- Goldman Sachs will begin offering transaction banking services in the U.K. this week, the Financial Times reported Monday.
- The bank said in a 2020 Investor Day presentation it wants to rely more heavily on transaction banking — the business of moving money around the world for large companies through services such as cash management and treasury. It launched transaction banking in the U.S. last June and, in the intervening year, attracted 250 clients and $35 billion in deposits, the bank said Monday in a release.
- The move comes two weeks after Goldman and Visa signed a deal to give the bank’s corporate and commercial clients a cross-border payment upgrade — in the form of access to the card network’s channels.
By entrenching itself in transaction banking, Goldman could find a more stable revenue anchor in commercial banking to offset the volatility it might find in trading.
However, that will mean wresting business away from banks such as Citi, JPMorgan Chase and HSBC, which already have deep reach in a global cash management market that sees $26 billion in annual revenue shared among its top 10 participants.
What Goldman lacks in market presence, it may make up in speed. It boasts a proprietary TxB technology platform the bank says can open accounts in minutes instead of months.
“When we scoped the opportunity, what you hear loudly from clients is that it is a very fragmented market, relying on dated and legacy stacks of tech,” Jim Esposito, Goldman’s global co-head of investment banking, told the Financial Times.
The bank could lean heavily on partnerships such as one with Stripe to provide treasury services in the U.S. — and, yes, Visa.
Goldman said last year that it expected a $1 billion pretax loss from its consumer and transaction banking ventures but was confident those segments could yield $1 billion in annual revenue by 2025. The bank’s first-year transaction banking numbers in the U.S. put it well ahead of a five-year goal to draw in $50 billion in client money and win $1 billion in new revenue.
“Over the years we have generated zero revenues in transaction banking,” Esposito told the Financial Times. “In the next decades, there is a revenue opportunity measured in multiple billions for the firm, if we get this right.”
The U.K. has also served as a springboard and testing ground for U.S. banks’ international efforts. Goldman launched its digital bank, Marcus, in the U.K. in 2018.
JPMorgan Chase, too, has targeted Britain as a spot for international growth. It acknowledged in January it planned to roll out its own digital banking effort in the U.K. in the “coming months.” The bank, then, last week agreed to buy British digital wealth management platform Nutmeg for a reported £700 million ($972.8 million).
Goldman’s transaction bank employs about 100 people in the U.K. and is hiring, the Financial Times reported. It plans to expand to several European countries this year. The bank wants to offer payments in more than 125 currencies, deposit accounts, escrow services, liquidity solutions and payroll, Goldman said in a Monday press release.
“The growth of this business has exceeded our estimates and we are very excited to … expand our client reach and streamline banking for multinational corporations with a presence in the U.S. and the U.K.,” Hari Moorthy, the bank’s global head of TxB, said in a statement.
“The U.K. has a transaction banking wallet of $20 billion to $30 billion, and with our new tech and existing relationships, we can make a significant penetration into this market over time,” he said.
Another Goldman transaction banking executive, Eduardo Vergara, told Bloomberg this month that cross-border payments were the pain point that generated the most vocal client dissatisfaction.
To that end, Goldman plans to use Visa’s direct-payouts capabilities so its corporate clients can send smaller, higher-volume payments to their end customers across borders.
“From Goldman’s standpoint, it significantly simplifies the process,” Visa CFO Vasant Prabhu said.
If it appears that Goldman and JPMorgan’s moves this month to expand in the U.K. are tantamount to an arms race, JPMorgan isn’t lingering on it but is adding to its arsenal elsewhere. The bank’s asset-management arm agreed Monday to buy forest investor Campbell Global in a move to capture more of the carbon-offset market. The bank is also reinvesting in an electronic clearinghouse for private-label mortgages.