It's all change at Goldman Sachs as the storied investment bank looks to its new Marcus app as the Trojan Horse to better access an exuberant consumer lending marketplace. One clear sign of the new thinking is the very fact of holding an investor day, the first in the firm's history. Executives at Wednesday's presentation described a new strategy to treble its consumer bank's card and consumer loan balances (to over $20 billion by 2025) in tandem with a deposits target of $125 billion, double the current figure. The company envisages expanding its digital offering to include current accounts, cutting-edge budgeting tools and powerful financial management features. "We're trying to deliver a retail bank branch through your phone," said the chief operating officer. Building on its experience with the Apple Card, more cobranded credit cards appear to be in the works as well. Less than 2.5 percent of Goldman's annual revenue comes from the consumer bank at present.
A Bloomberg report that JPMorgan Chase is cutting hundreds of jobs in its consumer unit is also symptomatic of the changes underway in American banking: although the unit's revenue (through consumer banking, credit cards, mortgages and vehicle loans) equals that of the rest of the group, the firm is positioning itself for a battle that will take place on screen rather than in branch. And the ever-swelling ranks of competitors chasing that business is no longer just domestic: fast-growing neobank N26 now counts five million customers worldwide, of which a quarter of a million are in the United States, and British challenger Monzo is reportedly in talks for a SoftBank investment to boost its US expansion. Small players with a population of this size, but in a market catching up with Europe and Asia when it comes to payments digitalisation, such propositions may well sway tens of millions of younger consumers in no time flat.
American Express has gone to extraordinary lengths to extend acceptance in its home market and has now reaped the reward of being able to safely claim that coverage in the United States is currently on a par with Mastercard and Visa in the bricks-and-mortar world: "virtual parity" is the term used by the company's chief executive officer, Steve Squeri. In 2019, an impressive one million merchants joined the network, drawn by no-strings-attached sign-on bonuses and assurances to match bigger rivals when it came to fees. "Amex have had to rethink their business model with their traditional leadership in a premium rewards space gradually being eroded by rivals", commented David Hickey of Verisk Financial Research. "More widespread acceptance should help to increase share of wallet among existing customers while also making them more attractive to new customers."
The perennial fees/interest seesaw was brought into sharp relief in the United Kingdom this week as banks adjusted overdraft interest rates in the wake of compliance with new regulations concerning fees. Of the big banks' rates, the highest (49.9 percent) appears to be for certain customers of Lloyds Banking Group (which includes Lloyds, Bank of Scotland and Halifax) although the majority of accountholders would be subject to ten percent less, in line with rates announced by HSBC and Santander. According to Lloyds, the changes mean that 90 percent of its customers availing of an overdraft will pay less than they did before the changes. The Guardian usefully sums up the context: "The new industry rules have been brought in by the Financial Conduct Authority after it said the overdraft market was 'dysfunctional'. The rules stop higher prices being charged for unauthorised overdrafts than for authorised ones, banning fixed daily or monthly fees for borrowing in this way. Instead banks have to price overdrafts using a simple annual interest rate ".
One of Europe's biggest banks, Santander, appears to have its operations in Mexico and Brazil to thank for broadly positive fourth-quarter results. Its two main markets, Spain and Britain, have been doing business in tough conditions, especially when it comes to interest rates. Deutsche Bank, still unable to break its dismal run over recent years, posted a 2019 loss of €5.4 billion ($6bn), reflecting the pain of pivoting away from investment banking. As our new market report for Germany points out, Deutsche plans to have invested $14.9 billion in technology by 2022, echoing the Goldman Sachs strategy that was described above. Meanwhile, the ECB's softening stance, by way of informal regulatory signals, on bank mergers in the Eurozone should cheer the mood in boardrooms across the continent.
To end, links to some other stories of interest this week...
The Weekly News Digest from Argus Advisory Research highlights significant developments in payment cards, digital payments, acquiring, processing, retail banking and consumer credit. Our writers and researchers frame these items in contexts such as historical, sectoral and regional trends, adding a layer of value often missing from the rolling news cycle.
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