Goldman’s ability to absorb losses keeps neobanks on edge

There is an old saying in the world of the press:

Never argue with someone buying ink by the barrel.

The implication of this statement is that certain people or entities wield so much power that fighting against them becomes an uphill battle.

We recall this statement on the heels of a Bloomberg report this week that Goldman Sachs, deep in its high street banking push, is losing money on the effort.

Losing up to $1.2 billion this year alone, in fact. Losses could actually increase as macro headwinds gather and begin to deteriorate consumer lending. The digital banking operation — that would be Marcus, of course — is a sea change for the legendary Wall Street stalwart. There are over $100 billion in deposits on the books.

And as we reported when the company released its latest earnings report, CEO David Solomon said on a first-quarter earnings conference call that the stage was set for a continued challenge to legacy players. financial services, and the company has 13 million consumer banking customers already in place, up from 10 million in the fourth quarter of last year.

Total consumer and wealth management revenue was $2.1 billion, up 19% year-on-year. The unit includes Marcus. Management said on the call that so far Goldman/Marcus has not raised its rates paid on savings.

Digging deeper into earnings supplements, the company said net retail banking revenue rose 30% to $483 million, driven by its credit card business. Credit card-related loans were $11 billion, down from $4 billion last year and $8 billion in the fourth quarter of last year.

Comments on the call indicated that Goldman will look to drive loan growth on the consumer platform, on installment loans, on cards and with the company’s recent acquisition buy now, pay later ( BNPL) GreenSky (the agreement was concluded in September last year).

These stats show how quickly Goldman has grown, even though red ink is the color of the day. The business may have some time before operating losses turn into operating profits. But in the meantime, have the (digital) banking infrastructure in place to launch more cards, services and payment options. This may all get easier as the macro environment gets a little easier.

In the meantime, Goldman clearly seems to have the “long game” in its sights, and digital-only newbies may find the competitive landscape tougher than expected. That’s because Goldman already has the licenses and experience to branch out from institutional roots. Neobanks, on the other hand, have existed somewhat as providers of prepaid cards which are in turn wrapped up in mobile apps, where revenue is derived from interchange fees. It’s a business model that will likely come under internal scrutiny if trading volumes start to dry up.

Goldman, on the other hand, will compensate for similar pressures due to the diversity of its own business model and its willingness to take some loss of cash for long-term gain.

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