This Wall Street Bank is learning that building a Fintech is harder than it looks

As technology has seeped into the depths of the financial system, banks large and small have realized that they need to embrace technology and incorporate it into their business models if they want to achieve strong, sustainable long-term profits. A bank building a fintech has many advantages over a startup because the bank is likely to be profitable to begin with, has much greater scale and can offer deposits insured by the Federal Deposit Insurance Corp. (FDIC).

Nevertheless, most consumer-facing fintech companies have long struggled to achieve profitability and have often failed to live up to expectations. This historic Wall Street bank is starting to learn how difficult it can be to build a successful and profitable fintech company, even when you have the resources.

Losses are piling up for Marcus

Goldman Sachs (GS 0.47%) is one of the largest and most sought-after banks on Wall Street and has long been known as an investment banking powerhouse. But investors haven’t been the biggest fans of pure investment banks in recent years because their earnings can be volatile and hard to predict.

As a result, Goldman has worked to further diversify and create a much more steady stream of income. The bank has expanded its asset and wealth management activities. In 2016, it launched its digital consumer bank Marcus, which offers high-yield savings accounts, online investments, personal loans and credit cards. The hope is that more lasting earnings will lead to a reassessment from the market.

Since the start, many have considered Marcus to be a great success. In early February, Goldman’s CEO David Solomon gave an update on the business. He said Marcus has collected more than $100 billion in deposits from more than 10 million customers since its launch and generated $1.5 billion in revenue by 2021. By the end of 2024, Solomon said he hopes the business will generate $4 billion annually turnover.

But a recent Bloomberg report, citing anonymous sources, said Marcus has lost about $4 billion since the digital consumer bank launched in 2016. This does not include Goldman’s purchase of personal loan company GreenSky for more than $2 billion in late 2021 , when technology ratings approached a record high.

Bloomberg also reports that Goldman executives are considering delaying the launch of Marcus checking accounts, as expenses weigh on the division, and focusing Marcus more on wealth management and less on consumer banking.

Some of those struggles are understandable because Goldman, like most Wall Street banks, has seen its investment banking business take a hit with choppy public markets stalling IPOs and other offerings this year. In the second quarter of the year, Goldman’s investment banking revenue fell 41% year over year, and the bank’s returns have fallen this year after a stellar performance in 2021.

Investors are more focused on profitability than growth right now — not that Goldman isn’t profitable — and seeing the losses in Marcus pile up might not be all that appealing. The shift to wealth management over consumer banking will also be less capital intensive and likely to generate higher returns, at least in the short term.

A fintech conundrum

Like many fintech companies right now, Goldman is deciding whether to continue chasing growth or take a step back and cut marketing spending to focus on profitability. It’s interesting that even at such a large, well-established and profitable Wall Street bank, executives struggle with a similar situation to many start-ups. The decline in the investment bank has not helped matters. Running and growing a consumer fintech company is certainly not easy.

But at this point, diversifying and stabilizing earnings is a central part of Goldman’s strategic vision. So whether the bank leans more into the wealth side or continues to pursue growth, it needs to find a solution, because Marcus has been a core part of the strategy to achieve more consistent earnings.