Goldman Sachs has launched a transaction bank in Britain as the global investment bank steps up its move into banking as a service.
Like many of its rivals, including JP Morgan and Morgan Stanley, Goldman is seemingly keen to get a toehold in the potentially profitable British banking landscape.
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“The growth of this business has exceeded our estimates and we are very excited to bring transaction banking to the UK to expand our client reach and streamline banking for multinational corporations with a presence in the US and the UK,” said Hari Moorthy, Goldman’s transaction banking global head.
The Wall Street bank launched its transaction banking platform in the US last year.
Goldman Sachs is getting a late start in the transaction banking business, but its lean all-digital platform and its muscular relationships could help the 150-year-old financial behemoth claim a prize in the heated corporate finance race.
Transaction banking, including cash management and trade finance, has long been a revenue workhorse for banks, despite paying lower margins than traditional investment banking.
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By GlobalDataLess trading and increased volatility have prompted banks to offer corporates faster payments, cost management and intelligent data for more predictable growth.
“Transaction banking is a source for incremental revenue,” says Brian Kleinhanzl, managing director at Keefe, Bruyette & Woods.
“One of the reasons why banks want to go into this business is because customers are sticky and they tend to stay there,” he says.
Goldman is vying for a small but solid footprint in a fragmented market
In the US, Goldman Sachs says it is targeting $1bn in revenues and $50bn in deposit balances in the first five years from the launch of its transaction banking platform, planned for the second quarter for the US market.
Goldman is focused on a small target, compared with leading players like Citigroup, Bank of America and JPMorgan Chase, whose global treasury services generated $10.3bn, $8.6bn and $8.5bn revenues in 2019.
Seizing a 1% share of a fragmented $80bn market where other big players have 6% or 7% will yield positive returns, the bank says.
“I think we have a right, given our corporate relationships, to participate for a portion of that business,” CEO David Solomon said at a Credit Suisse financial services forum last year.
The competitive landscape
There are currently three main entrants in the BaaS space.
- Fintechs. These players are likely to provide a modern platform but usually work with a banking partner.
- Regional banks. Smaller banks are offering BaaS directly.
- Large banks. As incumbents in the transaction banking business, these players have the banking licenses and the compliance, regulatory and legal expertise. They have deep expertise about how to manage a balance sheet but often lack the modern technology platform.
Where does Goldman Sachs’ transaction banking fit in this competitive landscape?
“We believe that we have certain advantages against players in each of these categories,” says managing director, head of engineering, transaction banking.
“Our fintech-like platform gives us better technology than the large banks, and our banking expertise gives us financial capabilities that the small banks and fintechs can’t offer. It’s a best of both worlds proposition that very few of our competitors—if any—can match.”
