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Goldman Sachs’ foray into consumer banking is getting aggressive

Goldman Sachs is arguably the biggest name in investment banking, but two years ago it dipped its toe into the consumer space through its acquisition of GE Bank and launch of GS bank shortly after. Today, Goldman continues to amp up its consumer business.

The same year it launched GS Bank, it began building a digital-only consumer loan product, Marcus, that was fully developed and on the market 12 months later. Without having the legacy infrastructure under previously existing consumer products and services, the overhaul other major banks have been experiencing don’t exist for Goldman.

Goldman has also been ahead of retail banking institutions when it comes to a platform approach to business.

“[The] platform approach has not been an obvious approach on Wall Street. Our competitors are generally structured in deep vertical silos and we have a different architecture: these shallower silos built on top of many layers of software, tech infrastructure, cybersecurity, enterprise platforms and increasingly, client platforms,” Marty Chavez, an engineer and Goldman Sachs CIO-turned-CFO this year, said in a keynote at Harvard University earlier this year.

“Historically, the API has been human beings talking to other human beings over the telephone, and all the tools, the content, the analytics is on the internal platform only. We are shifting this radically and shifting this fast, and we’re packaging everything we do… we’re redesigning the whole company, around APIs.” Goldman did not respond to a request for comment.

Goldman Sachs loves to say it’s a technology company. At Harvard, Chavez said everything the company does “is underpinned by math and a lot of software” and that a third of the employees at Goldman are engineers. Here are three ways Goldman is has shown that this year.

46 percent of Goldman jobs are in technology 
CB Insights analyzed more than 2,000 open Goldman Sachs job listings by division and business unit to confirm it’s focused on building its technology and digital finance units. Goldman Sachs has no experience in consumer banking and has reacted by resolving to hire the right talent, CB Insights fintech analyst Matt Wong said Tuesday in a briefing on the data company’s research around Goldman Sachs strategy.

Many of the jobs are in digital finance. Goldman is hiring mobile developers “to enable the creation of an all-digital retail bank,” Wong said, speculating that the unit’s offerings may soon include native mobile apps. Earlier job postings have called for iOS developers, he said. It’s also hiring engineers to build a digital advice platform for the mass affluent market and its Marquee platform, which gives clients access to analytics, trading and data tools. Earlier this month it reportedly poached 20 employees from New York-based online lending startup Bond Street — engineers, product developers, and risk and marketing specialists — presumably to build out a lending product.

According to the research, published Tuesday, 46 percent of all of the firm’s jobs as of Sept. 14 are in technology, with the highest amount for core platform roles, followed by operations engineering and then equities technology. While traditional consumer retail banks are still getting acquainted with the idea of the platformification of banking — stubbornly, since rethinking banking services as a platform often means weakening a company’s brand by becoming the “dumb pipes” — Goldman Sachs has aspired to a platform approach and quietly been working on it and readying itself for the consumer market.

gs jobs

Marcus is expanding in the U.K.
The jobs listings also show Goldman is staffing up its digital finance unit in the U.K. with London-based roles in customer support, product management, and development and operations. Earlier this month, the firm said it plans to expand its retail banking business to the U.K. by launching an online loan deposit business there. That includes launching Marcus there in the middle of next year.

Marcus, the online lending startup built inside the investment bank, has been growing tremendously in the eight months since it launched in October 2016. It has one product: a customizable personal loan for Prime borrowers, with at least a 660 credit score, of up to $30,000. It promises no fees and straightforward repayment terms. It recently passed $1 billion in loan originations with expectations to originate $2 billion by the end of this year. By comparison: SoFi, which launched in 2011, reached its first billion after 14 months; Avant, founded in 2012, took 28 months; 10-year-old Lending Club took 65 months; and Prosper, launched in 2006, passed $1 billion in 98 months.

Marcus was built in 12 months — which is impressively fast for a legacy financial institution. Before building Marcus, Goldman didn’t have an existing consumer business built on rusty rails that they needed to cannibalize in order to get the product to market so quickly. Wong said they’ve had the additional advantage of some of their non legacy IT architecture that they have been able to put in place: existing platforms, open source software and external APIs like Twilio, FICO, Facebook and Adobe.

