JP Morgan Chase & Co., the largest bank in America and one of the world's major provider of financial services, recently issued its 2014 annual report, in which the firm's chairman and CEO Jamie Dimon suggests that new competitors are "looking to compete with banks," and that his firm is "keeping an eye on [these emerging players]," most particularly on Silicon Valley's startups.

"Silicon Valley is coming," warns Dimon. "There are hundreds of startups with a lot of brains and money working on various alternatives to traditional banking."

What the executive is referring to is nothing else but the financial-technology (fintech) startups that are looking to disrupt an industry that is ripe for innovation.

According to a report from Accenture released in March, investment in fintech companies grew by 201% globally in 2014, with an estimate of US$12.2 billion injected into startups, highlighting investors’ interest in their disruptive potential.

As of today, many young companies are looking to offer products and services that are traditionally provided by banks. Notably, JP Morgan seems to have set sight on the lending business, where startups like P2P lending platform LendingClub, or its equivalent in bitcoin BTCJam and BitLending Club, can provide loans to individuals and small businesses "very quickly and – these entities believe – effectively by using Big Data to enhance credit underwriting."

Dimon explains:

"They are very good at reducing the 'pain points' in that they can make loans in minutes, which might take banks weeks. We are going to work hard to make our services as seamless and competitive as theirs. And we also are completely comfortable with partnering where it makes sense."

Another key area for the bank that is described as "a critical business," is the payments industry with current competitors like "Bitcoin, merchants building their own networks, PayPal and PayPal look-alikes," the company further said.

"Payments are a critical business for us – and we are quite good at it. But there is much for us to learn in terms of real-time systems, better encryption techniques, and reduction of costs and 'pain points' for customers."

While Dimon notes that "new competitors always will be emerging," he believes that it is "even truer today because of new technologies and large changes in regulations," and fears "the potential effects of an uneven playing field."

"The combination of these factors will have a lot of people looking to compete with banks because they have fewer capital and regulatory constraints and fewer legacy systems."

Legal and regulatory costs

Overall, JP Morgan had a pretty good year, with a record of US$21.8 billion in net income on revenue of US$97.9 billion.

But despite promising financial results and many successes, the firm claims that "legal and regulatory costs and future uncertainty regarding legal and regulatory costs," might have harmed the company's stock performance during the past five years.

Dimon stated:

"While the business franchise has become stronger, I believe that legal and regulatory costs and future uncertainty regarding legal and regulatory costs have hurt our company and the value of our stock and have led to a price/earnings ratio lower than some of our competitors."

According to the annual report, JP Morgan might face up to US$5.8 billion in losses related to ongoing legal proceedings, that include private, civil litigations and regulatory/government investigations.

JP Morgan and bitcoin

JP Morgan is widely known for its antagonist moves towards digital currencies. In October 2014, Dimon publicly said that he considered Bitcoin as a competitor, emphasizing that he was ready to compete.

In 2013, the bank patented a digital payment system in bid to rival Bitcoin. As of December 2013, the firm was reported to have issued a total of 175 unsuccessful claims that were either cancelled or rejected by the United States Patent & Trademark Office (USPTO). 

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