Goldman Sachs has big plans for TxB, its new banking-as-a-service platform

Embedded finance enables any business to incorporate banking services and products. Goldman Sachs’ new transaction banking-as-a-service platform, TxB, offers enterprise clients banking services that they can embed into their products and software platforms. 

Goldman Sachs’ transaction banking APIs marry technology with banking services such as deposit payments, liquidity solutions, virtual accounts and escrow services. 

Similar to Goldman Sachs’ other digital venture, Marcus, which offers personal loans and high-yield savings accounts to consumers, TxB aligns with Goldman Sachs’ digital strategy to expand its reach and businesses. 

Speaking at Tearsheet’s second annual Embedded Conference about the inspiration informing TxB, head of engineering at Goldman Sachs Transaction Banking, Luc Teboul said that Goldman looked at technology companies that have successfully developed and scaled products as a service. “At Goldman Sachs, we really focused on the idea of the financial cloud, really taking inspiration from how cloud providers have enabled a new era of technology products," he said. "We hope to do exactly the same to financial services, and to enable a brand new set of players to innovate within the financial services space." 

Digitization of the transaction banking space, a $32 billion industry, gives Goldman Sachs a disruptive edge over its global cash management competitors. 

When asked about demand for the new platform, Teboul said that Goldman is seeing a lot of interest -- from fintechs to digital companies like marketplaces -- to embed financial services and financial products into their products. “If you think about it, banking as a service is not just a technology play, it's really at the junction of technology and financial services and it requires first and foremost a modern technology platform,” he said. ”But it also requires the ability to properly manage a balance sheet, it requires banking licenses, and the ability to operate in various jurisdictions where your client and your client’s client will want to be. And it also requires very robust compliance, legal and regulatory expertise.”

TxB’s capabilities serve as the digital architecture for corporations and global companies to plug into their own systems. It provides clients security, scalability and real time data in addition to core banking services such as payments, liquidity management and integrated accounts. During development, Goldman Sachs used itself as a client to test run the service and then proceeded to expand it to other clients in the U.S. Since its inception it has accumulated $28 billion in deposits and more than 200 clients.

“From my perspective, the goal of banking as a service is seamless integration into a client's business," said Teboul. "I think we have a culture from the get go to be very flexible at Goldman Sachs. And the advantage of starting this platform from a blank sheet of paper, we have no legacy. Also, the fact that we are on the cloud makes us quite flexible in the services that we can use, and how we run our platform. And so we've used those skills and assets and a strong engineering team at the same time to co-design solutions with our partners."

Many incumbent banks have yet to experiment with embedded finance schemes despite the fact that there is an overall uptick in challenger banks embracing these. Challenger banks have been relatively unsuccessful in tapping into transaction banking, though, as compared to their success in consumer banking markets, according to Teboul.

Goldman is leveraging its brand and deep pockets to encourage clients to integrate TxB. “Our technology is, first and foremost, the main differentiating factor, but I think what's really also important is what I call the trust factor. When you work with corporates, especially around the treasury services part of corporations, they really want to work with partners that they can trust, that have the expertise to understand how complex their business can be and who is going to be a partner in the long term,” said Teboul. 

As part of Goldman Sachs’ investment into its banking as a service platform, the bank is gearing up to expand into the U.K, Europe and eventually Asia. By 2021, it plans to offer virtual accounts, deposit payments and liquidity products in the U.K and Europe with an additional multicurrency offering in the U.K.