It’s invested in every kind of fintech company
Wong said Goldman is consistently in the top two when it comes to investments in fintech startups. It’s currently invested in 23. Of the top 10 largest U.S. banks ranked by unique fintech investments, Goldman is the only one investing in at least one company in every fintech category: blockchain, data analytics, insurance, personal finance, wealth management, financial services software, lending, payments and settlement (in which has invested in six companies), real estate and regulatory technology.

Earlier this month Goldman revealed its latest investment, $134 million in Neyber, a U.K. startup (whose founders are two Goldman alums) that helps employers lend money to employees to repay through their future salary payments, showcases the firm’s interest in consumer data through lending and payments opportunities.

Investing in a diverse array of startups has allowed the company to create the back-end layers for the platform approach Chavez mentions. Goldman builds the middleware — the micro services APIs — itself. That’s what helps Goldman move so quickly. Using the example of Marcus, the bank only needed to purchase 17 “best-in-class modules from outside,” Wong said, to plug into the platform using APIs and deliver the customer experience for Marcus clients.

gs platform

 

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JPMorgan, Goldman and others are easing their dress codes in a bid for tech talent

The mention of financial giants like JPMorgan or Goldman Sachs conjures up images of staid suits, ties and corner offices in ivory towers. But for the last two years they’ve been trying to look more like the tech companies they so often claim to be. Now, they’re taking the next step by relaxing their dress codes.

Goldman’s workforce is nearly 70 percent millennial, according to a LinkedIn post by its head of human capital management. Last month, the bank relaxed the dress code for its tech employees, telling them to “exercise judgment in determining when to adapt to business attire.” It’s probably safe to say that if they aren’t meeting with clients, they need not suit up. Jeans are allowed, according to one Goldman engineer. Some people wear hoodies.

“It’s somewhat of a symbolic gesture,” said the engineer, something the firm can do to “not be seen as another stuffy organization but more as one that emphasizes creativity” and to “make Goldman engineering more attractive to millennials.”

Goldman’s move came a year after the almost 150-year-old investment bank launched GS Bank — an Internet-based savings bank for the masses — and months after it launched Marcus, an online lending “startup within Goldman” — two new digital businesses that require a lot of tech expertise.

JPMorgan Chase opted a firmwide business casual dress policy last summer, noting in an internal memo that “it may not be possible to dress business casual at all times or in all areas.”

That was just a couple months after the largest U.S. lender by assets moved its coders, data engineers and digital executives (who were mostly new to the banking industry) to a separate facility on Manhattan’s West Side, where casual dress is the norm. Some even sport Chase digital team hoodies, according to one employee. JPM and Goldman wouldn’t comment for this story.

“They’re not client-facing people, so we wanted to relax [the dress code] because the people we want to recruit are coming from tech companies where they can be more relaxed and casual,” the Chase employee said.

JPM is now reportedly in talks to triple the size of its new digital headquarters, expecting to expand grow its 700-person digital team to as much as 2,500.

Banking giants arguably can offer more varied work than tech companies, said Bhushan Sethi, PwC’s people and organization financial services leader. Only a small percentage of the Silicon Valley workforce work for the iconic brands, whereas banks have a big need for expertise in advanced analytics, artificial intelligence and robotic process automation to help people to manage their money.

“The culture of the firm is really important for tech talent,” he said. “If they come in feeling empowered, they feel they can make a change.”

Startup and bank cultures also are coming face to face through mergers and partnerships. Last year JPMorgan launched one in its actual offices called In-Residence, where the startups work side by side with the bank. While some startups will be acquired by banks — as in BBVA’s purchase of Simple, Capital One’s purchase of Level Money and Silicon Valley Bank’s acquisition of Standard Treasury — others like Finicity will partner with them.

Cultural boundaries also are blurring as banks move into tech hubs like Austin and Cincinnati. Citi FinTech, for example, the unit dedicated to mobile-first offerings that always comes to work dressed down and celebrates its nontraditional banking culture, is expected to move to the Cornell campus soon, according to a Citi employee.

