Having acquired GE Capital’s retail banking business last year, Goldman Sachs just made the announcement that its commercial banking arm, GS Bank will now be offering online banking accounts for as little as $1 minimum and $500 to open a Certificate of Deposit.
It wasn’t a complete surprise, given the issues the banks have been having with their traditional business model under the new economic and regulatory environment. Higher capital requirements, less risk tolerance mean that short term loans are no longer the preferred capital vehicle. Cheap, customer deposits are the new deal. Which is funny because they used to be the old deal back in the day before the money markets took over. I suppose if you live long enough, everything comes full circle.
The savings account will yield about 1.05% annually, and the CDs yield around 1% annually and 2% for the 5 year term. That sounds small until you realize that most regular deposit accounts in the big banks like JP Morgan and Wells Fargo currently have yields of around 0.05% to 0.08% or that 1.05% yield is higher than the interest rates on 10 year bonds in Japan, Germany, France, Belgium and Switzerland.
The bank has no physical branches, doesn’t offer ATM cards, and only lets you do 6 online transfers in each month to your regular bank accounts which they require you to link to your GS Bank account. That is the only way your money goes out, which kinda makes sense because what’s the use of raising cheap deposit capital if you’re just going to let people pull the money all willy-nilly?
The other reason Goldman Sachs has been aggressively gathering deposits (last check was around $90 billion, up from $16 billion a few years ago) is that they are gearing up to enter the peer lending space in a major way with their proprietary platform, Mosaic. Peer lenders always eventually run into the problem of not having enough deposits coming in on the supply side to keep writing loans on the demand side. Lending Club and Social Finance want to solve that by securitizing their existing loans which was Goldman’s game in 2007 (GS is the principal adviser for the peer lenders pursuing securitization) but GS itself is doing traditional deposits from customers which was the original way banks worked since 1800s.
Either way, it shows you that the traditional investment banking model isn’t doing the whole job anymore. Goldman has rediscovered the masses. I doubt anyone in the Goldman Sachs of 2007 would have seen this coming yet here we are. Life comes at you fast.
For what it’s worth, I think it will work. The cachet of the Goldman name coupled with the fairly decent interest rates and low minimum will draw in many people. Digital banking might have finally gotten it’s true game changer.