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Goldman Sachs recently launched an online banking service for large businesses that it says is more streamlined than traditional banks’ offerings, with features like virtual accounts, quick account opening and predictive analytics to help customers anticipate future cash flows.

In so doing, Goldman entered a market that a small number of large banks own and will be unwilling to give up. It is competing mainly on what it says is a better customer experience driven by modern technology.

A look at Goldman's offering, which is called Transaction Banking, and how it stacks up to other products on the market sheds light on the degree to which banks are competing on technology as they vie for large corporate customers.

Hari Moorthy, global head of transaction banking at Goldman Sachs, pegs the corporate transaction banking market at $80 billion in annual revenue in the U.S. alone, and somewhere between $150 and $160 billion globally.

The top five U.S. banks account for most of the revenue generated by large companies’ transaction banking and cash management in this country, according to Patty Hines, head of corporate banking at Celent.

Among the few banks that break out results of this line of business separately, Citigroup’s Treasury and Trade Services revenue in 2019 was $10.2 billion, Bank of America Global Transaction Services earned $8.6 billion, and JPMorgan Chase earned $8.5 billion in Treasury Services revenue across its corporate and investment bank and commercial bank businesses.

In Moorthy’s view, the industry has not evolved since 1980.

“These banks are using massive mainframe systems and lots and lots of people; it's not atypical for a bank to have between 5,000 and 20,000 people in an organization that manages this, a huge operational staff and a huge technology staff all working on old-school technology,” he said.

Christine Barry, research director at Aite Group, mostly agrees with this assessment.

“Many banks run older, outdated systems that limit the speed at which they can roll out new products and the ease with which they can integrate with other third-party platforms,” she said. “Most banks have focused more on consumer platforms and hid behind complexity as a reason for not investing more in new corporate platforms.”

Still, banks have been modernizing their corporate banking technology. Citi has seen a recent surge in use of its online banking platform for corporates, CitiDirect BE.

Bank of America, JPMorgan Chase and Wells Fargo also have sophisticated customer-facing portals, according to Hines. Bank of New York Mellon, PNC Financial and some large Canadian banks have also innovated in this space, she said.

Two years ago, Goldman hired Moorthy from JPMorgan Chase to start building a corporate banking transaction business. He formed a team of 350 people who focus on technology, sales, operations and compliance.

“That includes engineers, product developers, technology experts, cloud experts and payment experts,” Moorthy said. “We gave them a clean sheet of paper and said, 'Go and build the future.' ”

The technology was built entirely in the cloud, using Amazon Web Services.

A demo of Goldman Transaction Banking shows an onboarding process and user experience that resembles Goldman’s Marcus online banking service for consumers.

“You don't need a how-to guide for this,” Moorthy said. “It's fairly simple and straightforward.”

If a company is already a Goldman customer, the bank will automatically pull in data and documents that it has on file for that client, and ask for validation. The customer specifies how many accounts are needed and the purpose of the accounts.

Most of the time, this process takes a few minutes, Moorthy said. If all compliance requirements cannot be met during the quick online process, the application will be routed to a human compliance officer to complete.

According to Moorthy, some other large banks take 60 to 200 days to open a corporate account.

Indeed, a recent Aite Group study found that more than 80% of U.S. banks admit that their corporate onboarding processes are either inefficient or not where they want to be.

On the other hand, Hines said some large banks have accelerated their corporate onboarding processes to a couple of days.

Opening an account for an existing client is far easier than onboarding a completely new customer, she pointed out, as the customer has already gone through an extensive Know Your Customer and anti-money-laundering process. Goldman has many clients in its investment banking business that are candidates for Transaction Banking.

“For customers new to the bank, there is a lot of documentation that changes hands, and that requires due diligence,” Hines said.

Goldman is offering what it calls “virtual” accounts. Each client opens one physical account, but portions of the account can be labeled separately to help with bookkeeping, expense reporting and such. The audit and consulting firm Deloitte helped create Goldman’s virtual account concept.

In a paper, Deloitte consultants described virtual account management as a method of organizing balances and transactional information within a traditional bank account.

It works “by recognizing unique identifiers and using them to allocate transactions to discrete subledgers, called virtual accounts, within a physical account,” the paper stated. “So an incoming or outgoing payment simultaneously posts to the ‘master’ physical account and to the relevant virtual account. An opening and closing balance is also calculated for each virtual account, giving them the same reporting granularity as a physical account, but all within one account.”

JPMorgan, Citi and Bank of America have offered similar virtual accounts for a couple of years, Hines said.

Goldman is providing application programming interface connections to popular enterprise resource planning programs, Moorthy said. Large banks like Citi and Wells Fargo already offer such API connectivity, to let corporate customers do their banking from within a business application such as an enterprise resource planning system.

“Connectivity with ERP systems has become a must-have for corporate customers,” Barry said. “They are not only looking for two-way connectivity for data exchange but ultimately, through the use of APIs the largest corporates are seeking the ability to perform transactions from within them, rather than having to go to the bank portal.”

Goldman is offering cash-flow projections that use artificial intelligence to analyze past patterns and seasonal volatility. This feature seems similar to fintech offerings that predict cash flow for small businesses.

Goldman’s emphasis on customer experience is the right one, Barry says.

“User experience offers opportunities for corporate banks to differentiate,” she said. “Most corporate customers see little difference from bank to bank when it comes to core banking functionality. Today’s corporate customers are tech-savvy and use technology in their personal lives. They expect their corporate banking experience to be similar to that of consumer banking and consider digital user experience when selecting a new bank partner.”

Goldman Sachs became its own first client last summer. Transaction Banking officially launched on June 6, and it now has 175 corporate clients. In five years, Goldman expects the transaction banking division to generate $1 billion in annual revenue.

Hines pointed out that the banks that dominate this market have an advantage in their depth of experience.

“The incumbent banks have an incredibly broad and deep set of corporate banking services, including advisory services,” Hines said. “Experienced relationship managers and treasury advisers work closely with clients to help them make the right liquidity management and cash-flow decisions.”

Barry says Goldman and the incumbents have different advantages.

“Corporate banking is more complex than consumer banking, and there certainly are advantages to having a history in this space,” she said. “However, history can also mean older legacy systems that prevent a bank from evolving as quickly as they need to meet new customer expectations.”

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