“It’s not always about attracting talent; it’s also about how you integrate talent from the technology firms you’ve acquired,” Sethi said.

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Major global banks back R3 with $100 million

Bank consortium R3 CEV has secured $107 million in the second portion of its series A funding round — one of the largest blockchain funding rounds to date.

R3 said it is using the funds on the deployment of its technology and to develop more strategic partnerships. The company endured some minor PR blows last year when some of its high profile members defected from the consortium, including Goldman Sachs, Santander, Morgan Stanley, National Australia Bank and as of last month, JPMorgan Chase.

Bank of America Merrill Lynch, Bank of Montreal, Bank of New York Mellon, Barclays, BBVA, BNP Paribas, Citi, Credit Suisse, Deutsche Bank, HSBC, ING, Mizuho, Royal Bank of Canada, Societe Generale, TD Bank, The Bank of Tokyo-Mitsubishi, The Northern Trust Company, The Royal Bank of Scotland, U.S. Bank, UBS and Wells Fargo are among the 43 member participants. R3 made the first and second portions of the round open to the consortium’s bank members only; the third and final part will also be open to non-member institutional investors. R3 expects to reach at least $150 million when the third tranche closes.

“Our strength has always been our global reach, helping people do business within and across borders all over the world,” said Kaushalya Somasundaram, head of fintech strategy and partnerships at HSBC. “We’re keen to explore ways to make financial markets, and payment and trade networks more connected, more accessible and more secure,” which HSBC plans to achieve through the collaborative approach at the heart of R3’s model.

The company will focus its technology deployment efforts on Corda, its blockchain-like distributed ledger for exchanging financial agreements among financial instituttions; as well as its infrastructure network for partner built financial applications.

R3 did not disclose its valuation or its investment framework, in which interest initially rose in November members began dropping out of the group. Santander said it would refocus its blockchain efforts on other bank co-led projects — like Utility Settlement Coin and the Global Payments Steering Group — and JPMorgan, which is also involved in other bank blockchain collaborations, wanted to pursue a technology path that’s “at odds” with R3’s strategy. But Goldman reportedly backed out when conditions of the investment framework changed.

R3 initially sought to raise $200 million from its members in a round that would have granted them 90 percent of the firm’s equity with the remaining 10 percent going to R3 itself. That deal was renegotiated in the fall to a $150 million target that would give members a a 60 percent equity stake and R3 the remaining 40 percent. Goldman allegedly sought more leverage in the deal and a board seat.

The funding announcement comes a day after R3’s rival Enterprise Ethereum Alliance, the R3-like group building solutions with the open source ethereum, revealed it has exploded in new members — bringing its total membership to 116 from 30.

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How a Goldman Sachs brand is trying to erase debt stigma

For most people, Goldman Sachs conjures up images of money, power and scary cephalopods.

But the investment bank is getting into consumer lending now, which means it’s going to have to make its brand a little more relatable to the masses. In October, it launched Marcus, an online lending startup dedicated to helping people own their debt issues with a personal loan product and a new message: “Debt happens. It’s how you get out that counts.”

“There’s a stigma around debt, people don’t like to talk about it,” Nicole Sbarra, a product manager for Marcus, said at an event in New York Thursday night. “It makes them very uncomfortable. And most people also don’t think of credit card debt as actual debt, they see it as a balance… [Marcus] is going to help you understand that there’s more to you than this extreme amount of debt on your shoulders.”

While it’s a shift away from the image Goldman has built over decades, Marcus by Goldman Sachs is its own brand, which is as much to avoid alienating long time Goldman clients as it is to give confidence to Marcus customers. Marcus was built inside Goldman Sachs from scratch; no branches, no outdated technology systems, no baggage.

Marcus was co-created with thousands of consumers that helped designers to find out how they can best tackle the problem of getting out of debt. Marcus loans come without fees and lower rates than those of many credit cards, making it well positioned to compete with consumer banking products and online lending startups like Prosper.

Keeping the brand separate, as much as possible, from Goldman is necessary, in some ways, considering the bank’s history. From 2005 to 2007, Goldman issued and underwrote mortgages and securities backed by residential loans that were borrowed by consumers with poor credit. This led to the housing bubble burst and economic recession. Last year Goldman paid out $5.1 billion for its role in the financial crisis.

