Goldman Sachs mulls acquisitions to bulk up Marcus

Written by Ruby Hinchliffe
18th January 2021

Goldman Sachs is mulling acquisitions to bulk up its UK-based digital savings and lending service Marcus, according to three Reuters sources.

One area of interest is digital banking businesses which will bring in either new customers or unique technology.

A source says the bank believes online activity will be central to future growth. This is why its executives are ruling out any deals that involve acquiring branches.

Goldman’s chief executive David Solomon intends to make Marcus a pillar of the US bank’s growth

Another source says the bank has set an “extremely high” bar for deals. They need to be both large and transformational.

Marcus’ activity in lockdown

In June last year, Goldman had to close Marcus’ easy access savings account to new UK customers. Regulated deposit limits during the country’s first coronavirus lockdown climbed to £21 billion.

UK banking rules stipulate that retail deposits totalling more than £25 billion must be ring-fenced – i.e. the bank would have to separate these assets from the rest.

Marcus UK’s head, Des McDaid, told Reuters last year that separating Marcus financially and operationally from the US would be “a significant change” to its “low-cost business model”.

He added that this low-cost model allows Marcus “to pay consistently competitive rates to existing savers”. But Goldman incrementally decreased the rate of this popular account in 2020. It went from 1.3% to 1.2% to 1.05% to 0.7%, making it far less competitive.

In the US, Marcus launched its mobile banking app in January last year. At the end of 2019, its US total deposits for the first quarter stood at more than $50 billion. By the third quarter of 2020, Marcus held a much larger $96 billion in deposits.

Marcus as a key for Goldman

Goldman’s chief executive, David Solomon, intends to make Marcus a pillar of the US bank’s growth.

The CEO wants to move the bank away from a sole reliance on unpredictable investment banking, to more predictable revenues from retail banking products.

As well as savings accounts which have done well during the global pandemic and are on track to hit a five-year $125 billion target, Marcus also offers personal loans.

But with COVID-19 putting a strain on banking profits globally, Reuters sources anticipate the bank’s Tuesday earnings call will reveal slow loan growth.

The bank offers loans through its credit card partnership with Apple too. Reuters sources say the bank’s $20 billion five-year aim for consumer loans and credit card balances could go out the window due to this slow growth. In January 2020, the total stood at just $7 billion.

Future of PFM

Adam Dell, head of product for Marcus, spoke at FinnovateFall back in September. He said a veil has been lifted over the practices of traditional banks.

Personal finance management (PFM) tools have shown consumers that “they’re not getting a fair deal”, he said. Dell adds that fees from incumbent banks have only been on the rise as interest rates plummet

“Through the use of these new tools people are seeing where their money actually goes.”

The Marcus exec argued that a combination of a PFM and a banking service is a powerful thing: “It creates synergy between a financial situation a consumer is in and the products and services they can utilise.”