Goldman Sachs is entering into the banking-as-a-service market

Goldman Sachs' Investor Day 2020 included a 263 page presentation that charted a vision for the bank's future.

• The bank spent six hours courting investors to embrace its digital future.
• But one slide stood out as an interesting departure for Marcus, the bank's digital consumer brand. And that's a move into banking-as-a-service.
• Goldman's decision to enter the banking-as-a-service field would position it in the same markets as banks like Green Dot and BBVA (most of the other leading embedded finance/BaaS providers lack a banking license and require a sponsor bank to offering products and services).
• Goldman actually has its big toe dipped into BaaS with its relationship to Saga, a UK provider of financial services to people over 50. Goldman's Marcus provides two types of savings accounts, managed by Goldman but opened by Saga.

“‘Banking everywhere, just never at a bank’ was the caption of Brett King’s book I read a few years ago,” said Dushyant “D” Shahrawat, CFA, director of strategic insights and advisory in fintech investment banking at Rosenblatt Securities. “It perfectly describes the changing nature of financial services — in a time very soon, we will be consuming financial services, but not directly from banks or brokers or insurance carriers, but through a non-financial company’s front-end with a financial institution standing in the background.”

Goldman's bet on consumer requires Marcus to be massive.

• And while Goldman's consumer bank launched very quickly and has put up very impressive growth numbers, the scale Goldman requires of Marcus is huge. The firm hit $60 billion in deposits last year and on Wednesday, said it expects to raise that total to at least $125 billion in five years.
• It's almost feels like Goldman is compelled to become a platform to reach its sizable ambitions.
• Goldman is new at consumer and it is possible that its experience running trading platforms and tech at scale would make moving into BaaS a smart transition.
• Firms like Synapse and Cambr have emerged as BaaS leaders — but no clear winner has emerged yet in this field. A firm with Goldman's resources could be extremely competitive in this market if it learns to become developer-friendly (something Goldman addressed during its investor day)

"Not surprisingly, the always ahead-of-the-game Goldman Sachs is gearing up to be a bigger ‘banking-as-a-service’ platform," said Shahrawat. "Which means being the backstop for more non-financial companies as these firms begin offering financial services directly to customers. [CEO] David Solomon seems to have decided that the GS/Apple partnership can be replicated more and more going forward and be the engine of growth for a long time. Once again, Goldman has identified an emerging trend early and is preparing to ride it."