Is it Artificially Intelligent or Naturally Stupid? Let’s ask Apple

Earlier this week, there was an allegation that the credit scoring engine behind Apple card was biased. It emerged from the twitter account of David Heinemeier Hansson (@dhh). He raised the issue that his wife had been given a credit limit 20 times lower than his. David has about 360K followers on twitter, and the […]

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`You Can Marcus`

Goldman Sachs is one to watch.

It is an example of how sticky a banking brand name is – It has shredded off scandals in the past and the recent Malaysian state-run fund scandal seems no different. Sack Goldmans – a 2010 slogan – did not stick.

Goldman Sachs is an example of how an incumbent builds a Fintech business positioned in the value stack below its established competence – an investment bank getting into retail banking and wealth management for mass affluent & the hoi polloi.

Goldman Sachs is an example of how an incumbent financial institution can grow Data pools by offering free access to its analytical tools SecDB – explained in my article in the 2018 WealthTech Book  `Empowering Asset Owners and the Buy Side`.

Goldman Sachs is an example of how an incumbent financial institution can grow Data pools by partnering with Apple on a credit card – Apple has 900 million devices and it is expected that the Apple Card will bring 21 million users to GS by year end[1].

Goldman Sachs is a publicly traded company that is trading right now below book value and there are more than enough GS analysts out there to get estimates on the revenues from the different GS `consumer banking` new initiatives.

For now, Goldman Sachs has been building up aggressively deposits (the usual way of offering above-market deposit rates when entering a new market). The 3yr old deposit business has accumulated now $46billion across the US and the UK! The expected growth is in the order of $10billion per year going forward.

Marcus has issued $5billion in personal loans. These are unsecured loans that naturally, may worry shareholders, who typically get nervous easily (even though this is crumbs when taken in context).

The credit card part of the Goldman Sachs business is newer and could also grow at double-digit annual rates. Goldman Sachs knows well that credit card lending gets favorable regulatory treatment – less capital is required against this kind of debt – and as long as this holds it is a win-win situation. Why? Simply because Goldman Sachs will get their hands on valuable data from retailers and their shoppers, in order to process the Apple credit card application.

Goldman Sachs hits two birds with one stone. It gets to issue consumer debt on a global scale with lighter capital requirements, and it gets to process new, valuable consumer data globally.

The Apple & Goldman Sachs card economic terms are not known. Even if they are not that juicy for Goldman Sachs and even though the GS logo is on the back of the Apple card; the consumer data access and processing from 40 countries that this brings to the table is invaluable.

The Apple & Goldman card will grow an important global data pool for Goldman Sachs to leverage in its planned WealthTech offering.

In case you haven’t noticed, Marcus has been moved into the Goldman Sachs asset management unit, which will be renamed the consumer and investment management division. The October 2018 memo says that Marcus has plans to “launch a broader wealth management offering.”

A global consumer outreach is being built in preparation of this broader wealth management offering. And for all those concerned about a growing unsecured loan book, Goldman has great risk management experience and could with great elegance securitize part of this debt, once there is enough to do so. Elizabeth Dilts and Anna Irrera, raise this point too in ` Goldman’s Apple pairing furthers bank’s mass market ambitions`.

Marcus is a brand whose heritage is in risk management and investment banking. They will use these competences to manage growth in their retail-focused wealth management offering. This is a huge advantage compared to Fintechs that started with unbundling a specific financial service (be it loans, or deposits, or investments) and is now, growing by rebundbling additional services (e.g. adding robo-advisors to loans, or deposits to trading, ect).

I have no positions or commercial relationships with the companies or people mentioned. I am not receiving compensation for this post.

I have written about Marcus several times.

Just after the launch of Marcus in late 2016, Will Goldman become a verb? Watch the Marcus ads!

Just after the Marcus rebranding and UK launch in Fall 2018, Welcome Marcus to the rebranded Goldman asset mgt division and to the UK

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I must however, confess that I have no idea how to interpret the new Marcus Campaign ‘You Can Money’.  Is this an example of new Fintech language? If you have other such rarities, please send them to me, as I collect them. Maybe we can tokenize them, with the hope that they become the next non-fungible craze.

