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US retail banking: Main Street’s memory test

Vampire squid or bank of the people? Goldman Sachs wants to win over middle America.

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It’s surprising in a way that it’s taken this long. Eight years ago Goldman Sachs and Morgan Stanley were given the emergency go-ahead to each become bank holding companies. Yet it is only now that we are seeing their ambitions in retail banking come alive. Perhaps because investment banking has become so costly and challenging, or perhaps it has just taken this long for technology to reach the place where consumer banking is affordable – whatever the reasons, Goldman Sachs now seems to be laying the foundations to become a bank that serves, not the $10 million crew, but the average American.

It recently launched an online high yield savings account with no minimum balance, and is building an online consumer lending business. With its acquisition of start-up Honest Dollar, it seems to be entering the retirement account and small business account sector also.


The question is, does the average American want to bank with Goldman Sachs? Will its reputation as a ‘vampire squid’, and having been a political punch bag during the presidential primaries deter potential customers? Or will the fact that its high yield savings account offers 0.5% more than its competitors miraculously erase people’s memories?

It could, and that has to be a slight concern. Will we look back in 10 years’ time in the midst of an economic crisis due to complex products being sold to average consumers, and say: ‘Well that was obviously going to happen once the investment banks had direct access to Main Street?’

The hope is not, of course, and that everyone has learned their lessons and better oversight is in place, but competition pushes the boundaries of ethics, and competition is fierce right now.  It’s not just Goldman Sachs and Morgan Stanley that are stooping down to serve the proletariat. Financial institutions are having to diversify into areas that are more lucrative, and technology has afforded them the ability to serve the masses in a relatively inexpensive way.

Forget the fickle 1%, it’s the small business owners, the entrepreneurs, and the average Joes that banks and wealth managers all want now, and they are going to do their best via robo-advisory, online lending and tweeting to make sure they get them.

So, maybe we need to tie a knot in our handkerchiefs to keep reminding us of what happened eight years ago... just in case.