A key point the Marcus team found through research sessions was that when dealing with their finances — and particularly sensitive subjects like debt — they want to work with “a trusted, secure, extremely well-established brand,” Sbarra said.

“Marcus is a brand new brand, but Goldman Sachs has been around for a long time,” Sbarra said. “People like to think about banking with Goldman Sachs, but we think of ourselves as a startup within Goldman.”

Money is one of the most personal and sensitive topics for people, even people with lots of it, which is why empathy plays such an important role in building a financial product. The average American carries some $16,000 in credit card debt and about 70 percent of them don’t know there are alternative options to that credit card debt, said Michael Cerda, head of product.

“The team spoke with some 10,000 customers and learned about this stigma, learned about how to consult about it, learned about how anxious people got about it,” Cerda said. “It’s everything from that emotional level to the detailed level of all these fees, all these rates, the jargon and the terminology. What the team did was really take a great swing at making it very simple to understand.”

For example, they learned that “origination fees” are widely misunderstood among the general population, so Marcus calls it a “sign-up fee” on the site — as in, “No sign-up fees. Since that’s not a very warm welcome.” Consumers said other players in the space put credit scores and APRs front and center, so Marcus asks how much users want to borrow and how much they can afford to pay on a monthly basis.

“People don’t think about when they want to be out of debt by, they think about what they can afford to pay every month,” Sbarra said.

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Fake apologies, anti-artists, and elitist messaging: The year in financial services marketing fails

It seems like a cliché when a financial firm finds itself in PR trouble these days, but it still happens pretty regularly.

You would think that large money institutions would have learned their lessons by now from past snafus. They don’t. 2016 saw some rather prolific fails when it came to financial brands being off message from what their shareholders and customers expect.

Here are a few of the largest gaffes made by incumbent financial companies during 2016:

Wells Fargo, you had me at eight (accounts)

Cross-selling products is nothing new in banking. That’s bread and butter to the business model. But when it goes public that Wells Fargo employees were fabricating account and credit card openings just to hit their high-pressure quotas of eight accounts (why, because it rhymes with “great”!), well, then you’ve firmly placed the bank opposite its customers.

Ex Wells Fargo CEO, John Stumpf

When the reigning Wells Fargo CEO John Stumpf appeared in Congress to address the problem, there were a lot of other things he could have said. Instead, appearing with a cast on his arm and a recent recipient of major stock grants, he totally whiffed, making him and Wells look completely out of touch and tone deaf.

Things just got worse when Wells took out a full page ad to not apologize in the wake of the scandal.

Wells Fargo: Down with the arts!

Wells Fargo couldn’t catch a break this year. In September, the bank ran a series of print ads promoting education in the sciences. Wells was pushing something it called “teen financial education day”, and the ads featured an image of a smiling young woman with the headline: “A ballerina yesterday. An engineer today.”

Popular artists took to social media to complain that the firm was denigrating artists. This prompted the bank to issue another apology, saying it was committed to support of the arts.

Goldman Sachs, bank of the elite, now markets to the masses

Who would have thought that Goldman Sachs, a firm that traditionally serviced the mega wealthy, would roll out a consumer bank for the masses? That’s exactly what it did in 2016 when it launched Marcus, its new consumer offering.

While GS definitely wants your money and was ready to tell you why, the online experience wasn’t quite ready for prime time. Early adopters like the WSJ’s John Carney complained that the web experience was buggy, the website not easy to use, and the sign-up process clunky.

Fintech has fails, too

When big financial services firms fail with their marketing and branding, it creates opportunities for upstart fintech brands to try and get it right with customers. SoFi, an online lender, has found a lot of success with millennials looking to refinance student debt. But its first Super Bowl ad ended up striking a wrong chord.

The video ad shows a lot of young, fit, diverse 20-somethings running, walking, biking, and jogging in a city that looks like San Francisco, where the firm is based. The ad divides the world into “great” and “not great” people. The message is that SoFi only works with “great people”.

Beyond the Silicon Valley elitism in this message, the Super Bowl probably wasn’t the right audience.

