Marcus — an example for established companies to enter FinTech?
One of the boldest predictions in the FinTech world has been the idea that non-financial companies could move into FinTech sector. When I was previously working at Vanguard, one fear often mentioned by management was that tech giants like Amazon or Google would attempt to enter the wealth management sector and compete on the strength of their cutting edge digital technology. While both Amazon and Google have done small forays into payments and lending, this prediction has yet to come to fruition. However, this hasn’t meant other companies have been waiting on the sidelines — non tech giant Wal-Mart recently purchased two firms in order to build out a comprehensive financial service that would allow its customers to save, spend and borrow in one account.
Do non-financial firms have a chance to compete with incumbents? Surprisingly, one traditional financial firm has built a playbook that future well-funded entrants may seek to emulate in order to build out their banking businesses. That neo-bank innovator? Marcus by Goldman Sachs.
You may be asking at this point, how is Goldman Sachs a financial innovator? Founded in the 1860s, Goldman is hardly a new kid on Wall Street however its Main Street presence was minimal until it founded Marcus, an attempt to enter the consumer banking sector as a digital bank by targeting mass-affluent millennials. Traditionally Goldman has been a powerhouse in the investment banking and wealth management sectors however until the launch of Marcus, unlike many of its rivals within the industry like Citigroup or JP Morgan Chase, it never had a mass market customer facing bank.
Marcus initially started with a focus on providing customers with high-yield savings and personal loans after Goldman Sachs purchased the online deposit platform of GE Capital Bank. Marcus offers above-average interest rates for its savings and CD, which has been a draw in an era of record low interest rates. Goldman has been able to offer these higher rates by strictly focusing on a limited selection of financial products and keeping costs low — there are no monthly fees associated with the service. Unlike other digital banks, Marcus does not offer debit or ATM cards, meaning that the deposits should in theory be more “sticky” and does not currently offer checking account services either. Deposits can only be made by ACH or wire, thus requiring its customers to retain another bank for checking services. Marcus does not even offer mobile check deposit as another way of keeping costs low. In addition to higher rates for savers, Marcus also offers unsecured personal loans up to $40,000 with a fixed rate and no fees for late payments or early repayment.
In addition to its direct to consumer activities, Marcus acts as a banking partner for other companies such as Apple and Wal-Mart. Marcus acts as the issuing bank for Apple’s Apple Card and allows sellers on Walmart’s Marketplace to apply for business lines of credit. Marcus also now offers Marcus Invest which allows for brokerage capabilities.
Currently Marcus has over 100 billion dollars in deposits and Goldman Sachs claims that it is on track to be profitable this year after the coronavirus pandemic made personal loans more risky for the company to issue.
Most other FinTech start-ups have focused on delivering payment services before branching out to other areas. In hindsight, Goldman’s approach was probably more sustainable than most other Fintech startups as providing loans has traditionally been a more profitable space for banks. Slowly rolling out the most profitable features is a strategy that probably only an incumbent like Goldman could do — most startups simply couldn’t take the credit risk of only providing loans like Marcus has been able to.
Marcus provides a simple playbook for future entrants — focus on the most profitable services that banks offer in an economical way and then slowly add features as customers demand it. I don’t think it’s a coincidence that Wal-Mart hired Omer Ismail, the former head of Marcus, as it began to roll out its own banking services.
Can every company emulate Goldman? No — but if you’re a deep pocketed non-financial company, Marcus is a strong example to look at when designing your own FinTech strategy.
