JPMorgan Chase (JPM +1.11%) is rolling out a new card reader that pairs with a merchant's smartphone, as well as a new small-business checking account and a payment platform called QuickAccept. Users can expect their sales to show up in their Chase business accounts on the same day, with no additional cost for the fast processing time.
The new platform will have processing fees that are on par with what competitors like Square (SQ 0.07%) and PayPal (PYPL 1.21%) charge, with a 2.6% plus $0.10 fee for tap, dip, or swipe transactions with the card reader, or 3.5% plus $0.10 for card-not-present transactions keyed into the mobile app.
JPMorgan Chase plans to pair the new card reader with a new type of business account, called Chase Business Complete Banking, which has no monthly fee if certain balance or volume thresholds are met, including $2,000 in monthly QuickAccept payment volume. With millions of small businesses already banking with Chase and a more favorable cost structure for immediate payments, should Square and PayPal investors be worried?
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Why PayPal and Square should be worried
On the surface, this looks like it could be a potential problem for Square and PayPal. After all, JPMorgan Chase is the largest bank in the United States and has more than 3 million small-business customers that it could potentially convert to users of its product. This is close to the total number of businesses that use Square's platform.
What's more, JPMorgan's product aims to solve some of the biggest pain points PayPal and Square customers face. Specifically, the free same-day deposit feature is something that the competition either doesn't offer or charges for. For example, Square adds a 1.5% fee if a merchant wants instant transfers, and that's on top of the standard processing costs.
Why PayPal and Square shouldn't worry (not yet, anyway)
On the other hand, there are some good reasons not to worry. For one thing, this new platform is only likely to appeal to current Chase customers. Simply put, most businesses have relationships with financial institutions, and this isn't likely to get customers of other banks to switch -- at least not in large numbers. So Chase is realistically only targeting the portion of these fintechs' business that are already customers of the bank.
Furthermore, and perhaps most important, there is a lot more to the businesses of Square and PayPal that is likely to help with customer retention, even if a merchant is also a Chase customer. To name one example, PayPal simply does online checkout better than anyone else (not to mention there are millions of consumers who prefer to use PayPal when shopping online). Square offers a streamlined business-lending platform through Square Capital that is much easier for most businesses than getting a bank loan, and offers more payment hardware beyond just a smartphone-attached card reader.
What investors should watch
To be perfectly clear, I don't think that JPMorgan Chase is going to put Square and PayPal out of business, or even that it will take a significant amount of payment volume away from either fintech powerhouse. I've been a Square shareholder since just after the IPO, and I'm not planning to sell anytime soon.
What this does show, however, is that traditional banks aren't just going to sit back and let the high-flying fintechs have all the fun. It will be interesting to see not only how JPMorgan Chase's new payment platform catches on, but also if other big banks follow suit with similar offerings.
