Goldman Sachs Group Inc. could quickly become a major competitor in online banking by taking advantage of its broad name recognition and blue-chip reputation, analysts say.
The New York firm, which converted to a bank holding company in September, is mulling the creation of an online banking operation. Observers said Wednesday that such an effort would have significant challenges, and that Goldman would likely use any deposit influx to shore up its core investment banking businesses, rather than venturing into new areas of retail banking, such as mortgages.
Ron Shevlin, a senior analyst at the Boston research and advisory firm Aite Group LLC, said Goldman has advantages over established online banking companies such as ING Bank FSB, which does business as ING Direct, or Emigrant Bancorp of New York.
"When they launched a few years ago, ING had no brand recognition in the market. Emigrant was unknown outside the Northeast," Mr. Shevlin said. "Goldman has good name recognition."
Bruce Cundiff, a research analyst at Javelin Strategy and Research, said that online banking is an art unto itself, and that Goldman has no experience with it.
"Standard, retail commercial banks had a hard time migrating online themselves," Mr. Cundiff said, and doing so could pose special challenges for Goldman, historically a pure-play investment bank. "They are in a situation where they are trying to grow assets and learn the retail and commercial banking business at the same time."
A Goldman spokesman confirmed Wednesday that it is considering online banking, but said it is too soon to provide details.
Analysts said an online-only banking operation could provide a stable source of funds in a tumultuous market.
Mr. Shevlin said any online start-up would benefit from the Goldman name and could avoid issues such as those faced by Citigroup Inc., which required customers who wanted to earn the higher interest rates of its high-yield online savings accounts to open the accounts online instead of at a branch.
"When a well-established brick-and-mortar bank launches an online bank, they have inherent channel conflicts," he said
Goldman would likely start with simple deposit products, such as relatively high-yielding certificates of deposit, Mr. Shevlin said.
"I would be surprised if they went with anything more exotic than savings accounts and CDs," he said. "I don't think they want a stand-alone business, like an ING Direct did or an Emigrant did. This is to attract deposits to build on that core business, the investment banking business."
However, Mr. Cundiff said Goldman's online banking strategy could be fraught with pitfalls.
"They certainly have the brand equity, but I don't know how that translates to the consumer space," he said. "It seems the clearer and shorter path is to buy" a company instead of building one.
But even a company of Goldman's size might have a hard time arranging a deal in today's credit-constricted market, Mr. Cundiff said, and banks that might be available might also have hidden risks. "Who knows who's doing well and who's not based on their books anymore?"
Goldman has $18.6 billion of deposits and $21.6 billion of assets in its Goldman Sachs Bank USA of Salt Lake City, a state-chartered bank launched in July 2004 as an industrial loan corporation. Goldman's focus is on wealth management services such as private banking. It said the unit was formed to offer deposit and loan products to employees and wealthy clients.
Last week the New York State Banking Department approved Goldman's application to change the name of its Goldman Sachs Trust Co. to Goldman Sachs Bank USA and to turn the trust unit into a full-service bank.