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August 11, 2022

JPMorgan Chase emulates Capital One’s defensive growth innovations

Chase and Capital One are ramping up their travel sector ambitions. Mohammed Hasan discusses the cross-sell opportunities

After launching in 1994, Capital One spent the following decade successfully launching its business as a credit card provider that rivalled some of the largest in the US. However, a desire to become the ‘one-stop shop’ for all customers’ financial service needs left it best positioned to adapt to the disruption the retail banking sector is experiencing.

Instead of using technology to cut out the middleman, look purely for savings costs, and redefine itself as a software company, Capital One has used its technology to deliver on its mission of humanising banking.

Capital One to unveil first airport lounge

New innovations in this space include the Capital One Travel booking experience and a new premium travel rewards credit card, the Venture X card. More importantly, Capital One is currently developing its first airport lounge, a luxury space at Dallas-Fort Worth International, which will soon be followed by locations at airports in Denver and Washington, DC., lounges that will allow its customers stress-free breaks while traveling.

The development of human-centred concepts such as the Capital One Lounge is a sign that despite other banks considering entering the Metaverse and others seeing an imminent future where all banking is digital, banks still have the opportunity to offer value in the tangible world that will drive customer satisfaction, retention, and acquisition.

Irrespective of the threat that digital challengers pose to larger banks, it would be careless for incumbent providers to abandon their comparative advantage to emulate such challengers at all costs. Capital One is showcasing how having a physical presence of some kind can be key to customer retention and acquisition in an age when loyalty to financial service providers is weakening.

Chase readies full service travel business

Following the example of Capital One moving into the travel business is JPMorgan Chase, which announced it had been assembling the ‘pieces’ to launch a full-service travel business through which customers can plan and book trips such as simple domestic flights and luxury safaris.

JPMorgan Chase has purchased a booking system, a restaurant review company, and a luxury travel agent in recent months and plans to employ thousands of travel agents. Crucially, it also plans to build its own airport lounges.

While Capital One may have begun exploring new product lines and innovative ways to reach customers in order to amplify its financial services business, increasingly companies specifically in banking and technology are vying for control of the entire customer journey and are moving further down the value chain and away from only offering financial services.

For JPMorgan Chase, which is already the largest bank in the US and is exploring the Metaverse for opportunities the virtual realm will offer, control of the entire user experience seems its paramount goal. Already, many are speculating as to whether launching auto and real-estate platforms is in its future as other banks such as Bank of America and BBVA have done, while CBA in Australia has acquired digital healthcare unit Whitecoat to move further down the value chain as it related to healthcare and insurance management.

Travel a key battleground for major card issuers

While entering the travel sector may be a steppingstone for JPMorgan to move out of banking and become more of a technology platform that offers financial services, in the short term its ambition will be the same as Capital One in terms of improving customer acquisition and capture of customer wallet due to the travel-related credit cards it offers, travel being the largest use of credit card activity.

Chase already offers co-branded credit cards with the likes of Southwest Airlines, United Airlines, Aer Lingus, and British Airways, as well as cards for hotels such as the IHG, Marriott, Hyatt, and Disney. Post-pandemic as domestic and international travel resumes, the opportunity to bolster its credit card business through such initiatives seems likely to pay off and offer valuable lessons for how banks’ business models can continue to adapt as technology lowers barriers to offering other services.

Airport lounges: a potentially lucrative cross-sell opportunity

However, the moves by Capital One and JPMorgan to develop lounge experiences are not without risks. On the one hand, the ventures will provide the opportunity to directly market products to customers, promoting products and services in a physical location at the same time as many branch services close or require transformation.

In this respect, the launch of airport lounges provides an interesting cross-selling opportunity as level of access can be tied to the number of products a customer or family holds. However, due to the high-stress nature of travel, particularly for families and businesspeople, the risk of alienating customers by failing to deliver the expected level of service is high.

While some may view Capital One’s and JPMorgan’s strategies as innovative, they are more defensive than anything else. Their actions are merely a response to digital-only banks and fintech platforms such as Revolut, which due to its digital agility and super app goals is also adding features related to travel such as hotel and experience bookings to its applications.

For incumbent providers, moving away from financial services and shouldering the risk of moving into other sectors is a means to avoid disintermediation by their new competitors, who can integrate new service and revenue-generating lines into their business models seamlessly. By virtue of being in airport lounges, Capital One and JPMorgan will be able to ensure their digital competitors are not; at least for the time being.

Mohammed Hasan is retail banking analyst, GlobalData

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