“The Super Bowl is one of the great equalizers in American life: everybody watches the same game, and the same ads, at the same time, and has pretty much the same experience,” wrote Fusion’s Felix Salmon. “To use the Super Bowl to separate America’s “great” few, on the one hand, from its unwashed masses, on the other, is tone-deaf at best.”

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The top five most popular fintech baby names

Money 20/20 2016 has been a great reminder of the innovation that incumbents are driving. From payments to payments to payments (and some other things), banks are partnering, acquiring, and even going it solo to reach faster, simpler, and safer user experiences. 

But one of the foremost payment and fintech events of the year has also served as a reminder of some of the great baby names that incumbents’ fintech innovation has offered up this year. Below is Tradestreaming’s top pick.

Girls’ Names

Erica: Bank of America is heading into the bank chatbot arena armed with Erica. The bank announced the launch of its virtual assistant, who will use a blend of AI, predictive analytics, and cognitive messaging to help customers manage their money, at Money 20/20 2016. For parents who want their daughters to be “smarter than a robot” and to “ha[ve] your back and [look] out for you” – to quote Michelle Moore, head of digital banking for Bank of America – Erica is a good choice.

Zelle: Big banks’ answer to Venmo was clearXchange. Launched in March 2016, clearXchange was supposed to change incumbents’ luck in the real-time P2P payment department. Maybe clearXchange wasn’t sexy enough a name? In any case, incumbents are looking to change their luck once more by rechristening clearXchange as Zelle. For parents that value speed, persistence, and couldn’t quite bring themselves to call their child ‘Elsa’, Zelle’s the way to go.

Boys’ Names

Marcus: In October 2016, Goldman Sachs launched Marcus, an online consumer lending platform for customers trying to pay down credit card debt. Named after one of the GS founders, the jury is still out as to whether this product is something to get excited about. Still, this is an offering from a powerful player, and online lending is on the rise.

Luvo: The Royal Bank of Scotland introduced AI chatbot Luvo in September 2016. Built using IBM’s cutting-edge Watson Conversation tool, the bot is meant to answer customer queries and connect them to the information they need. While Luvo may not be as advanced as Erica (yet), it does sound slightly more Italian.

ZEO: Launched by TCF Bank in May 2016, ZEO is a suite of financial services, which include cash checking, savings account, money transfer, bill payment, and money order. “ZEO ensures [that customers] can complete all of their transactions at a branch in a simple, quick way,” Geoff Thomas, managing director of customer segments and alternative channels for TCF, told Tradestreaming. Unlike other names on this list, ZEO has the added appeal of being all-caps. Also works as a girl’s name.

Some of the 2016 banktech names that did not make it onto the list:

Chase Pay, FastFlexSM, Thought Factory, IMT, clearXchange

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Hi 5! The five fintech stories we’re following this week

top fintech stories

Insurtech’s rising star

Insurtech continues to shine on with the hope and possibility of youth. Tradestreaming’s Gidon Belmaker examines how insurers are increasingly offering IoT-enabled policies for different lines of insurance that calculate the risk for each person, digitally. In a world where a house is smart enough to know what room temperature its owners prefer, IoT-enabled policies make a lot of sense. The challenge for insurers looking to get into the IoT game will be filtering, processing, and reacting to really big data in real time.

In the spirit of being hopeful, insurtech’s top women execs spoke with Tradestreaming to share their career advice for women looking to enter this fast-growing field.

Fintech’s murky waters

It’s been a hard couple of weeks at Wells Fargo. After the firm’s pamphlet for Teen Day 2016 angered the theater community by implying that the arts were merely a childhood pastime, scandal struck one of America’s biggest banks yet again, on a much larger scale. After discovering that over 2 million fake bank and credit card accounts had been opened at the bank, Wells Fargo fired 5,300 employees.

Twitter did not approve. Analysts lambasted the bank for trying to shift a top-tier management problem onto hapless employees facing unrealistic sales goals. And while Wells Fargo has since eliminated product sales goals, Carrie Tolstedt, the unit leader in charge of those 5,300 ex-WF employees, walked away with about $125 million in stock and options.

