Goldman Sachs Inc. senior executives are exploring how to launch a new product for the masses, which has been delayed due to cost overruns.
The consumer banking arm of Goldman has readied its online accounts where users can pay bills digitally and open direct deposit accounts. This is a crucial step by the firm towards building a digital bank for the future.
However, Goldman has recently considered deferring the new retail initiative until 2023. It instead wants to offer the platform to existing customers and private wealth clients in a limited way. The online platform Marcus has incurred losses, and Goldman intends to refrain from spending big on marketing in a year. The company Leadership has not yet taken any decision.
Since becoming the CEO in 2018, David Solomon has quickly embraced the new consumer unit as a key growth area. However, he had to contend with persistent cash burn as Marcus, a giant start-up in itself inside the bank, suffered losses of more than $4 billion loss since inception. This does not include the acquisition of GreenSky, an installment loan provider, in a deal valued at $2.2 billion during the peak market for fintech ventures.
Marcus already offers a savings account, but a technical issue delayed its checking services. The product is ready for launch, but the industry position is daunting at the moment. The Biden administration is also scrutinizing the fees. At the same time, some other big retail banks offer attractive bonuses to sign up new account holders.
John Waldron, deputy to Solomon, oversees the expenses at Marcus to put the division on track by contributing to earnings. While Solomon pushes ahead, Waldron is managing the expectation of investors.
Susan Katzie, an analyst at Credit Suisse earlier this month, revealed that Goldman Executives, including Waldron, are still positive about the growth initiative, but the shift is more toward wealth management and away from consumer banking. Katzie welcomes the move.
Checking Account Strategy
Solomon had put checking accounts as a key component of Marcus’ strategy. Around a decade ago, Goldman Sachs started exploring the consumer market, considering products like credit cards, investments, and loans. According to the CEO, the franchise’s best bet was to establish itself as its customers’ primary financial service provider.
A checking account offers a host of benefits. The account creates a lasting relationship with the customers by serving as a channel for paying bills and receiving their paychecks. The deposits also act as a source for lending to other businesses. The account’s debit card carried a host of data based on the customer’s spending habits. All these data would help the bank become a one-stop shop for all the customer’s financial needs.
However, the profit margins for these accounts are thin. The fees and other charges for insufficient funds provided half of the banks’ profits at one time from the mass checking accounts. Still, regulators have taken a dim view of these billions of revenues the bank extracts.
