Business

Goldman Sachs’ pivot from Marcus shows how difficult it is to disrupt the retail banking system


David Solomon, Goldman Sachs, at the Marcus . event

Goldman Sachs CEO David Solomon is harboring ambitions to turn the 153-year-old investment bank into a major player in US consumer banking.

After product delayexecutive revenue, brand confusion, Regulatory mistake Solomon on Tuesday said the company is moving away from its previous strategy of building large-scale digital banks.

Now, instead of “looking to attract customers at scale” for the business, Goldman will instead focus on the Marcus customer it already has, while also working towards marketing fintech products through wealth management channels and the bank’s workplace, Solomon said.

The timing is an incredible one for Solomon, who has grasped the possibilities in the nascent consumer business after becoming CEO four years ago.

Goldman founded Marcus in 2016, named after one of the bank’s co-founders, to help it diversify revenue away from the bank’s core business and consulting activities. Major retail banks include JPMorgan Chase and Bank of America is valued higher than the heart of Wall Street Goldman.

Thorough scrutiny from analysts

Instead, after revealing the change in strategy and corporate reorganization for the third time As CEO, Solomon was forced to admit mistakes on Tuesday during a conference call that lasted more than an hour as analysts took turns asking him key questions.

It started with Autonomous analyst Christian Bolu, who pointed out that other new entrants include fintech startup Chime and Block . Cash App passed while Goldman did not.

“One could argue that there are some enforcement challenges for Goldman in the consumer sector; you’ve had multiple leadership changes,” Bolu said. “Looking back over the past time, what lessons have you learned?”

Goldman Sachs CEO says outlook looks uncertain

Another analyst, Brennan Hawken of UBS, told Solomon he was confused about the pivot because of previous promises regarding upcoming products.

“Honestly, when I talk to a lot of investors on Goldman Sachs, very few are excited about the consumer business,” Hawken said. “So I’m not necessarily saying that pulling back on aspiration will necessarily be negative, I just want to try and strategically understand what the new direction is.”

After Wells FargoAsked by Mike Mayo’s Mike Mayo if the consumer business is making money and how it stacks up against management expectations, Solomon admitted that the unit is “not making money at the moment. ” That despite saying in 2020 that it will reach break even in 2022.

Problems with Apple

Even one of the bank’s successes – won Apple Card accounts in 2019—have proven to be less profitable than Goldman executives expected.

Apple customers don’t carry the balance the bank has modeled, meaning it generates less revenue from the partnership than they targetedSolomon told Morgan Stanley analyst Betsy Graseck. The two sides renegotiated the business deal recently to make it fairer and extend it to the end of the decade, according to the CEO.

With his stock under pressure and loss-making consumption increasingly blamed, internally and externally, for the business, Solomon seemed left with no choice. other than changing direction.

Selling services to wealth management clients, Solomon notes, reduces customer acquisition costs. That way, Goldman is reflecting change wider than men fintech, which occurred earlier this year amid plunging valuations, as growth at all costs changed to focus on profits.

Despite the ups and downs, Goldman’s adventure in consumer banking has brought in $110 billion in deposits, $19 billion in loan extensions and more than 15 million customers.

“There’s no question that aspiration could have been achieved, and communicated in some way, more broadly than where we’re choosing to go,” Solomon told analysts. “We’re making it clear that we’re pulling back on some of that right now.”

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