Last week, I wrote about Goldman Sachs' (NYSE: GS) attempts to refurbish its image in light of the Great Recession and growing anti-Wall Street sentiment. At the forefront of this movement is Chief Information Officer R. Martin Chavez, who is eradicating Goldman's cutthroat Wall Street reputation by urging other key executives to become more inclusive. More importantly, Chavez is using his Silicon Valley savvy to revamp Goldman's trading technology.
This week, I'm reporting on Goldman's (NYSE: GS) most recent effort to appeal to the "common man". It used to be that one needed $10 million to become a Goldman Sachs' customer. But now,the tiny saver, even someone with just $1, can use Goldman's old-fashioned, deposit-taking bank.
Put short, GS Bank, Goldman's new deposit-taking bank, is drowning in friendly, "peace-of-mind" features meant for ordinary Americans -- "a clientele the company scrupulously avoided during the first 147 years of its history, favoring instead tycoons and plutocrats."
While this deviates from Goldman norm (per the bias toward them), the actual business trend is widespread within the banking industry-- as traditional profit-seeking operations for marquee banking giants slump in response to deal-crippling post-2008 financial regulations, Wall Street's elite are looking for new ways to make money. Deal making, Wall Street's traditional expertise, is no longer producing enough revenue. Consequently, focus has shifted from high-powered bond trading desks (which were profitable pre-crisis, not as much anymore) toward other business opportunities, such as Goldman's recent entry to the retail banking market.
Just since last year, Goldman executives plan to introduce 401(k) accounts, loans for people ridden with credit card debt, and extremely accessible investment funds available to anyone with an E-Trade account. All these services are online-exclusive, which Goldman points to as an advantage -- they dodge the financial liability of operating traditional branches and tellers.
Many within the industry believe it'll be a tough feat for a bank as notoriously cozy with Wall Street greed as Goldman to win over Americans. Some disagree, saying "Goldman Sachs is the Nike of finance... [their] foray into banking is very, very positive".
Whatever the case, to combat Americans' negative pre-existing bias, GS Bank is laden with features that dwarf industry norms. For instance, GS Bank offers 1.05% interest on savings accounts, far superior to the 0.54% industry standard.
Essentially, GS Bank will offer average Americans safe and secure financial products at a discounted price. For example, they will offer a lending product for people who need personal loans in the $15,000-$25,000 range (pretty rare for the personal banking industry), low-cost exchange-traded funds, and inexpensive accounts for retirement savings (to accommodate freelancers and the ever-prevalent "gig" economy).
When Goldman was forced to have a federally insured bank as a condition of receiving bailout funds during the Great Recession,the contingency was perceived as a nuisance. Yet recently, the addition of a federally insured bank is seen as one of Goldman's brighter business opportunities.
In the first few weeks GS Bank opened its doors (or I guess, opened its webpage), tens of thousands of new accounts were opened, in addition to 150,000 accounts acquired from GE Capital. Quick reminder, Goldman bought the banking sector of GE's financial services subsidy earlier this year, obtaining some $16 billion worth of deposits in the process.
As somewhat expected for an industry newcomer -- but perhaps not for an entity as gargantuan as Goldman--thus far, GS Bank has lacked the infrastructural capacity to absorb tens of thousands of new accounts. The human elements of retail banking, such as customer service, are vital to Goldman's success. Currently, they clearly lack the necessary customer service infrastructure, having a mere 50-person call center in Cedar Rapids Iowa.
But Goldman is betting on its revamped trading technology to ease the transition with GS Bank. They believe banks have moved away from a business model based on face-to-face relationships at branches, and instead look toward a future reliant on smartphones and sophisticated software (the latter in which Goldman has heavily invested).