Goldman Sachs' strategy chief has hyped a plug-and-play approach to winning more Big Tech partnerships - and talks with Amazon are highlighting those ambitions
- Goldman Sachs is in talks with Amazon about providing small-business loans to merchants who sell products on Amazon's retail platform, according to a person with knowledge of them. The talks were first reported by the Financial Times on Monday.
- The partnership would be the second inked by Goldman with a large technology firm that can provide the scale and distribution for Goldman's products that it can't get itself.
- The partnership, and another one with Apple, is an example of banking-as-a-service, though some insiders have taken to calling it Goldman Sachs-as-a-service.
- "If Goldman can pull off an embedded banking deal somewhere else besides Apple Pay ... that's a leading indicator of a fundamental change in retail banking," according to independent consultant Richard Crone.
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Goldman Sachs is close to inking a second high-profile deal to offer banking services in partnership with a large tech company, and it's a sign of what may be a fundamental change in retail banking.
Goldman is in talks with Amazon to offer small business loans to merchants who sell products on Amazon, according to a person with knowledge of the discussion. The Financial Times first reported the talks on Monday. Goldman's small business loans may feature the bank's name and begin as soon as March, the newspaper said.
A spokesman for the bank declined to comment.
If the deal is signed, it would become the second Big Tech partnership for Goldman Sachs after it launched a credit card last year with Apple last year. Goldman CEO David Solomon has called the Apple Card the most successful credit card launch of all time, without providing details to back up the claim.
But it would also be a sign of something much more ambitious: Goldman Sachs moving quickly and aggressively to leverage those characteristics that make it uniquely a bank, with a license that allows it to offer banking products and a balance sheet where it can fund loans cheaply being just two prominent examples.
The company has been sinking hundreds of millions of dollars into building out its technology capabilities, including APIs (application programming interfaces), to make it as easy and seamless to plug such services into the technology platforms of others, whether that's Apple's mobile devices, as with the Apple Card, or Amazon's retail platform.
At an investor day last week, execs referred to it as banking-as-a-service, but some insiders have taken to calling it Goldman Sachs-as-a-service.
Stephanie Cohen, Goldman's chief strategy officer, appeared on stage last week at the bank's investor day alongside Marco Argenti, the co-chief information officer who recently joined the bank after several years as a senior exec at Amazon Web Services.
Cohen said the bank is looking for ways to use technology to embed the types of things that Goldman can do well, such as risk management, or loan underwriting.
Cohen cited the Apple Card, which is a Goldman-designed product delivered on Apple's devices, as one such example.
"That last capability is the consumer version of our platform strategy," Cohen said. "It allows us to take products and services that we build for our own clients and then give it to other clients so that they can embed financial products into their ecosystem. This strategy will drive top-line growth, and it will create scale efficiencies."
Goldman isn't the only large bank that's working with Big Tech companies. In November, Google announced a partnership with Citigroup to provide checking accounts to the tech firm's customers.
And yet, Goldman is probably doing it better than anyone because it has developed a suite of APIs that it can take off the shelf and plug into other platforms, according to Richard Crone, an independent consultant.
"Goldman Sachs, when they write the history books, will be noted as the one who invented or perfected embedded banking, where you embed your financial services through the user interface, or at the edge, of someone else's network," Crone said. "If Goldman can get this right with Amazon, I would expect them to go to Facebook next or any other online platform of substance that provides them a large distribution channel."
Goldman is leaning on many of the lessons it learned in its partnership with Apple, known as an incredibly demanding partner, Crone said. Most notably, the ability to offer instant issuance to a set of customers that have already been pre-validated, multi-factor authenticated, Know-Your-Customer credentialed by the large tech firms.
"They already know the customer, but they have met the regulatory requirement in advance before they hand it over," he said.
The product will likely look similar to what small merchants are getting from Square Cash or PayPal Working Capital.
Goldman has bigger ambitions. At last week's investor day, the bank presented a slide that showed a product called Marcus Pay, which talked about point-of-sale solutions for merchants based on its digital consumer bank.
This is just another example of how embedded banking is here to stay, which can be hard for a lot of bankers to understand because they want to service customers through their own app, Crone said.
But "no financial institution can reach the scale that's required to compete electronically" with the large platforms if they only do it through their own app, he said.
"If Goldman can pull off an embedded banking deal somewhere else besides Apple Pay, or if Citigroup can pull off Google Cache, that's a leading indicator of a fundamental change in retail banking."
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