Editor's Pick Opinion Digital Banking

Goldman Sachs big fintech gamble is about to heat up for summer as it takes on N26, Revolut and Monzo

The big question is not necessarily when but if the investment bank starts making serious money from its not inexpensive foray into disruptive digital finance.


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Goldman Sachs has been playing a bold but deft hand as an investment bank and institutional investor in the age of fintech disruption.  It has been one of the most active investors in fintech start-ups but also developed its own ‘flanker’ brands such as its saving and lending platform Marcus as it plots a course to becoming a household financial consumer name.

Last week was another busy one for Goldman as it revealed on its Q2 earnings call how much they have actually spent bringing their in-house fintech platforms including Marcus to life. 

It’s a mighty $1.3bn!!! This includes, the firm said, its new Apple Card - a tie-up with the world’s favourite tech firm - and new transaction banking platform with $275m of this spent in the first six months of 2019 alone.

The figures are staggering but most likely are dwarfed by other VC-style investments made across several branches of the bank’s investment arms including $28m into Raisin and a £200m funding line to UK lending platformLendable, both last week.

These two deals, announced on the same day in fact, underscore a bigger trend that has seen a huge amount of investments into other fintechs here in the UK and abroad including Trussle,Nutmeg, Clarity Money (which it acquired) and Neyber to mention just a few. 

David Solomon, CEO of the bank, struck a bullish tone on the firm’s call although Goldman says that its in-house fintech building had not yet helped its bottom line (it’s dragged 60 basis points on its ROE) and its earning were down a bit compared to last year.

But, the bank is riding high in terms of its share price performance which is (almost back to its pre-financial crisis peak) and it expects big things to come from its various fintech bets in terms of making money. 

Chief Financial Officer, Stephen Scherr said on the call:  “We are making very substantial organic investments to build new businesses and digital platforms. The depth of that investment cycle will be in 2019 and 2020. Investment spending will continue into 2020, when we will also see a more meaningful impact of the reserve build supporting our initial growth in the Apple Card portfolio, following our expected launch later this summer.”

“Year-to-date, the total pre-tax cost from Marcus, Apple Card, and our new transaction banking platform is approximately $275 million, resulting in a drag of roughly 60 basis points on our ROE. Our cumulative pre-tax loss for these businesses from the inception of each, through the second quarter was approximately $1.3 billion, which has been embedded in the performance of the firm.”

“As these businesses scale over the coming years, this drag should not only reverse but become an accretive contributor to the firm's ROE.”

What is key is why has Goldman pursued this expensive strategy? Players such as Monzo and Revolut, while not perfect or (yet) profitable, but are driving real change in financial services.

As an investment bank and institutional investor, it clearly has an interest in making a return but more so it recognises that there may be a bigger prize at stake rather than just backing the winning start-ups of tomorrow. This is about staying ahead of powerful forces of change driven by technology and Goldman wants to stay ahead.

From Fintech to Big Tech

August looks set to be the (on time) launch for the Apple Card to iPhone users. It seems, as with its Marcus platform, US users will have first look at the titanium laser-cut  Apple Card, a credit card offering 2 per cent cashback, paid daily on all purchases that integrates straight into your iPhone, Apple Pay and Apple Wallet. 

There are approximately 120 million iPhone users in the US, according to Statista. 

The Apple Card will definitely be a weighty challenge for the European challengers in the digital banking market, namely N26,Monzo and Revolut. All of whom are ramping up their efforts to take on the North American market this summer as Apple Card goes live. 

It is therefore interesting that Goldman is not planning a UK/European launch in tandem with its US launch, where it would also be taking on Tandem bank’s credit card. Its Marcus platform in the UK is simply a savings account whereas in the US it has been scaling also in the online consumer loans market, with ambitions - at least back this time two years ago - to have $28bn of online loans on its balance sheet.

On last week’s call, Scherr added, in responding to questions, that Marcus’ growth was being tempered now that Goldman is soon to launch the Apple Card.

“If you look at the level and rate of growth in the Marcus loan business, while it continues to grow and perform well, we have slowed the increase in growth in that, in contemplation of taking on increasing consumer credit through the card business,” he said. 

But also underlined that growth could come from its UK operations.

Scherr said: “The deposit platform [in the UK] has really exceeded our expectations in terms of what has been capable of generating. There will be opportunities for us to expand in that market."

Marcus pulled in $35bn from savers in the UK and US in 2018, with 2019 also strong in terms of gathering assets.

Perhaps it is noteworthy too that Revolut recently added Goldman’s former Europe boss Michael Sherwood to its board.

Disruptors at least in the UK have a strong footing among millions of consumers but likes of Monzo,N26 and Revolut will face a tougher challenge in the US and North America. Goldman Sachs through Apple's meanwhile have three-quarters of a billion iPhone users.

The race is on and it hard to figure who is the tortoise and who is the hare.

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