Bill Marvin and Chris Seib (CTO and co-founder) action shot Meagan Ebersole | JP Morgan Chase

J.P. Morgan Chase is buying medical payments technology firm InstaMed to push more deeply into the $3.5 trillion market for U.S. health-care spending. The bank agreed on Friday to purchase the Philadelphia-based company of about 300 employees that processed $94 billion in transactions last year, according to the two companies. J.P. Morgan is paying more than $500 million for the business, making it the lender's largest takeover since buying Bear Stearns and the bank assets of Washington Mutual in 2008, according to people with knowledge of the situation. The move shows that the nation's largest bank views the fast-changing world of payments as a battleground worthy of aggressive wagers. When it comes to keeping pace with emerging technology in lending or investing, J.P. Morgan has typically partnered with fintech firms like OnDeck or used its own engineers to build solutions like the brokerage app YouInvest. But payments, being transformed by global technology giants and surging due to the rise of e-commerce, offers a rare growth opportunity for banks. In fact, one of J.P. Morgan's only other sizable acquisitions of the past decade was its 2017 purchase of WePay, a competitor to PayPal and Stripe. (That year, J.P. Morgan also weighed a bid for Worldpay, a merchant acquirer, before a competitor bought it for $9.9 billion.) So last year, J.P. Morgan surveyed the health-care landscape for ways to ramp up investment, according to Takis Georgakopoulos, the bank's head of wholesale payments. The decision was based on the vast size and complexity of the market: U.S. health spending, pegged at $3.5 trillion in 2017, is projected to reach $6 trillion by 2027, according to the federal Centers for Medicare and Medicaid Services.

Network effects

"One of my favorite stats is approximately 90 percent of all health providers still use paper billing," Georgakopoulos said in an interview. "What InstaMed has created is both the platform and the network that allows them to simplify and streamline payments across payers, providers and consumers across the ecosystem." InstaMed, founded in 2004 by former Accenture consultants Bill Marvin and Chris Seib, automates medical billing with electronic rails for the delivery of health-care information and payments. It connects those in the health-care ecosystem involved in demanding payments, from hospitals to labs and urgent care clinics, with groups like insurers and HMOs that make payments. An illustration: Instead of filling out paper forms at a hospital reception desk and later paying by paper check, a consumer can enter information via an InstaMed app and pay with a credit card. Information flows between doctors, payers and users seamlessly. Apart from its cloud-based platform, the company has created a network that many of the country's health providers, from large hospital groups to small doctor practices, have signed on to, as well as most U.S. health plan insurers.

Takis Georgakopoulos Meagan Ebersole | JP Morgan Chase

"We obviously always look at whether we should build something or buy it," Georgakopoulos said. "In this case, what InstaMed has done is not just the platform, but it's also the network, which took them 15 years to build. We thought it would probably take us that long to build, and so it was kind of a unique opportunity." With this acquisition, J.P. Morgan will integrate itself into the technological underpinning of the labyrinthine U.S. health-care system in a way that's unusual for a bank. The plan is to embed J.P. Morgan's vast payments infrastructure into InstaMed to offer a complete solution to clients, Georgakopoulos said. The business will sit within his wholesale payments division, which moves $6 trillion a day for corporations around the world. The bank will also offer InstaMed to its entire universe of clients, from huge corporations to smaller businesses, and potentially integrate it with its J.P. Morgan Chase bill paying apps, he said. "The idea is, you take their platform and our payments expertise and you bring it together as one package to our customers," Georgakopoulos said.

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