Goldman Disrupts The Disruptors

Goldman Sachs is synonymous with high finance. So it’s interesting to see the firm switch things up with their new retail offering, Marcus.

Since launching in late September, Marcus has acquired 100,000 customers in the UK. The online-only bank has now attracted over £2.3 billion in deposits from customers attracted to its 1.5% interest rate.

Like most overnight successes, Marcus has been years in the making. The idea first surfaced in 2014, when Goldman executives decided that online financial services would be a key source of revenue growth and a strategic focus for the firm going forward. The platform launched in the US in 2016 and has enjoyed strong growth since. The leap across the pond felt inevitable, considering the solid fundamentals of the UK retail market and the low rate environment here.

Marcus’ offering seems to be based on a clear insight: customers are fed up with being marketed complex retail products they don’t understand and don’t really benefit from. Marcus is keeping things simple with a bold and characteristically competitive approach to retail banking, one that’s forcing the likes of Barclays to launch new offerings in order to keep pace.

Goldman’s strategy of keeping things super simple is smart. Marcus isn’t launching with a full service bank account. Rather, they’re offering an online savings account with an attractive rate and an easy to use interface. This is a great way to attract customers (and deposits) fast and to make sure that you can deliver what you’re promising, by being focused on these promises, not a complex conflagration of services.

Of course, this can (and will) change as they expand the offering. Goldman is currently considered the quintessential investment bank, but I’m sure it can grow into a successful full service bank, since it doesn’t have any legacy businesses, systems, or branches to worry about. For the time being, it’s exciting to see a major global investment bank targeting the retail sector by adopting the same disruptive strategy employed by leading fintechs. Like Monzo and others, Goldman is upgrading the customer experience through clear messaging and digital innovation.

In fact, Goldman’s new offering poses a formidable threat to incumbents and finetchs operating in the retail sector, because it can compete aggressively on price due to the scale and flexibility of its global operations. It’s clear that a huge driver of Marcus’ success so far has been the 1.5% interest rate. That’s something Goldman can offer because it can repurpose capital into other interest bearing investments elsewhere within the group. A startup like Monzo (who isn’t yet offering loans or other credit products) can’t compete with that. To match Goldman’s rates they would need to raid their marketing budget, which would be completely unsustainable.

It will be fascinating to see Goldman’s endgame. I doubt they have aspirations of building a high street bank with branches. A clue lies in the fact that the firm recently folded Marcus into their wealth management division. Executives are already on record saying they’re planning more savings products, including cash ISAs and a mass market wealth management arm. The bank already has a huge private banking operation for UHNWIs in the US and the UK, and there’s an opportunity to provide a pared back version of this for a wider base of customers.

Consumer banking is tough, but if you eliminate the physical locations, make it online only and offer savings accounts rather than checking accounts, then you have a source of cheap capital and an efficient method of customer acquisition. I suspect Goldman is seeking to carve out a niche for itself in the private banking space by adding an entry level offering for the millennial generation, many of whom could become customers of their private bank one day. That makes sense. I’m certainly looking forward to monitoring their progress in the months and years ahead.

The lesson here is that innovation isn’t only the preserve of startups and scaleups; established players can benefit too. In fact, they might just be the biggest beneficiaries of innovation. By re-evaluating their strategic priorities and refocusing on the customer, global banking brands can create exciting new business models and revenue channels. They can disrupt the disruptors. Goldman has proved that, so who will be next?