Open Banking or FedNow: Where to Start?
September 14, 2023 | 2 min read
During the global financial crisis, the four largest banks in the United States made a host of acquisitions to shore up deposits and stave off systemic collapse. Wells Fargo acquired Wachovia, Bank of America acquired Merrill Lynch and Countrywide, and J.P. Morgan acquired Bear Stearns and Washington Mutual. In addition, some floundering banks were sold off in pieces post-crash, creating a hodgepodge of disintegrated banking structures.
Of course, the industry has changed a lot since 2008. Millennials and Gen Z are forgoing brick-and-mortar banking for online options. The rise of fintech has accelerated the adoption of digital banking — drastically cutting fees and encroaching on big bank income, revenues, and profits.
As this landscape continues to evolve, it’s worth exploring the strategies that top retail banks are using to generate revenue.
The major components of the Glass-Steagall Act were repealed in 1999, and scholars continue to debate the impact of that decision. While we may never know the repeal’s true effects on the Global Financial Crisis of 2008, it is certainly clear that banking structures have since become more complex.
Every globally systemic important financial institution is structured differently. We can judge strategic success by comparing bottom lines, revenues, and equity prices. However, reporting the success of single service lines (or lines within retail banking specifically) has become more difficult to dissect.
The blending of previously separate business units with complex products makes it hard to tell (at least for the general public) which strategies and products are working, and which ones are falling short. Annual reports and SEC disclosures provide some basic insights even though specifics are opaque.
We took a look at the four largest banks in the United States and attempted to extract their basic strategies for generating income and revenue. We derived statistics and some text analysis from each company's reports. Here are the revenue sources that we found from looking at the most recent annual report and/or the 10-K for each company.
For simplicity and readability, we’ve rounded the numbers here.
2019 — $116 billion
2018 — $109 billion
2017 — $100 billion
2019 — $36 billion
2018 — $32 billion
2017 — $24 billion
In their breakdown of net revenue, JPMorgan Chase shows a nearly even split between noninterest revenue ($58 billion) and net interest income ($57 billion).
The biggest driver of JPMorgan Chase’s noninterest income revenue comes from asset management ($17B) and principal transactions ($14B), which is when “an adviser, acting for its own account, buys a security from, or sells a security to, the account of a client.” This is followed by investment banking fees, lending/deposit-related fees, and card income.
Most of their interest income, unsurprisingly, comes from loans ($50B). Trading assets, investment securities ($11B), and federal funds sold ($9B) comprise most of the rest of their interest income.
Chase boasts the highest net income on record as well as the highest net income of all other banks in the United States. CEO Jamie Dimon says that the company's stock price has exceeded the S&P 500, and that the investment portion of the business continues to thrive. In fact, all four business franchises thrived in 2019, as shown below.
These four areas — consumer & community banking, corporate & investment banking, commercial banking, asset & wealth management — represent the major focus of how JPMorgan Chase makes money.
$56B Consumer & Community Banking
$38B Corporate & Investment Banking
$14B Asset & Wealth Management
$9B Commercial Banking
The annual report also shows that JPMorgan Chase “grew core loans by 2%, increased deposits overall by 5% and generally broadened market share across our businesses, all while maintaining credit discipline and a fortress balance sheet.” The report adds that “in total, we extended credit and raised capital of $2.3 trillion for businesses, institutional clients and U.S. customers.”
2019 — $85 billion
2018 — $86 billion
2019 — $20 billion
2018 — $22 billion
Wells Fargo shows net interest income of $47 billion and total noninterest income of $38 billion (equaling the $85 billion in total revenue above).
Almost all of Wells Fargo’s interest income comes from loans ($44B), distantly followed by interest from debt securities ($15B). Noninterest income primarily comes from trust and investment fees, service charges on deposit accounts, card fees, followed by fees from mortgage banking, net gains from equity securities, and lease income.
Wells Fargo segments their lines of business by community banking and consumer lending, wholesale banking (which includes commercial banking and corporate and investment banking), and wealth and investment management.
$45B Community Banking
$28B Wholesale Banking
$17B Wealth and Investment Management
2019 — $91 billion
2018 — $91 billion
2017 — $87 billion
2019 — $27 billion
2018 — $28 billion
2017 — $18 billion
Bank of America shows net interest income of $48.8 billion and total noninterest income of $42.3 billion, equalling $91 billion in revenue.
Again, unsurprisingly, the bulk of the interest income ($43B) comes from loans and leases, followed distantly by debt securities ($11.8B). The largest driver of noninterest income stems from asset management fees ($10.2B), followed by service charges ($6.6B) and interchange fees from cards ($3.8B).
Bank of America is organized into four segments: consumer banking, global wealth and investment management, global banking, global markets, and all other. Consumer banking includes deposits, Merrill Edge, and small business client management, along with consumer lending, which includes consumer and small business credit card, debit card, consumer vehicle lending, and home loans. Deposit products include traditional savings accounts, money market savings accounts, CDs and IRAs, noninterest- and interest-bearing checking accounts, as well as investment accounts and products. Deposits generate fees, including account service fees, non-sufficient funds fees, overdraft charges and ATM fees, as well as investment and brokerage fees from Merrill Edge accounts.
Consumer banking: $22 billion
Global wealth and investment management: $19.5 billion
Global banking: $20 billion
Global markets: $15.6 billion
2019 — $74 billion
2018 — $72 billion
2019 – $19 billion
2018 – $18 billion
Citi has a strong global presence, with 47% of net revenue coming from North America, 22% coming from Asia, 17% coming from Europe, Middle East, and Africa (EMEA), and 14% coming from Latin America.
They had non-interest revenue of $27 billion and net interest revenue of $47 billion (equalling the $74 billion in net revenue). Citibank retail bank services focus on checking and savings accounts, loans, wealth management advice and small business services.
Global consumer banking: $33 billion
Institutional clients group: $39 billion
Corporate/other: $2 billion
From the data above, it's clear that while the revenue streams of these banks are all very reliant on their revenue via interest, there are a few major differences in the ways that the banks make money.
JPMorgan Chase and Bank of America have a more even split between interest and non-interest revenue, while Wells Fargo and Citi both bring in more revenue as a percentage of total revenue via interest. Compared to community banks and credit unions, the four largest banks tend to be far more involved with asset management, corporate banking, global banking, and more.
Want details about how you can lead the future of banking, whether you work at a bank, a credit union, or a fintech company? Read our Ultimate Guide to Open Banking.
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