Online US consumer banking is a game of give and take

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Santander targets US retail deposits, as Goldman's Marcus finds online lending tougher than expected.

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News in October that Santander plans to launch a nationwide deposit gathering platform in the US in the next 12 months has invited an inevitable comparison with Goldman Sachs’ move into the space.

The latter’s Marcus consumer lending arm has been offering retail deposit products in the US since 2016 and the UK since 2018.

Scott Powell, head of Santander US and Santander Consumer USA, has declared that the Spanish bank will offer better money market rates than its rivals for US deposits, which it is chasing to reduce its reliance on wholesale funding in the country.

That is pretty much a carbon copy of Goldman’s plan nearly three years ago.

Santander has one of the largest European footprints in the US, with a $145 billion balance sheet, but was the first lender to fail the Federal Reserve’s stress tests three years in a row in 2016.

Unlike Goldman, it already has an active US consumer lending business, which saw nearly 10% growth year on year last quarter, with $107 billion of loans and leases now outstanding. Given that it has just $64 billion of US deposits, the new platform makes a lot of sense.

Price

Marcus has now raised more than $55 billion in retail deposits – a figure that includes $12 billion-worth in the UK. In January, it was offering 2.25% for US online savings and 2.75% on a one-year certificate of deposit. It cut rates in the US for the first time in June – from 2.25% to 2.15%.

Gathering deposits by paying more than the competition is a pretty failsafe strategy, but one that can only really be sustained in the short-term.

“Over time you’ll see us add more product attributes ... so that we become less reliant on price,” said Goldman CFO Stephen Scherr in May, just before the rate cut was announced.

It is interesting to note that Powell, who joined Santander in 2015 from JPMorgan, is not proposing to follow Marcus into online lending as part of the new platform.


Marcus was launched without a special servicing team in place – a shocking omission that has since been rectified 

This is hardly surprising, given the size of Santander’s existing US lending business, but it is also reflective of how tough Goldman has found it since launching Marcus nearly three years ago.

So far, it has written $4.8 billion of no-fee, fixed rate personal loans ranging from $3,500 to $40,000 – but has lost $1.3 billion in the process.

According to public filings, Goldman wrote off $156 million in 2018 and a further $155 million in the first six months of 2019, with loan losses amounting to 5.5% of the total loan book in the year to June 30.

Goldman has also taken on further substantial consumer risk via its Apple Card collaboration with Apple.

The Wall Street Journal recently revealed that Marcus was launched without a special servicing team in place – a shocking omission that has since been rectified. However, it could account for the higher-than-expected loan losses.

Openbank

Santander plans to roll out its full-service digital bank Openbank in the US at some point. Goldman’s experience could provide some useful pointers on the challenges that online consumer lending in the country might present.

On a recent earnings call, Scherr dismissed any concern over Marcus’s performance, predicting that the current drag on earnings from consumer businesses will evaporate as these businesses reach scale.

The Spanish lender might be well advised to tread with caution until it becomes clearer exactly whether that proves to be the case.