course mirror here because for all the J.P. Morgan Chase clients, be it corporates, as well as institutions, payments now plays a much more important role.
Umar Farooq (10:17):
So, Max, you just returned from Money20/20. Why don't you share your key takeaways? What did you see over there?
Max Neukirchen (10:23):
Two aspects about the observations from Money20/20. First of all, innovation has definitely been at the center of many other discussions with our clients. This is new payment rails, especially real-time payments around the world. This is new checkout solutions, think about biometrics. But it's all the value added services like embedded finance that we offer around paper that are so important for our clients. So, clearly innovation and the growth that comes has been front and centre. The second thing that has been important for us, when you go to a conference like Money20/20, you realize that we are not only competing with other banks around the world, but also with fintech firms. And that competition over the last decade has in my view also made us better, made us more nimble, made us innovate faster. And it's a great example how also a very innovative and competitive environment, if you embrace it, helps you operate better. Umar, you also traveled recently and you went to Sibos in Beijing. What were your takeaways?
Umar Farooq (11:36):
Just for everyone, Sibos is the conference that's hosted by Swift and it's a conference of almost all major banks across the world. So, banks from all over the world come together in one place, sharing ideas, meeting each other. There's various aspects to the conference. One of them is because we are so significant a player in that space of serving other banks, because we also bank quite a few banks. And so, because we are so significant in that space, most of the folks in that meeting are our clients. So, it's a generally very interesting discussion. A couple of things to note, again, one, all major banks, and I mean banks of scale that can invest and operate across more than one country, all of them are focused on very similar themes, connecting to more countries, enabling their clients to do business easily in these countries, and then enabling money to move cross borders at a very low expense in very quick time and very efficiently. So, that is one major theme that we've been pursuing for years and years. But most banks are.
(12:41):
The other thing which ties to Max's point around fintechs is Sibos used to be a bank conference primarily, and you used to see mostly banks. Now, there are a number of fintechs, small, medium and large, that actually attend this conference, because they are major players in global finance. They might be moving money across the world for consumers and they're doing remittances. They might be moving money around the world for businesses to pay each other. They might be providing banking-like services in various countries. And it just is one of those things which is just a macro trend.
(13:20):
Clients will want better products, they will want more efficient products, they will want innovative products. And either the fintechs will provide it or the banks will provide it or both. But frankly, if the banks do not invest, do not innovate, do not stay ahead of the curve, they run the risk of becoming lesser and lesser players on the world stage over time. So, again, it reinforces the same point that I think Max mentioned from Money20/20. So, Max, let's turn to the team. What is the team working on right now that's really exciting for you?
Max Neukirchen (13:51):
I think the work we do around the world on building modern payment rails and connecting to new countries, connecting to new client segments is something very exciting, because payments is a very global business. And there's global trends around digitization payments, acceleration payments and making payments much more easy to operate that we are driving and that we are driving in many places around the world. And seeing that is for me, very, very fascinating.
Umar Farooq (14:27):
I will mention maybe two things. One is Max and I, as we run the overall payments organization, we are serving all sorts of clients. We are serving very large clients, the household names in terms of gigantic tech or e-commerce companies or consumer companies. We are also serving startups and rapidly growing technology companies across the world. And some of the products we are building in that space to actually target innovation economy is very exciting for us because that is an area we really want to focus on. The other end of the spectrum for the very large Corporates, obviously close to my heart, some of the products that we've been creating out of the Connexus organization have really been game-changing to some extent. For instance, our JPM coin product, which moves money across the world 24/7, 365 with programmability built into it is something frankly no startup up, no fintech has been able to offer at the scale we do. And that's a game-changer for our very large clients who have needs that are so sophisticated that the current infrastructure cannot meet.
Max Neukirchen (15:39):
One of the exciting things about payments is actually the breadth of clients that we serve. Because we literally have clients from the bakery around the corner, all the way to Amazon, and we also support central banks and entire countries. And there's no business within J.P. Morgan Chase that has such breadth when it comes to covering clients and doing that also at an international scale. And what is an important management challenge for us is how do we deliver payments specifically for each of those segments, industry client groups that have very different needs, while also allowing to leverage the benefit of the scale for our clients? Umar, JP Morning payments obviously holds a special place for both of us. What do you think makes this business special?
Umar Farooq (16:32):
I believe it's a really, really exciting space because of the level of change, because of the level of innovation, because of the breadth as Max and I mentioned earlier in terms of how many clients you serve. It's like trying to solve the biggest jigsaw puzzle that exists in financial services all the time. So, if people are engaged and excited by intellectual challenge, I believe there's very few places that would throw them this degree of intellectual challenge in trying to solve significantly complicated problems at scale across the world.
Max Neukirchen (17:08):
For me, what makes J.P. Morgan payments exciting is the combination that we have on the one hand of the in innovativeness, the investments and the agility of a very tech forward business, that is acting fast. With, on the other hand, the reach and the scale of J.P. Morgan where we reach hundreds of thousands of clients, literally if you go to the extreme, every day with the same platform. So, making that work is very special here. I do enjoy our global business because we operate in so many countries, we celebrate so many holidays here. We deal with clients and regulators in so many geographies.
