Name: Brainstorm Finance 2019: Goldman Sachs Breaks Into the Consumer Business for the First Time
Uploaded: 2019-06-20
Duration: 15 min 8 s
Description: “Our purpose is to disrupt the distribution and consumption of financial services,” says Harit Talwar.

Let us start at the very beginning. It is, it is, it is unusual that Goldman Sachs has never been in the consumer business, and its entire 100 something year history. 150 years. 150, and now, you have only recently decided to do it. What is Marcus? So Marcus's Goldman's global consumer business. Our purpose is to disrupt the distribution and consumption of financial services. Pretty much what Amazon has done and is doing to retail Or what Apple did to the music industry? We believe we can do that and we are early days. This is our third year. We have 4 million customers. We have Close to $ 50 billion in deposits. In fact, we should be hitting $ 50 billion in the next few hours okay or maybe by tomorrow. We've announced as you said Eco Brand with Apple. We purchased clarity money. Which is a series of very forward leaning personal financial management tools to be the consumer's advocate which we are planning to rebrand into Marcus over the next few quarters. And all of this we have done without a single branch. 4 million customers 50 billion in deposits for 5 billion in loans. No branch. Now I want to make sure everybody heard something that hurt said and pause for a moment. You're you're starting a brand new thing and you're not merely hoping it's going to have some success. You're hoping that it's gonna do for banking. What Amazon did for retailing and what Apple did for Music Music. That is a huge aspiration. That is true. And as I said, our thesis is that true innovation is in the distribution and consumption experience. So for example, the diapers a mom buys from Duane Reade in New York City or the diapers she buys from Amazon are the same diapers. Or when iTunes started, now there's some original content. It's not that Bob Dylan started singing new songs for I tunes it's the same song yeah but the distribution and consumption expedience is different when you're buying from Amazon you believe you'll get value. It's easy it's simple it's transparent it's repeatable. And you do it from your living room or family room and you don't have to walk. Till just a few years ago, the peak shopping hour used to be four o'clock in the afternoon in a mall. The peak shopping hour now is At 9 PM, after the mom and dad have put the kids to bed and they are surfing the net. And your point is that people don't need to bank during banker hours either. Okay. You said you have no branches, which makes you a challenger bank which is the expression we've been using this morning. So, fascinating. Goldman Sachs is a challenger bank. And banks typically have many many products. Wells Fargo used to brag about how many different products it would cross- sell you. And until you launch with Apple you have one product. Tell everybody what it is, and why just one. Well we have more than one product. We have personal loans between where we give an unsecured personal loan from $ 3, 500 to $ 40, 000. We have savings accounts in CDs. We have a CDs of money management tools, what we call the person financial management tools. And now we have the credit card. But the important thing is, so when we look at the consumer financial services business We're very, very, very focused on making life easy for the consumer and building a business which is attractive for the shareholder. What consumers want is simple, transparent, not complex. That's what they get from the banking industry as a whole. And when they see complexity they lose trust. You know 70 % plus of millennials would rather visit their dentist than the bank branch. [ LAUGHTER ]. And that's a pretty low bar, okay? And it's actually sad. Those are the, 60 % of the consumers in America don't trust their bank or credit card company. What is your breakdown of Millenials versus Gen- X and Boomers? We've got it across the range, both in our savings and in our lending business. But I would say, typical customers are more in the 30- plus 30 plus years of age now trust is interesting your Goldman Sachs newcomer. You knew when you came in the Goldman had reputation issues in the general public and so trust is important. You created a new brand rather than saying Goldman Sachs your Marcus by Goldman Sachs. So we have a proud of our branding decision and it was led by consumer research before we had a single customer. We had spoke via. Got research feedback from more than 10, 000 consumers. And what we found was Marcus by Goldman Sachs was the best of both worlds. The new name, Marcus, denoted energy freshness, and by Goldman Sachs gave it gravitas because It's an online space, you're taking people's social security number you need trust. What we also found out is that yes, some people like Goldman Sachs, some people don't like Goldman Sachs, but almost everybody likes to do business with Goldman Sachs. So by Goldman Sachs is very important. So is Marcus now it so happens that Marcus was a founder. Marcus Goldman? Marcus Goldman was a founder. Not that we expect the consumer to know that, but that has also created a lot of emotional appeal inside the firm. That 150 years later, one of the most innovative things we do, and we go back and name it after a founder. I think that's pretty unique. Agreed, and you're being very open about this desire to be seen as a startup inside of this old, perhaps, [ UNKNOWN ] bank. You have a sign in your office by the snack bar that says, Goldman snacks. You threw out the Goldman dress code. Give me one example of how Marcus's culture is affecting Goldman Sachs's culture. So first of all we think of ourselves as 150 year old startup. And we are very proud of our heritage of being Goldman. We're also very proud of doing something new and innovative. So from a culture aspect there are lots of stories written about us on our floor. We wear jeans and all birds and sneakers and more and more floors are in the Goldman building, looking like that. But I think what I would talk about is Agile technology development. Everything we do is Agile. And that's something which the form has embraced and more and more technology development outside markets