Speaking of crime and payment, Tradestreaming’s Josh Liggett’s in-depth reporting on the shady world of prison payments showed that justice – and fintech – are not always accessible to inmates.

While the financial industry is experiencing a surge in growing transparency and lower fees thanks to growing competition, the prison payment industry isn’t undergoing a similar renaissance. Instead, inmates are held prisoner to high fees and limited services within an old system masquerading as innovative fintech.

Fintech real-estate companies are getting creative

Ok, yes. A fraudulent mortgage market did cause the Great Recession of 2008. But the mortgage market is getting innovative with online offerings that seem to have the consumer – not just profit – in mind. Digital lender Point, which enables homeowners to sell a percentage of their home to investors, is putting borrowers and lenders on more even turf by better aligning incentives between them. Last week, the company raised $8.4 million, bringing total fundraising to $15.4 million.

Real-estate crowdfunding platform Roofstock is also out to change the digital real-estate market, by simplifying the process of buying or investing fractionally in occupied singly family housing. According to Roofstock’s chairman and co-founder, Gregor Watson, Roofstock recently signed a deal with an Asian group that wants to invest a whopping $250 million on the platform.

Work and play

The fintech interview process can be daunting for interviewees. Potential candidates can take solace and solid tips from Tradestreaming’s interview advice from top fintech execs. Keyword takeaways: passion, motivation, openness. Oh, and don’t ask about salary.

Of course, young fintech wannabes might have other things on their minds. Like beer. On last week’s ESPN College Gameday show, a student put up a sign with his Venmo number and a request that his mother send beer money. Instead, over two thousand complete strangers donated to his beer fund. Here’s a selection of what fintech companies’ signs might look like come next College Gameday.

Prophets of Wall Street

No one knows exactly what the future has in store – but people are making some educated guesses. Aon estimates that self-driving cars will cut U.S. insurance premiums by 40%, though automation will carry its own unique risks. Chinese ecommerce giant Alibaba thinks the future of identify verification lies in the red veins of your eyeballs.

And because your week wouldn’t be complete without a blockchain update, Goldman Sachs filed a patent for blockchain-enabled forex, in the hope of speeding up and reducing cost of trading currencies.

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5 trends we’re watching this week

5 trends in finance this week

[alert type=yellow ]Every week at Tradestreaming, we’re tracking and analyzing the top trends impacting the finance industry. The following is a list of important things going on we think are worth paying attention to. For more in depth trendfollowing, subscribe to Tradestreaming’s newsletters .[/alert]

1. 5 things Goldman Sachs’ new online consumer bank is not (Tradestreaming): Goldman Sachs is pretty serious about growing its consumer banking. The bank has bought GE consumer banking business, hired some serious industry players to take the helm and now, Goldman has launched internet banking. Opening a GS bank account online with a $1 min could seriously appeal to the 99% who don’t bank with the firm. But the new online offering, well, isn’t much to write home about…

2. Could Apple be your next bank? (The Financial Brand): Is the opportunity to provide a better user interface for banking services a potential for Apple in the future? If so, what are the risks to the legacy banking system?

3. Slowdown in marketplace lending? Maybe, but digitization is on fire (Tradestreaming): The growth of marketplace lending is certainly slowing by most accounts. But contrasting all this talk about a slowdown in online lending, technology providers that service the industry are saying that they aren’t seeing any of it, though. That’s because they’re hard at work helping marketplace lending platforms securitize their offerings.

4. 6 awesome things hit show Billions says about today’s financial industry (Tradestreaming): Part of Billions’ appeal is its genuinely realistic portrayal of the financial industry: from the fleece vests traders wear, to the games played on the trading floor, to the lingo used discussing a trading idea in front of a Bloomberg machine. The show is amassing a strong following in the financial community and the show’s plot does a good idea highlighting nuances only industry insiders could pick up on

5. Christine Duhaime: Iran to take leading tech role as it rejoins the global finance community (Tradestreaming): The international business and finance community has identified an enormous market of opportunity in Iran, and believes the time is rapidly approaching that open trade is becoming a reality. Iran appears serious about building out a fintech hub. Christine Duhaime, who’s helping to connect the international finance community with the emerging country, provides her perspective on what’s going down.

