Chase’s Big; and Possibly Desperate, Gamble on Mobile Payment

America’s largest bank; JPMorgan Chase (NYSE: JPM), is making a huge and possibly desperate gamble on mobile payment.

Chase has become the first bank to go live with a mobile payment solution similar to Apple Pay; Chase Pay. The Chase Pay website is now live; although the solution itself is not yet accepted in any retailers. Instead the digital wallet supports a number of lesser online retailers; including Harry & David, and 1-800 Flowers, in what looks suspiciously like a beta test.

As it currently functions; Chase Pay seems to offer no advantages to Apple Pay. It supports all of Chase’s branded credit cards including the Sapphire, Freedom, Slate and Sapphire Preferred cards. It also works with Chase’s debit card. Although it does not support other credit brands like MasterCard or American Express. Nor do any non-Chase credit cards appear at its site.

Chase Pay Might attract Brands Apple Pay Lacks

More importantly Chase Pay supports a number of Visa cards; for brands that Apple Pay does not work with. Chase’s mobile solution works with the Ritz-Carlton credit card, the Marriott Rewards Card, the United Airlines Mileage Plus Cards, the Southwest Airlines Rapid Rewards Cards, and the British Airways Visa Signature Card. That provides it with a number of brands not accessible to Apple Pay users going out of the gate.

This gives Chase an edge because currently only one airline; JetBlue, and no hotel brand are accepting Apple Pay. Marriott is listed in the coming soon section on Apple Pay’s list of brands.

Most intriguingly; Chase Pay supports the Amazon.com Rewards Visa; and the Zappos.com Reward Visa. That raises the possibility that Chase Pay will work at Amazon, America’s largest online retailer; and its popular Zappos subsidiary. Chase Pay might also work with Amazon’s (NASDAQ: AMZN) Amazon Pay at some point.

Chase Pay vs. Apple Pay

Chase is taking some huge risks with its mobile solution. It is using a very different technology than Apple Pay and Alphabet’s (NASDAQ: GOOG) Android Pay.

Chase Pay is based on QR; or Quick Response, in which a phone reads a code. It is the same technology used by Group On and similar coupons. Apple’s (NASAQ: AAPL) and Alphabet’s (NASDAQ: GOOGL) solutions use wireless NFC technology.

The reason Chase is going with that technology is unclear but it could involve security. Presumably Chase’s experts believe that QR might be more secure than NFC. Another reason might be cost, because QR codes would be cheaper than NFC devices.

Chase might also have plans to integrate QR and block chain technology; the distribute-ledger encryption solution that makes bitcoin possible. The Wall Street Journal reported that Chase was experimenting with blockchain-based money transfers in February.

Chase is taking some huge risks here because an experiment with another QR based payment solution; Current C, will shut down on June 28. A consortium of big retailers called the Merchant Customer Exchange (MCX) and Chase were testing Current C in Columbus, Ohio. That beta test will soon end and plans to roll Current C out nationwide have been scrapped.

An intriguing possibility here is that Current C was merely a front for Chase. The bank was testing its payment technology at a number of major retailers in Columbus; including Walmart and Target, and nobody realized. Chase gathered the data it needed to design a successful payment app through Current C.

Will ATMS Help Chase Pay kill Apple Pay?

Surprisingly, Chase Pay’s greatest selling point might be a rather old fashioned brick and mortar banking solution – ATMs. Back in January, Chase revealed that it has plans to equip its 15,500 automatic teller machines to work with mobile payment.

That would enable people to get cash and deposit checks or cash using Chase Pay. In other words it would make it possible to do common retail banking transactions using an app.

This would give Chase an edge on Apple Pay, because 40% of all transactions in the United States are still made in cash. That means almost everybody needs to get cash occasionally. It also means that Apple Pay users still have to carry around a checkbook; or a debit card, if they want to get cash.

Were Chase Pay to roll out an app that would allow customers to withdraw cash and deposit checks; it would have a capability Apple Pay currently lacks. That would make Chase Pay more useful and convenient than Apple Pay, Android Pay, or Samsung Pay. A major advantage here would be all the ATMs that Chase in his in stores. I have seen Chase ATMs in Walgreen drugstores; including one in Canon City, Colorado, where the bank has no actual branch.

Chase is hardly alone here, news reports indicate that Wells Fargo (NYSE: WFC) is developing its own ATM that takes mobile payment. Rolling mobile pay at ATMs might become a logistical nightmare; it will take a lot of time, and quite a bit of money, to replace or retrofit each 15,500 of Chase’s existing fleet of ATMs with ones that accept that mobile.

Why Chase Needs Mobile Pay

Chase might end up dominating mobile payment because it needs new sources of revenue. The latest earnings report indicates that Chase’s current business model is not working.

Between March 2015 and March 2016; Chase’s revenues declined by $3.24 billion. Chase reported revenues of $95.96 billion for first quarter 2015 that fell to $92.72 billion a year later. This revenue decline indicates that Chase’s current model of brick and mortar consumer banking is not sustainable, it needs to make major changes just to survive.

Chase’s net income which had been growing, is also beginning to drop. Chase reported a net income of $24.44 billion in December 2015 that fell to $24.05 billion March 2016. That reversed a trend of net income growth; Chase reported a net income of $22.39 billion March 2015.

An even more worrying sign was Chase’s free cash flow which was -$21.38 billion on March 31. That number indicates Chase’s free cash flow dropped by $37.55 billion during first quarter 2016. Chase reported a free cash flow of $16.17 billion in December 2015.

Is Chase Making Money?

Chase is still making a lot of money it reported total assets of $2.424 trillion, cash and short-term investments of $378.41 billion and $37.2 billion in cash from operations on March 31. Despite that, Chase’s ability to continue making all that money is very much in doubt.

JPMorgan Chase needs to develop new lines of business and new sources of revenue; such as a payment processing network to compete with Visa’s to survive. That might give it the edge over Apple and Alphabet in the payment wars, payment is just a side line to the tech giant. Payment is at the heart of Chase’s business, more importantly, it needs products to regain its edge in consumer banking, Chase Pay could be that product.