Disruptor in UK’s Banking ‘Paradise’

Marcus, Goldman Sachs’s new online-only consumer bank, has crossed the Atlantic and caused a stir on the notoriously stingy British high street by launching a savings account three times more generous than the established players. All eyes are on where the Wall Street giant takes Marcus next.

Created from scratch two years ago, Marcus is set to follow the same playbook it did in the US, where it has grown into a $26bn retail business that now also refinances expensive credit card debt for customers and is starting to use AI to cross-sell other financial products. It already generates $1bn in revenue helping Goldman diversify away from investment banking.

Insiders at the American group say that in the long-term it’s interested in expanding into unsecured consumer lending and credit cards in Britain. It is even considering branching out into home loans and car finance. A Goldman mortgage, anyone?

Styled like a perfume – “Marcus, by Goldman Sachs” – the bank is trying to gain an initial UK foothold by offering a market-leading rate of 1.5 per cent for a no-fee, instant-access account. By comparison, high street stalwart HSBC offers a 0.55 per cent rate for a similar product, which drops to 0.1 per cent any month a withdrawal is made.

Building Marcus from scratch means Goldman is unencumbered by creaking legacy computer systems and can more easily branch out into new products, for example ones that target wealthy clients – something that already has British rivals tracking its progress nervously.

“We need to watch them closely, if they get the retail banking business working successfully, they’ll soon be looking to move into other areas, which is bad news for European wealth managers,” says Julian Chillingworth, chief investment officer of Rathbone investment management. “They will be a dangerous competitor with their firepower.”

While Marcus has been consciously branded differently to its investment banking cousin, its executives have been typically bullish, saying they have “no ceiling” on their ambition and want to pick off customers from Britain’s big-four lenders, not only the smaller challenger banks. Competitors have already responded by jacking up their own interest rates.

“Goldman Sachs is a well-known name so its arrival is highly visible and throws down the gauntlet to the rest of the industry,” says Shakila Hashmi of consumer website Compare the Market. “We expect a high degree of interest in switches to Marcus.”

However, it will be more difficult for Goldman to repeat its US success in the UK, a notoriously competitive market with stricter regulations around use of deposits. British bank customers are also stubbornly loyal – even TSB only suffered a net reduction of 6,000 current account customers in the three months after its IT meltdown in April.  In the US, Marcus was launched in part to provide a new way to fund Goldman’s traditional investment banking operations.  In Britain, banks are no longer allowed to use such methods and have spent billions in recent years separating their retail and trading operation.

If and when Goldman hits the so-called “ringfencing” threshold of £25bn it will be forced to do the same, an expensive and time-consuming process that also means it can’t use deposits to cross-subsidize the securities and trading side of the business.  There are other drawbacks.  For example, Goldman hasn’t developed an app yet – customers have to access Marcus on a web page – and since the launch on Thursday only about 2,000 people have signed up, a good but not exactly a stellar performance for the market-leading product.

The real prizes lie beyond the savings market, according to analysts. Goldman recently bought a US personal financial management app called Clarity Money, which builds a picture of a customer’s overall financial situation and provides “actionable prompts” – such as real-time and location-based adverts – using machine learning and artificial intelligence.

“It’s not hard to grow deposits when you’re offering rates at the top of the market, so you cannot judge Marcus’s success in terms of volume,” says Keith Horowitz, analyst at Citigroup. “The big key for Goldman ultimately is customer data, that’s the holy grail for banking, creating an open financial marketplace platform that can also utilise their huge balance sheet.”

Source: Financial Times  –  Fintech Briefing   [for members only – please observe copyright]