Goldman Sachs eyes the gold in consumer banking
Transformations - more so the digital ones - are interesting happenings. we intend to focus on how global banks are coming out of their moulds to be in touch with reality and become change agents. In the first analysis, we discuss how Goldman Sachs, synonymous with investment banking and trading, decided to go with the times and that too with tremendous success:
Glob al banking behemoth Goldman Sachs celebrated its 150 th anniversary in 2020, maintaining all the while its legacy as a highest-ranking investment bank and operating solely in the realms of investment banking and trading. Midway through, the bank had charted a new course and now plans to become a normal bank offering retail banking products and services to its vast clientele.
The bank which topped the investment banks in the world in terms of both deal value and deal volume, has a market share of more than 30% and a deal volume of greater than $850 billion in 2020. Traditionally, it has been operational in the spheres of mergers & acquisitions, equity capital markets, debt capital markets. trading and asset management. Mostly its trading division has been the mainstay with record revenues and net income. At one point of time, the division constituted almost 75% of the total revenue of the company. However, this division has been on the decline right from the time of the financial crash of 2009 abetted by declining investor appetite for taking risky bets, falling commodity prices and the inherently volatile nature of trading itself. Besides, the bank has not been able to shore up its balance sheets to compete with peers like JPMorgan and Citi mainly because of its absence in the retail banking segment.
CONSUMER BANKING FORAY
The company therefore looked at consumer banking and found that this is the segment where its opportunity lies to make a significant mark in the evolving banking scenario where its peers have already made successful forays. Its studies revealed that what hindered possible growth were common problems customers faced in their everyday banking like the complex jargon, hidden fees and inflexible policies and products. These studies strongly suggested that only a digital-first approach could help it make a mark in this vastly crowded segment.
So, 5 years ago, Goldman Sachs set up Marcus, its neo-bank, naming it after its founder Marcus Goldman. It engaged Harit Talwar, an Indian from the Indian Institute of Management, Ahmedabad, and who had previous experience in the consumer banking divisions of Citibank and Discover Financial Services, to lead Marcus. Totally a digital bank right from day 1, Marcus has been offering a high yield savings account, easy transfer of money and insights into one’s spending habits and personal loan products. The standout offering has been the highinterest rates, also known as APY – annual percentage yield - at about 2% APY, which is one of the highest in the country. The target audience was the young millennial population who are technologically savvy and do not shy away from adopting new-age neo-banks as an alternative to traditional branch-driven banks.
BRANCHLESS BANKING
As a measure of disrupting the banking space, Marcus could leverage Goldman Sachs’ technological prowess to adopt a branchless retail banking network. Also, it could use the vast resources of its parent to offer loans without having to make use of the funds of third-party financiers,
thereby retaining control over the entire customer lifecycle. Besides everything, the Goldman Sachs’ brand strength was of immense value. Marcus also expanded its reach beyond the US to the UK in 2018 offering the same products and services.
One thing that Marcus could not initially do was to have a mobile app when the operations began in 2016. It launched the mobile app 3 years after its product launch, which is rare for a tech company, but Marcus managed to survive without an app.
OFFERING APPLE CARD
In August 2019, Marcus collaborated with Apple to launch a new offering, a titanium-made credit card called Apple Card, which had features like no fees, daily cashback of 2%, and enhanced security and privacy features. It could gain access to over 100 million iPhone users enabling it to provide subprime loans to consumers through a robust tool for tracking each person’s spending habits and appetite for taking loans. Marcus now aims to expand into newer features such as wealth management for the masses through Marcus Invest, a robo advisory platform that allows consumers to open an account with a minimum balance of $1000 and an annual maintenance fee of 0.35%. The platform will check the risk tolerance and the investment horizon of its users and recommend customizable strategies to them.
It is now on the threshold of introducing several growth-oriented offerings – for example, Marcus Insights, that is intended to help cross-sell various financial products. There are also plans to introduce offerings in robo-advisory and most probably a checking account offering, which can help it to double its customer base in no time.
RECORD GROWTH
The latest financial figures of Goldman Sachs show that Marcus, within its first 5 years of operations, had 4 million-plus deposit accounts, and it had crossed $97 billion in deposits. And over the next 5 years, the neo-bank aims to have over $125 billion in consumer deposits and a $20 billion-plus loan book.
So, how could Goldman Sachs make a difference in its transformation journey? It is essentially by reorganizing its businesses almost resembling that of its peers but giving its new endeavour, that is, retail banking operations, its own stamp of uniqueness. It has recently identified 4 main segments of business - global markets, investment banking, asset management and consumer & wealth management. And its showcase product will be its digital retail banking and credit card operations, which are based on the Marcus brand and the Apple Card. The bank now plans to dissolve its investing and lending division, a business that held public and private investment stakes. On the other hand, the activities that used to make up investing and lending will now be reported across the 4 new segments, placing corporate lending into the investment banking division and retail lending into the new consumer division.
STRENGTH OF PARENT
And coming back to the neobank, while the concept of gaining high levels of acceptance and popularity and is growing leaps and bounds, there is something unique with Marcus. Other neobanks like N26, Revolut and Chime depend mainly on VC funding to improve their offerings, Marcus is sustaining on the resources of its parent. This, along with the 150 years of experience that parent company Goldman Sachs has, it is bound to gain for it a competitive edge against newcomers. And it will not be a surprise if Marcus becomes the final word in neoconsumer banking.