Inside Goldman Sachs' big plans in digital consumer banking

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Goldman Sachs on Wednesday laid out a long-term growth strategy for its consumer bank, saying that it plans to double deposits and triple outstanding loans by 2025.

In an effort to meet those targets, Goldman plans to start offering checking accounts and expand its menu of consumer loan products, which is currently limited to personal loans and a credit card that is cobranded with Apple.

The New York bank also said that it plans to cultivate its fledgling consumer business, particularly in the wealth management realm, through relationships with U.S. employers.

Goldman is tying together its various consumer banking products under its three-year-old Marcus brand and through a recently released mobile app.

“Let me be clear about our ambition: We aspire to be the leading digital consumer bank,” Eric Lane, global co-head of Goldman’s consumer and investment management division, said in remarks at the bank’s first-ever investor day.

Lane did not disclose how much money Goldman Sachs has invested in Marcus or when specifically the consumer unit is expected to achieve profitability. The bank said in a presentation that its consumer business is expected to record $700 million to $900 million in pretax income, excluding reserves, in 2025.

Goldman eschewed consumer banking for most of its 150-year history, but it has embraced the business in the wake of its crisis-era decision to become a bank holding company. That epochal action has enabled the venerable investment bank to build its base of stable, relatively low-cost deposits.

More than a decade later, there is no turning back to the era before Goldman was regulated by the Federal Reserve. “‘We are embracing the bank model,” Chief Financial Officer Stephen Scherr said Wednesday. “There is strategic value behind the regulatory moat and our standing as a bank.”

Goldman Sachs launched its consumer business in 2016 with an online savings account and an installment loan that many consumers have used to refinance their credit card debt.

The product road map that Goldman provided Wednesday was more detailed than what the company had said previously, but still somewhat vague. Wealth management offerings are scheduled to expand later this year, and a checking account is slated for 2021, the company said in a presentation.

Lane indicated that Goldman would like to enter into more cobrand partnerships along the lines of the Apple Card, which the Cupertino, Calif.-based tech giant launched last year.

Goldman also wants to manage the wealth of mass-affluent customers, rather than just the ultrarich, executives said Wednesday. At least some of the bank’s efforts in this area will involve partnerships with employers, building on the services of an existing unit that has long worked with corporations to offer financial counseling to their executives.

Last year, Goldman reported $60 billion in consumer deposit balances, and the company said Wednesday that it expects to raise that total to at least $125 billion in five years.

Likewise, consumer card and loan balances of $7 billion are expected to climb to at least $20 billion by 2025, according to the company.

Lane sought to assure investors that the bank will expand its consumer loan portfolio in a responsible manner, saying that Goldman has hired an experienced team to build its consumer lending business, and noting that average borrower credit scores are around 740.

“Rest assured, we are being measured and balanced as we grow,” he said.

Goldman is implicitly making the case to Wall Street that it is better positioned to build a full-service digital consumer bank than both the new crop of challenger banks and also other big banks that have large branch footprints.

The argument is twofold: Goldman Sachs’ large balance sheet and its famous name give it a leg up over neobanks. At the same time, the Wall Street titan is unburdened by the legacy real estate and old technology that are holding back other megabanks in the digital age.

Now Goldman has to prove it.

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