Heads up to retail banks everywhere: Goldman Sachs — the Wall Street investment behemoth — is giving you a run for your money when it comes to consumer deposits.
During a conference call with investors Tuesday, Goldman said that more than 20,000 consumers have opened deposit accounts over the past two months since the company began offering savings accounts to the masses.
The surge in deposits is part of Goldman's recent expansion into retail banking. The New York firm also plans to offer consumer loans this fall.
But the move into traditional banking has come with a notable cost. Goldman is offering some of the highest rates in the industry — including 1.05% on savings accounts — and that is putting pressure on the company's margin.
"We don't have branches all over the United States, so we don't have the lowest marginal cost of funding in terms of deposits," Chief Financial Officer Harvey Schwartz said.
Goldman has added about $1 billion in consumer deposits since opening up its retail bank to Main Street depositors, according to a company spokesman. Those are in addition to $16 billion in retail deposits that it recently acquired from GE Capital.
Goldman had total deposits of $93 billion at March 31, according to the Federal Deposit Insurance Corp. website. Its deposits at June 30 were not readily available Tuesday.
Nor does Goldman publish its net interest margin, because its loan book is "currently much different than that of a traditional bank," the spokesman said in an email.
Deposit costs are just one of several factors weighing on the company's balance sheet. The recent growth in low-yielding assets are another factor, Schwartz said.
Still, the increased margin pressure hardly made a dent in Goldman's bottom line. Second-quarter profits rose 74% from a year earlier, to $1.82 billion, on higher bond-trading revenue.
The growth in bread-and-butter deposits offers a glimpse into the evolving business model at one of the industry's beacons of high finance.
Goldman's long road into retail banking accelerated in April, when it closed on its acquisition of GE's online deposit-account platform. The company rebranded the platform as GS Bank and began actively courting smaller, retail deposits.
High deposit rates have been a key selling point. Goldman currently offers better rates than most of the industry.
Only Synchrony Financial offers a similarly high rate on savings accounts, according to a recent report from Keefe, Bruyette & Woods. Ally Financial — another online competitor — offers a slightly lower savings rate of 1%.
By comparison, the average national rate on savings accounts is 0.25%, according to KBW.
Goldman's focus on gathering deposits has allowed it to boost liquidity and diversify its funding mix — a key priority for regulators in the years following the financial crisis.
It has also been a boon for the company's image, Schwartz said.
"It's had very significant growth in a short period of time," Schwartz said. "It really speaks to the brand strength — and that's nice to see."
Additionally, Schwartz updated investors on Goldman's planned expansion into online consumer lending.
The company will begin offering unsecured consumer loans this fall, he said. Additional details about the size or duration of the loans will be released at that time.
During the call, Schwartz reiterated that Goldman has taken a "deliberate and methodical" approach to the business. He also said that the consumer loan product is still in its early stages.
Goldman decided early on to develop its own lending product rather than acquire an online lender, Schwartz said on the call. Doing so has given the company control over both risk management and design.
Before developing the product, the company surveyed "thousands" of consumers to better understand their preferences. It came to the now-unsurprising conclusion that they want both a simple digital product and a slick user experience.
While describing the new lending business to investors, Schwartz took a cue from the fintech playbook.
He suggested that, when it comes to digital technology, traditional retail banks simply have not been able to cut it.
"There are benefits that online lending platforms provide to consumers, and there are benefits that large commercial providers of credit provide to consumers," Schwartz said. "We're just looking to bridge the gap between those strengths."