[1] A Seeking Alpha article that includes several links, for anyone who wants to dive into more details https://seekingalpha.com/article/4251792-buy-goldman-sachs-apple-card

Sources: CNBC, Barrons, Financial Brand, Crowdfundinsider, The economist

Efi Pylarinou is the founder of Efi Pylarinou Advisory and a Fintech/Blockchain influencer.

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Welcome Marcus to the rebranded Goldman asset mgt division and to the UK

I can’t believe that it is already 2 years from the launch of Marcus from Goldman. I wrote about it Nov 2016 in Will Goldman become a verb? Watch the Marcus ads!

  • The consumer pays a fixed interest rateon the loan (which includes a profit margin for Goldman). It has no complexities (APRs and all the usual hidden in a credit-card type of arrangement).
  • It is simple and clear. No fees for late payments.
  • It is transparent and simple! No credit-score changes! There is nothing hidden, no optionality (hiding misunderstanding and potentially Goldman outsmarting the user).

My right hand, Gaston Greindl, briefed me last week on Marcus. Goldman has decided to add a dedicated loan specialists workforce who deliver live, personalised support to client, which goes well beyond the flexibility already offered on the platform to choose payment dates and payment options to fit their payroll schedule.

During the first year of Marcus – by the end of 2017 – Marcus had more than $2.3 billion in loans ranging from 12 months to 4 years.

The deposit part of the business – Online Savings Accounts for retail – is FDIC insured, no-fee again, and offering rates higher than the national average. During the first year of Marcus – by the end of 2017 – Marcus had more than $17 billion in deposits.

After extensive research and surveying, Goldman found that customers preferred to speak with human advisers for their borrowing and savings inquiries. So, all of Marcus calls are answered by loan or deposit specialists, improving the customer experience.

What caught my attention this time around, was the Barron’s article about Goldman Sachs moving Marcus into its asset management unit, which will be renamed the consumer and investment management division. Previously, Marcus had been part of Goldman’s investing and lending division.

I always talk about Fintech towards serving your existing customers in ways not possible before. Goldman has been fearless in experimenting with new business models in serving customers and in acquiring new customers. Over the past decade, Goldman has been an investment bank that wasn’t shy to get a banking license after the subprime crisis; has opened its proprietary IP to its Buy side clients (read more in my contributing chapter in the WealthTech Book ); and has acquired 37 Fintechs already making it the No.1 bank in Fintech investments (as of end of 2017)

fintech

Marcus was born in a neighbourhood catering to the basic consumer banking retail needs. Goldman now feels that it can and should be integrated in the next generation wealth offering of Goldman in the US. No fees, human advisors, flexibility even for the very basics: online savings and personal loans. This makes sense as product lines are blurring. Clients don’t want to have shop for their financial needs in 5 different places. Integration is the name of the game. Goldman is moving gracefully in that direction.

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While Marcus is being integrating in the US in the wealth offering, at the same time Goldman is launching Marcus retail in the UK. It started just a month ago and up 50,000 customers signed up in less than two weeks. UK residents can deposit from £1 to £250,000 – and withdraw their money as many times as they like, with no fees or charges. Fully digital onboarding plus customer service with a specialist available. Now this can’t be great news neither for the challenger banks nor for the high-street banks. Marcus has a brand name and offers an interest rate of 1.5% (for the first year), which is well above the UK average of 0.6%. The Marcus account rate drops to 1.35% the 2nd year. The closest easy access savings rate is currently 1.41%, offered by Yorkshire Building Society.

Expansion in Germany was also announced in May but there is nothing talked about since.

Marcus in the US has built a loan book that is not even 5% of the $72billion loan book of Goldman. It’s value is not the amount of loans or their margin. It is the new retail customers and moreso it is the learnings that Marcus is offering Goldman Sachs’ so that they can enhance their wealth offerings with consumer best banking services (deposits and loans) which means below cost and with human specialist customer service.

Efi Pylarinou is the founder of Efi Pylarinou Advisory and a Fintech/Blockchain influencer.

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