Take a stroll back in time with me. It was a simpler time. It was an easier time. It was February. In the February 24, 2020, edition of Bankers Digest, I declared that the era of “banking as a service” had arrived. As proof, I pointed to the partnerships between Goldman Sachs and Apple to deliver an Apple-branded credit card, complete with all the sexy/cool user experience that Apple has to offer. I called attention to negotiations between Goldman Sachs and Amazon to offer small-business loans to Amazon customers, leveraging the unique insight that Amazon has into a merchant’s business to determine their credit-worthiness.
“The power of [Apple and Amazon] lies in their ability to drive decisions that customers make,” I wrote. “They have built their businesses on gathering data and knowing exactly how to influence our decisions. And now that intelligence is for sale.”
If you are reading those words from a rural part of the country, the threat of Amazon or Apple may feel very far away. You may see the potential for disruption on the horizon, but this may not register as a real and present danger. The simple fact is that Goldman Sachs wants to break into consumer banking. It has tried, with limited success, to do so through its consumer banking brand, Marcus. But perhaps Goldman Sachs knows that the American public is aware of the stench that so often accompanies its name, and an arms-length brand isn’t enough to cover that up. (No one ever said they aren’t smart.) Perhaps the folks at Goldman Sachs have figured out that they can paper over their own brand’s issues by piggy-backing on the brands of others.
Herein lies the next development. Not content to hide behind the apron of some of the biggest technology firms in the country, Goldman Sachs recently announced the development of software that will allow any company to “embed business bank account experiences within [its] own applications.” In other words, any company can offer branded banking services that are delivered by Goldman Sachs.
According to the investment website The Motley Fool, Goldman Sachs officially launched its transaction banking products and services in June. The website further cited a report by CNBC that “$28 billion in deposits have been created by more than 200 clients through these offerings.” According to five-year projections, Goldman Sachs plans to grow its consumer banking $125 billion in deposits, with partnerships at the core of that growth.
In February, I wrote of concern that “banking as a service” meant the commoditization of financial services, in which banking becomes an “add on” to another relationship. It stands to chip away at relationship banking as a business model and makes financial services simply a means to an end in the eyes of the customer. As a lover of the community banking business model and relationship banking itself, I recoil with horror at this prospect. A decentralized and entirely depersonalized banking experience runs counter to everything that I hold dear as a community bank advocate.
But what if the vision of the future that Goldman Sachs has proposed is exactly where we are headed? Perhaps this future won’t serve the needs of all customers, but it will serve plenty. If we lose those customers, we lose a base of funding that allows us to do real banking—relationship banking. Further, we lose those customers to Goldman Sachs, which has shown a reckless disregard for its customers and our national economy.
I have spoken a lot lately about the threats to the community banking business model. I wake up in the middle of the night thinking about how, post-COVID, we ensure that there is a path forward for community bankers that does not involve their disappearance. And this is an instance in which I believe our thinking might require a shift. As much as I dislike what Goldman Sachs is doing, perhaps it has the exact right idea. Maybe we all must consider giving up our direct relationship with some customers in order to offer a real and meaningful relationship to those customers who need us. Perhaps we outsource that direct connection to the customer to a fintech or to another company, with community bankers standing in the background receiving some benefits.
I know, it sounds crazy, but are we at the point where crazy might be our best bet? If not, will we be at that point soon? If our funding sources dry up and we are not around to serve anyone, we have failed. If our sources of income are depleted to the point at which our institutions are unprofitable or uncompelling for shareholders, we have failed.
To save community banking, it might be time to embrace ideas that seem counterintuitive. I don’t want to envision a future in which community banks are not there to bolster the aspirations of small businesses. To avoid that outcome, all options must go on the table. It’s all about survival. It’s about staying in the game. Let’s do whatever it takes to do so.