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Is fintech really headed for a downturn?

corporate real estate financing big data

Is financial technology really deserving of the excitement surrounding it?

The easy answer is a clear “yes.” In terms of venture investment, the sector has exploded over the past four years, growing from $3 billion in 2012 to more than $19 billion in 2015 and $5.3 billion during Q1 2016 alone, a 67 percent increase over the same period last year.

As a result, the fintech world appears to be on a singular trajectory: ascendant. Roboadvisors are now estimated to manage about $19 billion in the United States alone. Marketplace lending is expected to reach $122 billion in originations by the year 2020, with some analysts predicting the sector could his $1 trillion by 2025. For at least the past 18 months, the news media has been flooded with stories and analysis about fintech startups “transforming” the finance industry.

Wall Street is paying attention

Even more significantly, finance industry incumbents like JP Morgan, Citi and Goldman Sachs have clearly taken notice, and have set technology on their radars: In March, JP Morgan Chase & Co. announced the establishment of an enormous, 125,000 square foot fintech hub on Manhattan’s West Side, and is expected to spend $3 billion on technology investments this year. Every major bank is working hard to study the use of blockchain technology. Goldman Sachs says it employs more engineers than Facebook. And the list goes on.

In short, there is plenty of reason to be optimistic for fintech professionals to feel confident about 2016 and the future.

Apple leads tech down

And yet, there are indications that the coming period could herald sobering times for the new darling of the technology world. Apple’s poor Q1, which marked the end of the company’s 13-year run of quarterly revenue growth, was not directly related to the finance world. But the company’s mobile payments platform Apple Pay has yet to offer meaningful revenue, and neither Apple Pay nor its android cousin, Samsung Pay, have had any real impact on the spending economy.

Furthrmore, the first quarter of the year saw a sharp drop in mergers and acquisitions over Q4 2015. And Tradestreaming has reported several times in recent weeks about a slowdown for marketplace lenders.

In addition, anecdotal evidence suggests that many working professionals have yet to connect to the world of technological finance. Asked whether new retirement savings tools meant anything to them, one Seattle, Washington couple told me they are not familiar with any online financial services and felt no need to move in that direction.

“It doesn’t really mean much to me,” said 44-year-old Becky Blixt. “My partner and I both have 401k plans with no fees.  I’m not familiar with web services like NerdWallet but we don’t need to use an app like that because we have most of our investments with Fidelity. Because we have over a certain amount, we have free financial advising services with them. We meet with a guy twice a year and talk retirement and investments. So the online stuff isn’t really relevant for us.”

Wall Street not fully listening

And then there is the reaction from finance sector incuments. One individual active on Wall Street said that for whatever lip service JP Morgan, Goldman Sachs and others may pay to fintech upstarts, in reality those reactions are little more than media statements intended for public consumption, but with little intent of altering their core businesses.

Even worse, some analysts say Wall Street is openly disparaging of the startup industry.

“Innovation in US fintech is not rewarded. It is considered suspect,” writes John Biggs, the East Coast Editor of TechCrunch and former editor of Gizmodo in Why US fintech is a joke. “Sure, there are folks out there trying mightily to change the way things work, but they are not being rewarded. Sit down and talk with some old-guard financial types and you will see that improvements to their creaking ships are unwanted and seen as too difficult or frightening to implement.

“Amazing ideas – ideas that will pull the banking industry out of the coming doldrums – are suspect,” Biggs concludes.

The numbers indicate they are correct: For example, take just one area, roboadvisory. The $19 billion in roboadvisor AUM is a tiny fraction of the $1.7 trillion currently under management by JP Morgan alone. Even if the industry fulfills expectations to expand to $1 trillion in the next decade, it will remain a poor cousin in comparison to the Wall Street. From that perspective, one could argue that there is little reason for JP Morgan or Goldman Sachs management to lose sleep over the challenges presented by Betterment or Wealthfront.

