Sanjeev Kumar & Risav Chakraborty
Marcus: An Expedition from Wall Street to Main Street
In 1869, a German immigrant named Marcus Goldman moved to New York City to launch a new business targeted at small businesses to help them secure short-term capital. Over the next few years, Marcus Goldman’s son, Henry Goldman, and son-in-law, Samuel Sachs, joined him, and the firm became a partnership with a new name: Goldman Sachs & Co.
Over the next century and a half, the firm turned itself into a giant, announcing an annual revenue of $59.34B and annual net earnings of $21.64B in 2021. Approximately 98% of the annual revenues came from Investment Banking, Global Markets, Asset Management, and Wealth Management businesses.
In this blog, we look at the digital bets Goldman has made on its diversification strategy towards building a consumer-centric digital finance business – Marcus by Goldman Sachs.
Marcus, from the outside, may look like an innocuous neobank initiative aimed at unlocking retail banking opportunities for the global investment bank, but look deeper, and it seems like a riddle wrapped in a mystery inside an enigma.
The firm’s evolutionary tale from ‘Goldman Sachs by Marcus’ to ‘Marcus by Goldman Sachs’ is an exciting one, especially given that the neobanking sector has faced a slew of failures and setbacks in recent times. Several digital banking initiatives from incumbents such as Bó from RBS, Finn from JPMorgan Chase, Zuno from Raiffeisen Bank, and Soon from AXA Banque have shut shop; whereas Marcus has continued its stellar growth across several parameters such as user base, loan book growth, deposits growth, and revenues.
From Wall Street to Main Street
147 years after its inception, Goldman Sachs decided to venture from Wall Street to Main Street with the launch of a consumer banking business.
Big Bang Beginning
In 2016, Marcus by Goldman Sachs was unveiled as a B2C digital finance platform aimed at helping people better manage their debt by offering fixed-rate, fee-free personal loans.
Marcus had a few aces up its sleeves – both against the incumbent banks’ digital initiatives as well as against the independent VC-funded neobanks. Unlike the independent neobanks, Marcus was backed by a global bank and enjoyed consumers’ trust in the brand to accelerate its customer acquisition drives through direct and aggregator channels via partnerships with Credit Karma and Lending Tree. Unlike other incumbent banks’ digital initiatives, which were marred by dealing with legacy tech, Marcus was a fresh start with a new tech stack and with no existing consumer business to cannibalise.
Progress Through Performance
Marcus reportedly originated $1B in loans in its first eight months, which was significantly faster than competing lending FinTech stalwarts of the time, such as SoFi, Avant, Lending Club, and Prosper. By the end of 2017, Marcus originated $2B in loans, and the firm integrated GS Bank USA’s online deposit platform under the Marcus brand.
In 2020, during its first investor day, the bank disclosed rather flamboyant targets for its consumer banking business:
Aim to more than double deposit balances at the consumer bank from $60B to $125B by 2025.
Nearly triple its consumer loans and card balances from $7B to $20B by 2025.
To date, the consumer bank has shown stellar performance on these key target metrics. As of Q4 2021, the consumer bank had acquired over 13 million customers and had amassed $110B in deposit balances and $12B in consumer loan/card balances.
Developments & Diversification
2020 remains a pivotal year for Marcus as Goldman Sachs launched the Marcus app in the US and, in a few months, further updated the app with a new personal finance management tool called Marcus Insights. Marcus also forayed into the robo-advisor space with the launch of Marcus Invest, an automated wealth-management platform to invest customer funds across managed portfolios made up of exchange-traded funds for stocks and bonds.
A year after its launch in the US, the Marcus app was rolled out to the bank’s UK customers through the Apple App Store. Goldman Sachs further upped its game on the consumer banking front as it expanded the Marcus checking account beta tests to all US-based employees before a planned launch later in 2022.
Ambitious Acquisitions & Cogent Collaborations
The launch and growth of Marcus have involved a bunch of assets that were procured inorganically, such as the acquisition of a deposit platform from GE Capital in 2016; the acquisition of Clarity Money, a personal finance management app, in 2018; and the acquisition of General Motors credit card portfolio in 2020. In 2021, Goldman acquired B2B2C point-of-sale finance platform GreenSky to bring the BNPL proposition into the mix.
In 2019, Marcus was involved in not one but two partnerships – with Apple to launch a groundbreaking new credit card designed to help consumers lead a healthier financial life, and with Saga, a UK-based firm, that specialises in offerings for consumers above the age of 50 to facilitate the launch of two new savings accounts in the region. The digital subsidiary then teamed up with JetBlue to introduce a new instalment loan product that helps customers break up higher ticket items into smaller, monthly payments. In 2020, Marcus extended its reach to digital merchants on Amazon by launching credit offerings for independent sellers using the Amazon marketplace. Goldman then partnered with Marqeta to fuel the growth of online checking accounts for Marcus.
Marcus also announced partnerships with C2FO and Nav to offer unsecured financing to eligible small business owners. Marcus’ ambition to serve unique customer niches through embedded finance offerings is evident from its partnership with General Motors in a bid to launch the My GM Rewards card, a credit offering integrated into the Marcus app. Card members can also choose their card design to reflect GM, Chevrolet, Buick, GMC, or Cadillac to reflect the vehicle brand of their choice in their digital wallet.
Future Outlook: A Few Fumbles Amidst Frenzy
With Marcus, it has been a breathtaking expedition for Goldman Sachs in the consumer finance sector. However, several key challenges are coming to the fore in the evolutionary trajectory of Marcus. These challenges, such as elusive profitability metrics and heightened regulatory scrutiny, seem to bear an uncanny similarity to the ones faced by most independent neobanks.
Although the firm recorded $1.5B and $608M net revenue in 2021 and the second quarter of 2022, respectively, the firm’s internal projections show the consumer business losses accelerating to more than $1.2B in 2022 alone. As per Bloomberg, the launch of checking accounts, a long-delayed product for retail consumers, has further been pushed with the leadership team wrestling with cost overruns. The digital bank subsidiary exposes Goldman Sachs to a unique risk called the deep pocket risk, which may continue to hide the true performance of Marcus and may cause hiccups for the bank's overall financial stability and profitability in the short to medium term.
In addition, Marcus has also been suffering from brain drain, with several key executives leaving the firm in the last year. Goldman is also facing regulatory scrutiny from CFPB in the US on its credit card offerings launched through corporate partnerships with Apple and General Motors.
It will be interesting to see if Marcus by Goldman Sachs can come through and deliver fully on the stated ambition of the bank’s CEO, David Solomon – “we have the ambition to build a large, differentiated, highly profitable digital consumer platform.”