(17:54):
Umar and I both now live in the US. We didn't grow up here. It's a truly global business that is also exciting and appealing. And then lastly, I do think we have a culture where we have a lot of opportunities. We want to go after them very aggressively, but we also embrace that this involves risk-taking. We want to have open discussions about any challenges that come up so that we can jointly solve of them. I think it's a true teamwork culture. I mean everybody says that, but if I look at our management team, I really feel that people say what they do and do what they say, and that we have an open dialogue and discussion about anything. And that's important.
Umar Farooq (18:41):
I also would say, Max, one of the thing which personally for me is appealing is we can see our products in action. So, all of us do transactions. I mean, by the way, we could be doing a transaction with one of the big e-commerce companies in the us. We could be moving money person to person at any given point in time using some of the most well-known apps here or abroad. And it always gives me a little bit of a positive feeling when I do something like that. And then I just remind myself, oh, at the backend, our business just made that happen. And I think there's something very unique and exciting about a business where you can feel the product, versus you are just engaged at a building level or from afar. So, I do think that also gives payments a bit of a unique feel, especially within the wholesale side of the back.
Max Neukirchen (19:32):
How do you think about leadership and the firm?
Umar Farooq (19:35):
I think it's actually very energizing to be with the payments team because I feel that there are people all across this business that know a lot more than me about something. So, it's almost a constant learning process. And it's less about leadership in the sense of Max and I setting some agenda and telling people what to do. But that engagement back and forth with frankly our team and then their management teams, and then the same engagement with the clients, is what makes it such a unique leadership experience. It's almost an iterative process versus sitting in some ivory tower and just deciding what to do next.
Max Neukirchen (20:15):
One value that is important at McKinsey is the obligation to dissent. It means if we jointly solve a problem, and you really think there's going in the wrong direction and you actually might be the subject matter expert no matter how junior or senior you are, you have an obligation to speak up and make your point hurt. And we both really believe in this because we work on many tough topics. And we want to create a culture where everyone can bring forward with their best ideas, we'll have a conversation it. It doesn't mean it always happens that way. Decisions also need to be made. But at least that we make sure that the best argument and the best expertise is at the table when we value our options.
Umar Farooq (20:59):
Max, we are obviously very excited about the business. But as you see the future of this business, what makes you most excited? Where is the business headed?
Max Neukirchen (21:07):
One thing that I believe is very exciting about the business is actually the future growth prospects. And they come from a couple of sources. First of all, we talked about that we have a global business. And around the world, there's still so much more to be done about digitization of money at the end of the day, which creates a ever bigger ecosystem of client needs and then also ultimately revenue opportunities for us. That is a big tailwind for the entire industry. And then on top of it, you definitely see a consolidation towards larger players, because fewer and fewer players can handle the complexity of operating in so many countries, meeting regulation in so many countries, and doing that at scale. Which has been reflected in our market share that grew from 4.5% To 9.5% over the last seven years. And when Umar and I think about the future of the business, there's no reason why this couldn't be 15% in the foreseeable future, which would then add another $7, $8 billion of revenue for J.P. Morgan Chase. And that is a great opportunity.
Umar Farooq (22:21):
I fully agree, Max. I think the investments we've made in our infrastructure, in our compliance and controls programmes, in our people, are things that set us up for continued growth at a rapid rate. So, as Max said, there will be a few banks. There are some of our peers, they're also making investments. But we believe that we've done some great build out in the talent space. We've done a lot of work to build our global platforms that cut across multiple geographies and allow us to connect to new payment schemes. We now have a lot of infrastructure, making sure we are compliant with laws, which by the way are getting more and more complex over time. And that sets us up for frankly continued growth into the foreseeable future.
Max Neukirchen (23:09):
And one thing that has been very exciting for us as we took over the business in the summer is to see also the support that Jamie, the operating committee and also the board have for our business, and also the agreement they have into the growth prospects that we see for global payments. And the willingness to invest in payments to make sure that we can continue on our trajectory.
Umar Farooq (23:35):
So, Max, can you share one fun fact that people don't know about you?
Max Neukirchen (23:38):
So, one fact of me, when I travel, I always take a book with me because at some point all the emails been written, all the movies have been watched, and then it is very good to read a book. At the moment, I'm reading a book on German poetry.
Umar Farooq (23:53):
My fun fact, it's a bit more mundane, which is people won't be able to tell from LinkedIn. I do like biking a lot. And I particularly like biking very, very early in the morning when it's dark. And so, if people do bike around Central Park and they see someone random biking that early, that's usually me.
Max Neukirchen (24:12):
Yeah, I love biking, too. I actually come to and from work most days by bike.
Umar Farooq (24:18):
I saw Max on the street yesterday, but he's much higher on the risk tolerance. I bike early in the morning because that's a safe time to bike, generally speaking, fewer cars. But Max is a daredevil, so that's a different category of biking. This was a great conversation. Really enjoyed actually sharing our perspectives on the business, how we've done, and frankly what great future lies ahead.
Max Neukirchen (24:41):
Thanks to all of you for the great job you do everyday in Payments. We really appreciate your effort for our clients and for each other. And for Umar and I, it's also a great pleasure to work together and we are honoured to lead the business together. And hopefully you can see that we are great team.
Narrator (25:01):
Thank you for tuning in to Pay It Forward, a podcast by J.P. Morgan Payments for J.P. Morgan payments. Stay up to date on the latest stories, technology and people powering payments by subscribing on Spotify, Apple Podcasts, or your favourite podcast platform. Keep pushing boundaries and we'll keep moving the payments world forward one transaction at a time.