JPMorgan Chase’s Bloomspot Deal Brings Daily Deals To Cards Business
JPMorgan Chase (NYSE:JPM) is buying the online coupon firm Bloomspot in what is the latest move by one of the country’s largest card issuers to build its customer base by providing additional benefits and value added services. [1] JPMorgan is reportedly paying $35 million for the daily deals website, and will use the newly acquired assets along with the customer usage data it has accumulated over years to come up with various loyalty programs to target potential customers.
Increased competition and a significant reduction in fee revenues from recent regulatory measures in the card industry have forced the big banks to look for ways to coax customers to use their cards – ranging from improved technology offerings to better reward programs. Over the last two months, competitors Capital One (NYSE:COF) and U.S. Bancorp (NYSE:USB) announced the acquisition of data aggregator firm Bundle Corp. and prepaid card processing company FSV Payment Systems respectively – both deals clearly aimed at drawing more customers in the future.
We maintain a $46 price estimate for JPMorgan’s shares, which is at a premium of about 5% to current market prices.
See our full analysis of JPMorgan
JPMorgan Chase Is The Leader Of The Pack…
A glance at the chart above shows how important JPMorgan’s cards division is to its business model – with the division contributing to a fifth of its total estimated value. The global banking group is the second largest card lender in the world, after Bank of America (NYSE:BAC), with a globally diversified card business spread over 30 countries. [2] In the U.S., JPMorgan Chase is bigger than Bank of America – a position it achieved by a series of mergers involving J.P.Morgan Bank, Chase Manhattan Bank, Bank One and Washington Mutual over the last decade.
… And Clearly Wants To Stay That Way
As is evident from the chart above, JPMorgan Chase witnessed a substantial decline in the size of its outstanding card loan portfolio since 2008 – an obvious result of the recession and the continuing sluggishness in the economy. Tougher card legislation also made things worse, as did the bank’s prudent move towards tightening its lending practices.
Consequently, JPMorgan has had to seek out options to make its card offerings stand out as the big banks compete for customers’ attention. The recent acquisition of Bloomspot is an attempt by the card issuer to provide better and more relevant offers to existing and prospective customers by taking a more focused approach towards their buying habits. The bank will also capitalize on its extensive merchant relationships and promote them to customers through partnerships – a win-win situation for everyone involved.
The impact of this acquisition should be seen in the rate of growth of JPMorgan’s card loan balances over coming years. If the bank is able to successfully leverage Bloomspot’s services, then we can expect a better loan growth in the future than the 4% annual growth we currently forecast. You can see how an increase in this figure can help JPMorgan’s share price by making changes to the chart above.
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- J.P. Morgan Buys Daily Deals Company Bloomspot, Wall Street Journal, Dec 20 2012 [↩]
- What are the largest credit card companies?, Credit Card Chaser, 2012 [↩]