How Goldman Sachs Consumer Bank Ended Up Being a Purely Altruistic Investment, Aiding the UN With Their SDG’s But Landing Goldman Sachs in Hot Water

Goldman Sachs has rightfully been making headlines over the last few days after holding its second ever investor day. During the investor day shareholders queried what Goldman Sachs plan was for their consumer bank Marcus in their “platform-solutions business” divisions, which made a loss of $1.7bn in 2022. Solomon’s Goldman Sachs CEO brushed over the question saying “But I can’t answer that question” leaving shareholders underwhelmed and none the wiser (The Economist, 2023). This blog post will discuss Goldman Sachs platform solution business, how it could have helped the UN with their SDGs and why it failed. 

Goldman Sachs Consumer Bank, Marcus

In late 2016, Goldman Sachs launched “Marcus by Goldman Sachs” named after founder Marcus Goldman, in an attempt to diversify their business operation due to the volatile nature of investment banking. Its goal was to provide consumers with a simple and transparent approach to consolidate their high interest credit card debit, and to apply for fixed-rate, no-fee personal loans (Goldman Sachs, 2016). 

How Will This Aid the UNs SDGs?

Marcus by Goldman Sachs, is a consumer bank that offers a competitive rate on all of their savings’ products (one of the best high-yield saving accounts on the market), offered a zero-fee structure meaning there would be no maintenance, service or transfer fees, no minimum deposit fee and insights into your spending to allowing users to track and optimise your spending habits (Gran, 2023).

Although this may not have been the aim of this new consumer bank, these offerings promote financial inclusion, which directly aids the UN in their SDGs. It is an online affordable bank which means it can offer financial services to an extended range of people, it also offers loans with APR as low as 0% on 3-month loans (Marcus, 2023). The Marcus insights also promote financial literacy, allowing consumers to better save and budget their money to use it more effectively.

Marcus is a purely online banking platform, this is in line the UNs Capital for Development’s (UNCDF) “last mile financing” model, which allows the bank reach financial market areas that they would not normally reach (UNCDF, 2023). Studies have found a strong relationship between a lack of access to financial services or financial exclusion and the economic progress and life expectancy of individuals. It is accepted to assume that the majority of developed world has reached financial inclusion, there is still 2.5 billion households in the world that lack access to basic financial products (Kara, et al., 2021).  Marcus is providing individuals who suffer form financial exclusion with access to financial services such as credit or savings accounts at a reasonable price that is both ethical and sustainable and making financial products accessible to anywhere with internet. This is directly enhancing economic development and the quality of life for these households.     

The UN stated that promoting women’s savings accounts, lead to positive economic growth for women in the least developed countries (UNCDF, 2023). Marcus will give women in these countries the tools to not only created savings but also allows them to hold their savings in a high yield savings account. According to the UN, women who have savings are unlikely to liquidate assets for unexpected expenses such as a medical bill. They also have more control around the funds available to them and are more likely to reinvest their money into women owned and women run businesses (UNCDF, 2023). 

Why has this been bad for Goldman Sachs?

Although this may seem like a great new division to Goldman Sachs business, creating a consumer-focused bank based off potential customer’s feedback. They appeared to have been overzealous with their offerings and were suffering a loss of $1.2 billion in the first 9 months of 2022 (Flitter, 2023). Goldman Sachs executives suggested that 2022 would be the first year for the bank to break even, but due to the rising costs in the Fintech industries they appeared to continue to struggle (Reynolds, 2022).

Investors were quick to point fingers at CEO Solomon for the losses in the consumer division of the business, soon after he took over as CEO, he commenced mass reorganisation throughout the company. In late 2022, Marcus was split into two, their corporate clients moved into their newly formed Platform Solutions Division and their consumer-focused operations were moved to their wealth-management division (Franklin, 2022). This reorganisation seemed to be the straw that broke the camel’s back for Marcus, Ismail who ran Marcus from the get go felt that they lost control of the platform after the restructure, stating that their engineers were being pulled from Marcus and into different areas of the division (Son, 2023). This caused Ismail to leave, within a year of his departure Marcus had lost its head of production, head of point-of-sale financing, CFO and key consumer wealth management. Despite Goldman Sachs spokespeople attempting to downplay the mass exodus of their staff at the time it’s clear that this was the catalyst for Marcus’s demise (Ennis, 2023).

