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Goldman eyes a slice of the UK’s BaaS market

Everybody wants a slice of the Banking-as-a-Service pie at the moment, and Goldman Sachs is no exception, with the investment banking giant today (June 21) announcing the launch of its new digital cash management and treasury service offering in the UK, on the back of a successful 2020 launch in the US.

Goldman Sachs claims to have taken $35 billion in deposits from 250 clients and processed trillions of dollars via its so-called Transaction Banking (TxB) digital platform in the US. It aims to build the API-centric platform up to support 125 currencies, deposit accounts, escrow services, liquidity solutions, full file and API connectivity and payroll, with the aim of grabbing market share through a slick digital interface and the ability to open accounts within minutes. The bank is targeting corporate and institutional clients in the UK.

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TxB exposes a set of RESTful APIs to help clients create virtual accounts, originate and track payments, retrieve activity about their accounts, and manage incoming payments. The bank is eyeing two key use cases:

  1. Software companies that want to tap Goldman’s financial infrastructure and the SaaS platform to build native payments and banking experiences into their own customer facing applications; incl. to let business clients make payments, manage liquidity, and track FX rates in their own app.
  2. Treasury Clients who want to use the APIs to leapfrog over the challenge of their own legacy stack and build their “treasury of the future”, incl. payment execution and reconciliation automation, liquidity tracking and forecasting, FX risk management. (It’s also offering the ability for treasurers or product teams to build payments into their offering without necessarily establishing a TxB deposit account.”)

See also: Dr Louise Beaumont: Financial services has long been a “fat complacent oligopoly with zero innovation”

The bank — branching out further from its core trading and advisory businesses — has not been shy about how and why it aims to be able to compete in the segment. As Luc Teboul, Head of Engineering, Transaction Banking, put it in an earlier blog: “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 nonetheless an increasingly competitive space, as fintechs and banks alike throw technology budget at platforms designed to let customers white label a host of banking services that they can deploy across their own product suites. In theory, it’s a high-margin business. In reality, it’s still an emerging and cluttered one — though few would bet against Goldman, with its depth of software expertise, banking experience and budget.

Hari Moorthy, global head of TxB, said: “We set a mission to provide a global transaction banking platform that is secure, easy to use, and nimble to help our clients run and grow their businesses. The growth of this business has exceeded our estimates and we are very excited to bring TxB to the UK to expand our client reach and streamline banking for multinational corporations with a presence in the US and the UK.”

Jim Esposito, Global Co-Head of the Investment Banking Division at Goldman Sachs added in a canned statement: “We heard consistent feedback that there was scope to improve the cash management and payment processing set of services. Goldman Sachs is uniquely positioned to disrupt this market building on over 150 years of financial and risk management experience, yet unencumbered by legacy banking infrastructure. We see huge potential to grow this business in the UK and globally”.

Goldman Sachs Banking-as-a-Service: Launch forms part of a big trend…

As McKinsey’s Zac Townsend noted earlier this year, VCs like Angela Strange at Andreessen Horowitz and Matt Harris at Bain Capital Ventures, have for years encouraged their companies to consider embedded finance as a key monetisation lever, by “making every company a fintech company.”

As Townsend noted: “Today, companies of all types and levels of maturity—including retailers, telcos, big techs and software companies, car manufacturers, insurance providers, and logistics firms—are considering and preparing to launch embedded financial services to serve business and consumer segments. For customers, the appeal is ease of use: a small business can get a bank account from its accounting software, or a consumer can pay via the retailer.”

With the regulatory bar to becoming a full-fledged bank too high for many technology companies, the ability to embed BaaS capabilities from an experienced bank — that has managed to build a user-friendly and developer-friendly platform — into their offering will continue to look attractive, as the financial services ecosystem continues to morph into a far more fluid network of relationships.

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