Goldman’s Detour From Main Street Consumers Shows Challenges of Digital Banking

For Goldman Sachs, the journey down Main Street now seems like an ill-advised detour.

As reported here, the white-shoe investment bank is mulling what’s next for its consumer business — and the words “strategic alternatives” have popped up.

In Wall Street speak, that verbiage typically signals there could be a sale or a shuttering — not necessarily of all consumer-facing efforts. But a re-fashioning of the digital banking efforts illustrates just how hard it is to become a digital bank. At least one that offers a broad gamut of banking products, including high-yield savings and lending products.

The news comes just a few months into a reorganization that had reconfigured a reporting structure and folded the consumer operations into a newly-combined asset and wealth management division.

Marcus, of course, as a retail banking operation, started with a bang and seemed destined to continue with a whimper. And yet we note that according to reports, the company expects its Platform Solutions to break even by 2025. Platform Solutions includes the GreenSky and the credit card (Apple and General Motors are partners here) operations. But, we note that the segment also includes Transaction Banking operations per company filings. Those operations include “deposit-taking and payment solutions for corporate and institutional clients,” per Goldman’s SEC disclosures. So: The Platforms segment is not entirely dependent on the consumer.

Details from the Filings

Drilling into the company’s presentation materials, we see that installment loans stood at $6 billion in the fourth quarter, up from $5 billion in the third quarter and $4 billion in the year-ago period. Credit card loans were $16 billion in the most recent period, up from $14 billion in the third quarter and doubling from last year’s $8 billion. Yes, the loans on the books ballooned, as did the allowance for loan losses, to $6 billion from $4 billion last year and $5 billion in the third quarter. The increases show the tradeoffs of getting more business while at the same time having to grapple with the challenges of managing the business that was “gotten” in previous periods.

The company’s most recent 10-K details that roughly 79% of the consumer installment/credit card loans extended by the company were taken on by borrowers with FICO scores of 660 or greater.

The remainder are being carried by consumers with FICO scores below 660. Roughly $619 million of those loans are at least 30 days past due. As PYMNTS has detailed, the average credit score for all consumers who live paycheck to paycheck is 664, and paycheck-to-paycheck consumers have been more likely than others to take on credit card debt. The FICO score noted in Goldman’s stats sits squarely with the paycheck-to-paycheck consumer, and as we reported Tuesday, consumers are dipping into savings to pay down their credit cards. The pressure’s on, and Goldman’s Main Street consumers are not immune.

The credit business is one where time is the greatest teacher, and it must be noted that Goldman started offering credit cards (via the Apple card) only in 2019, and then we hit seismic public health and macro shocks that have squeezed consumers through the past three-plus years in ways arguably no one would imagine. The typical consumer is not the same as the wealthy client that has been the mainstay of Goldman’s traditional Wall Street business that has sustained the company since the late 19th century.

In the meantime, Goldman’s consumer deposits, north of $110 billion as late as last year, have had to remain competitive, offering higher yields. The APY on a Marcus online savings account, as of this writing, is 3.75%, and less than a year ago, the APY had been around 1.7%. The jockeying for consumers’ deposits, alongside other digital banks, rests on offering higher rates, boosting the cost of doing business.

Overall, Goldman’s attempt to move downstream clearly has not gone as planned, but the company has decided, as they say, to cut its losses rather than keep piling money into the effort.

The courage of conviction is a good corporate strategy; the courage to pivot when things are not breaking one’s way is essential.

What’s next for the consumer operations remains a tale yet to be told. Goldman has said asset management would be the key driver of results going forward — indicating that a renewed focus on investments and Wall Street will be in the cards. What won’t be in the cards, it seems, are more credit cards in Main Street consumers’ hands.