In the firm is now being done in an agile way rather than the old waterfall way. That I think is great. We've been very blessed also by, on the culture aspect, by the talent we have. And I do think, I know I am biased, we have the best talent in the industry. You're talking about at Marcus. At Marcus. And at Goldman, too. [ LAUGH ] Good save. In Marcus, a third of our team is from within Goldman. These are talented bankers, private equity investors, traders who raised their hand and wanted to be in a start- up One third of the normal consumer industry, AMEX, Discover, Cap One, Chase, Bank of America, etc. And a third are from non- traditional, or I would say Google, Apple, Facebook, Amazon, Victoria Secret, Michael Kors, Gatorade, etc. And the amalgamation of this talent Is what I think it's one of our special [ INAUDIBLE ]. Fair to say these are unusual people walking around the halls of Goldman Sachs, or would have been viewed as unusual earlier. They are very much Goldman Sachs now. [ LAUGH ] Okay we skipped over one important point, which is, talk about the fees that you charge customers and why the Goldman Sachs balance sheet is part of your answer to that question. So the fee we charge to the consumers is a big number called zero. So for example in our loans business, no prepayment fee, no origination fee, no late fee in our card that we've announced as Apple made the announcement in the features which are there on the site No fees. In deposits, savings accounts, no fees. The reason is we are a balance sheet player, as you said. In fact, some customers were so incredulous when we launched loans that there are no fees, we have a section on the side saying, how do we make money? How do you make money? We make money on net interest margins. And that's extremely old fashioned isn't it? It is extremely consumer friendly [ LAUGH ]. And the reason we can do that as Urightly said is, we have a unique structural competitive advantage. We're in a category of one, we're the only large bank. Which doesn't have a legacy consumer business, legacy technology, legacy branch network. We can start fresh. And unlike the fintechs, we have a balance sheet. We have a risk management DNA and we have a brand. And it is that duality which is very important. And then the trick is how do you translate that competitive advantage into consumer benefit. So to give one example, most places if you want a loan, they so okay this is the loan amount, this is the interest rate and this is the period of loan. Three year loan, five year loan. Consumer insights shows us that not how consumers think. Consumers think, I want a $ 10, 000 loan. I can afford to pay $ 300 a month. The period of the loan should be an output, not an input. To do that you'll have to have modern technology which the old banks don't have. But to do that you need to have your balance sheet so that you don't have to securitize loans into three year tranches and five year tranches, which the fintechs don't have. So that's a small example of using the competitive advantage we have towards consumer benefit. And so I just want to repeat a point to make sure I understand it, which is that on these up to $ 40, 000 personal loans. Which are primarily for people who want to, perhaps counterintuitively, reduce their debt, or they wanna do personal restructuring of their debt. Yes, correct. Goldman Sachs is taking all of the risk. Yes, we are in the lending business. We are taking risk The way you emphasize all, I don't like that word. I think we take risk in a responsible way. You're not securitizing it, and you're also not getting help from a government agency, to de- risk the loan- No. Which is what the banking industry does. Yeah, but they do that for mortgages, but most banks Take the risk themselves on the lending of unsecured personal loans. But I do want to point out we take a role of being a responsible lender very seriously. So it's no accident that we have $ 5 billion of loans, but we have close to $ 50 billion of deposits. And we're gonna end with Apple, but I wanna see if anybody has a question before I do? [ BLANK_AUDIO ] They are rapt by what you're saying, and that's fine. You and Apple Announced that you're gonna be partners on a credit card. Yes. Called the Apple card? Apple card. Apple card, and that it's going to be released in the summer. Yes. Harod, it is the summer. And it will be released this summer. [ LAUGH ] [ LAUGH ] You could have issued a credit card on your own at launch. You didn't? Why now? And with Apple, We are delighted to partner with Apple. We announced Apple announced the apple card in March. You know the feature Of the card there on the website. And just remind somebody remind everyone some of the unique characteristics of the features. I think the apple card is uniquely integrated into the apple ecosystem. It is the best card perhaps to use with the iPhone. It is a card which as Apple has said [ BLANK_AUDIO ] Helps consumers manage spending and borrowing in a far more responsible way. It has a ton of features. It is about ease and convenience and being on the side of the consumer. And we both have said we will launch this summer, as far as Last I heard, it's still summer. And we were launching the summer. Very last, very last question. Tell everybody briefly how you market Marcus. And I'm interested. I'm assuming that will inform at least a little bit of how you plan to market the Apple card. Yeah, it may or may not inform, but the way we are marketing markers is that it pretty much the way one would expect. Most of our marketing is digital. We are in most digital social media properties, all the way from a YouTube to an Instagram. And It's pretty much, the important thing is there is no face to face distribution and marketing. There's no branch based marketing and distribution. Therefore our cost structure is lower, and that gives us the ability to give better value for the consumer. Harry, given everyone that that we've had at this event, it is so important to us to have Marcus by Goldman and Sax's here. Yes. Thank you so much. Thank you very much. [ APPLAUSE ]

Brainstorm Finance 2019: Goldman Sachs Breaks Into the Consumer Business for the First Time

Finance

“Our purpose is to disrupt the distribution and consumption of financial services,” says Harit Talwar. 