Chasing the Advantage

On June 5^th. JPMorgan, along with Bank of America, Citigroup, Wells Fargo, and other large banks, announced a shared tokenized deposit network operated by The Clearing House. In reviewing the news, the one thing that I picked up that fits with Chapter 8 of the Strategic Management textbook is that this is a clear example of JPMorgan Chase, along with others, providing a coordinated response in the action-and-reaction cycle Dess describes. That competitive action is the rise of stablecoins, non-bank dollar tokens that pose a real threat to the banking system by attracting consumer deposits. In response, JPMorgan and its rivals in the industry have decided on this 17-bank, multi-year, hard-to-reverse infrastructure build, which is a strategic action, and not just a tactical response.

This decision by JPMorgan to join other banks in this endeavor is not out of the blue and points to another lesson found in Chapter 8, namely, competitive dynamics analysis components, including threat analysis, motivation to respond, and capability to respond. For threat analysis, CEO Jamie Dimon has openly opposed stablecoin-yield provisions in the CLARITY Act and, in a letter to shareholders, named blockchain/stablecoins as direct competitors. As for motivation to respond, the threat that stablecoins pose to deposits, which are the core business that funds lending, is existential to the banking industry. Taking both threat analysis and motivation to respond, we see the threat is real and known about, but what about the capability to respond? That is where the history of JP Morgan’s existing rails comes into play (RTP, CHIPS), along with a bank-owned operation in The Clearing House, and programs like Kinexys, they have the means to respond to this threat and join fellow banks in working to address this threat.

What is funny about the news released is that JP Morgan Chase and partner banks, have stated that this action is not a response to stablecoins, but when viewed through the lens of competitive analysis and the evidence provided that statement doesn’t hold up. We see from the analysis above and recent history of at least JP Morgan chase, that the company seeks this kind of competitive advantage, but billing this as a neutral infrastructure building move is in itself very telling.