Last week CEO Solomon signalled during investor day that it might be the end of their consumer arm, stating that they are considering “strategic alternatives” for their consumer division. This has led many investors speculating if Marcus will be up for sale soon. Goldman Sachs have already stopped unsecure lending, and a Marcus Analyst suggested that they are ready to sell their $4.5 billion loan portfolio (Azhar & Nguyen, 2023).

Goldman Sachs goal for Marcus was to diversify its profits. However, looking at the comparison between the Goldman Sachs profits with three of their main competitors since the launch of Marcus it gave them no competitive edge and they are far from having the level of diversification to catch up with competitors. 

                       

                                                      (Source: S&P Capital IQ)  

This venture into diversification for Goldman Sachs did aid the UN with their SDGs and is likely to  have helped many people across the globe. However, from a purely business perspective this may not have been the banks best decision and despite being named after the Goldman Sachs founder it is unlikely to have made him proud.

Reference List

Azhar, S., & Nguyen, L. (2023, February 28). Goldman Sachs mulls deal options after consumer flop. Retrieved from Yahoo Finance : https://finance.yahoo.com/news/goldman-sachs-seen-unveiling-medium-053535492.html?guccounter=1&guce_referrer=aHR0cHM6Ly93d3cuZ29vZ2xlLmNvbS8&guce_referrer_sig=AQAAAFouBxY7tJuGBn29EtcrSDu6HE06tzHAoE2EuOXAvD90JbnwS8Di9Wa2KdGm12N160HsGi_bYjrNzonUi6BkR5t4vLXo

Ennis, D. (2023, February 10). Goldman’s consumer-business chief is leaving. Retrieved from Banking Dive : https://www.bankingdive.com/news/goldman-sachs-marcus-greensky-peeyush-nahar-omer-ismail-swati-bhatia/642531/

Flitter, E. (2023, January 13). Goldman's Pitch to the Little Guy Turns Costly, as Struggles Mount. The New York Times .

Franklin, J. (2022, October 17). Goldman Sachs plans major reorganisation. Financial Times .

Goldman Sachs . (2016, October 13). Goldman Sachs Launches New Online Personal Loan Platform; Marcus by Goldman Sachs Focuses on Helping People Manage Credit Card Debit . Retrieved from Goldman Sachs: Press Realases : https://www.goldmansachs.com/media-relations/press-releases/current/announcement-marcus-by-goldman-sachs.html

Gran, B. (2023, February 23). Marcus By Goldman Sachs Review 2023. Retrieved from Forbes Advisor: https://www.forbes.com/advisor/banking/marcus-by-goldman-sachs-review/#:~:text=Marcus%20only%20has%20a%20few,an%20even%20more%20attractive%20option.

Kara, A., H. Z. & Zhou, Y., 2021. Achieving the United Nations' sustainable development goals through financial inclusion: A systematic literature review of access to finance across the globe. International Review of Financial Analysis.

Marcus. (2023). Marcus by Goldman Sachs . Retrieved from marcus.com: https://www.marcus.com/us/en/marcuspay

Reynolds, J. (2022, October 11). Marcus Facing Uncertain Future Amid Sky-High Losses and Staff Discontent . Retrieved from altfi.com: https://www.altfi.com/article/9953_marcus-facing-uncertain-future-amid-sky-high-losses-and-staff-discontent

Son, H. (2023, February 27). Why Goldman’s consumer ambitions failed, and what it means for CEO David Solomon. CNBC.

The Economist. (2023, March 1). David Solomon lacks answers for Goldman Sach's angry investors . The Economist.

UNCDF. (2023, March 08). Sustainable Development Goals . Retrieved from UN Impact Capital for Development : hhtps://www.uncdf.org/sdg