Quickly growing up

None of which indicates, of course, the the fintech sector is in trouble. Rather, the current trends in the industry are more likely explained by the ancient proverb “all beginnings are hard”. Yes, the fintech industry has experienced expansive growth in recent years, but at the end of the day, the sector is still in its infancy, or at least in early childhood. PayPal, one of the earliest successful fintechs, was founded in 1998, less than 20 years ago. In contrast, the genesis of the London Stock Exchange dates back more than 300 years to 1698, when John Castaing first issued a detailed list of market prices called “The Course of The Exchange and Other Things”.

The coming period, then, will likely be a time of growth and maturity for the fintech industry. It remains to be seen how banks, asset management firms, credit card companies and other finance professions will respond to the challenges presented by fintech startups.

But it is clear that they will respond in some fashion, either by outsourcing services to technology companies, purchasing or licensing new technologies and services, or developing in-house solutions to serve customers and maximize profits. That process could mean a short term search for the right path forward, but in the long-term, it should lead to a more mature industry with the ability to maximize profits as well as to serve an ever-broadening clientele.

Photo credit: CJS*64 “Man with a camera” via VisualHunt / CC BY-ND

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5 things Goldman Sachs’ new online consumer bank is not

Goldman Sachs launches online consumer bank

Goldman Sachs announcement that the investment bank would begin offering low-cost, interest-bearing online savings accounts was met with excitement around the financial sector. It isn’t every day, after all, that a major Wall Street firm with a multi-million dollar minimum opening balance requirement opens its services to the masses.

The online offering, GS Bank, will expand the bank’s purview by offering FDIC-insured accounts with no minimum balance and an annual yield of 1.05 percent, significantly higher than the average of 0.6 percent APY that is currently the U.S. average. But for ordinary individuals looking for a taste of exclusive Wall Street banking, GS Bank will likely disappoint.

Here are five things that GS Bank is not:

GS Bank is not a full-service bank.

Apart from a one dollar minimum balance to earn interest, there is little to attract everyday customers to the online bank. The offering lacks some basic 21st century banking services, like online bill pay or mobile check deposits. Checks can only be deposited by putting them in an envelope and mailing them, and there are no check writing options or ATM cards available.

GS Bank is not easy to use

Furthermore, Forbes’ contributor Rob Berger said the Goldman offering’s customer service “gets the lowest mark possible,” based on a telephone call to the bank that resulted in a useless IVR system that eventually hung up on him rather than transfer the call to a human operator. WSJ’s John Carney had it even worse, calling the experience “very much a throwback to the worst days of bank customer service. I was put on hold for over 20 minutes, something that hasn’t happened to me in dealing with a bank in over a decade. The very polite, very apologetic woman on the other end of the line told me that she couldn’t help me at all. The best I could hope for was to try again on the website.”

GS Bank is not Goldman’s first foray into consumer banking for the masses

During the 2008 financial crisis, Goldman Sachs restructured itself to become the fourth largest Bank Holding Company in the U.S. and by doing so, gained access to permanent liquidity and funding in the form of consumer deposits. “But as we see revenues going down for trading, (and) other restrictions on banks, this is another really good source of revenue and they are really following the money here,”said Nicole Sinclair, Markets Correspondent for Yahoo! Finance. “I mean, Goldman is a smart business, this isn’t them being benevolent and philanthropic to the masses and opening their doors. They see this as an important investment.”

GS Bank is not about making money from lending cash to individual savings accounts holders

Goldman Sachs grows its deposits

GS Bank doesn’t appear to be geared to become a big lender. It could be down the line, though — the team behind GS Bank is also working on launching an online lending platform. “[But right now], the move was timed to reflect upcoming U.S. rules governing bank liquidity,” said Bloomberg’s Yalman Onaran. “The model for that is to get institutional lenders to back the loans, but this way you could collect savings from online and use those as well.”

Onaran added that liquidity rules expected to be released soon are going to force banks to retain extremely liquid assets. “So going into deposits more and more helps them become more like their big brothers, looking at JP Morgan and Wells Fargo — Those guys have trillions of dollars in deposits. And those have gone up a lot, too — before the 2008 crisis they were half the size.”

GS Bank is not available outside the United States

Site regulations specify that account holders must maintain a US physical address and social security number.