When Goldman Sachs launched Marcus in 2016 and jumped into consumer finance, it generated high hopes and a few questions. Could a storied brand that catered to the elite reach the lowly consumer? Would losses doom the project? Would the bankers strangle the hungry fledgling? Six years later, as it announces Marcus is being scaled back, the answer to all three is yes.
Marcus was Goldman’s bold bid to build a new revenue stream that was less volatile than the firm’s trading and advisory businesses. Unlike Goldman’s old partnership structure, where weathering business cycles was the norm, public shareholders wanted steady revenue and profits. Credit cards, mortgages and other consumer products helped prop up earnings at J.P. Morgan and Bank of America, so why not do the same at Goldman, the thinking went.
But consumer lending is a tough business. There are few barriers to entry, there’s a constant need for technology and marketing cash to attract and keep customers, and the credit cycle can vaporize profits quickly. Few of Goldman’s other business have such risks, so perhaps it misread just how hard consumer lending would be.
Still, it’s easy to overlook how much the firm got right. It came up with a brilliant brand that artfully bridged the history of the firm and its aspirations for the future. Marcus was just recognizable enough as part of Goldman to borrow its sheen of stability but still stood apart from it. And while few bankers would admit it, the breezy and irreverent Marcus marketing campaigns gave all of Goldman a lift.
Once Marcus launched, of course, it silenced the doubters by gathering deposits at a rapid pace, providing a low-cost and stable funding source for the firm. In just five years, Marcus could boast of having “nearly eight million customers, $100 billion in deposits, nearly $10 billion in card and loan balances, $1.5 billion in run rate revenue, two J.D. Power wins and partnerships with the top brands in the world including Apple, Amazon, Walmart, JetBlue, AARP, General Motors and more.” Those are impressive achievements.
Yet for all its success, Marcus could never overcome the cultural tensions with Goldman’s traditional investment banking business, where competitors are few and the Goldman brand commands premium fees. In market lulls, costs are quickly trimmed, mainly by cutting pay and firing staff. Losses are not long tolerated.
But Marcus never reached profitability, and its annual losses began to weigh on the firm and its shareholders. Goldman’s do-it-yourself approach, initially seen as an advantage, became a weakness. Battalions of coders, data analysts and IT specialists gave Marcus a fresh look and flexibility, especially when compared to mundane brick-and-mortar lenders, but they were expensive.
Communication slip-ups didn’t help, either. After missing a 2021 deadline for a Marcus checking account, CEO David Solomon simply stopped mentioning it. In investor presentations, timetables and milestones for the business were fuzzy.
The success of competitors who adopted different strategies probably was also a factor in Goldman’s move to throttle back Marcus. Morgan Stanley made a series of acquisitions to bulk up its recurring revenue, mainly in asset management, buying Eaton Vance and e-Trade. The market liked the result, rewarding Morgan Stanley with a higher valuation multiple than Goldman. That surely annoyed the chiefs at 200 West Street.
By folding Marcus into other Goldman divisions, CEO David Solomon has bought some time and may have created an environment where the consumer business can thrive. Time will tell, and investors will be watching closely.