Goldman Sachs reins in cloud-based retail challenger in UK

Goldman Sachs is slowing the expansion of its cloud-based online retail bank in the UK to avoid having to ring-fence operations from the rest of the bank.

Rather than technology restraining the bank’s ability to expand, the rapid growth being driven by the latest tech is raising regulatory challenges.

The US bank launched its Amazon Web Services (AWS) cloud-based retail bank, known as Marcus, in the UK last year and has seen rapid take-up.

According to a report in the Telegraph, the bank does not want the volume of money deposited to exceed £25bn, the threshold at which UK banks have to ring-fence their retail operations to keep them separate from investment banking arms. The Telegraph report said Marcus is already half-way to that level.

After the global financial crisis of 2008, which was caused by failures in the big banks’ investment banking operations, regulators instructed UK banks to introduce a clear separation between their retail and investment operations. Banks had to comply with the ring-fencing rule, which was introduced in 2011, by January 2019.

The legislation is designed to prevent the actions of risk-taking investment banks affecting consumer savings and current accounts.

Marcus is an online bank built in the AWS public cloud and is an example of a traditional bank launching a standalone digital offering.

Speaking at an AWS event earlier this year, Joanne Hannaford, partner in Goldman Sachs’ engineering division, said Marcus had 600 times more customers applying than had been expected, in the first hour of launch.

The Marcus platform was implemented in the UK, end to end, in just 11 months. Hannaford said this would have been unthinkable in the past if the company had had to provision its own hardware, which alone would have taken five months. “I don’t think we could have done it without a relationship with a cloud service provider like AWS,” she said.

Using the public cloud to launch new products enables banks to scale up operations rapidly, removing limits to transaction volumes. Goldman Sachs’ reported decision to slow down the take-up of Marcus reflects the popularity of financial technology (fintech) to consumers, as well as the venture’s ability to grow rapidly through modern technology.

Another fintech initiative that has expanded rapidly for Goldman Sachs is its partnership with Apple and its credit card Apple Card.

According to a regulatory filing from Goldman Sachs, since Apple Card’s launch in August, it has already lent out $10bn in credit to Apple Card users, with current loan balances worth more than $700m.

Apple Card uses the MasterCard network to enable iPhone users to turn their mobile into a credit card, linked to their Apple Pay account, after an application process that takes just minutes.

The offering has recently come under examination by the US financial services regulator, which is investigating allegations that credit decisions for Apple Card show gender bias. This followed an allegation from tech entrepreneur David Heinemeier Hansson that he was given a much higher credit limit than his wife on Apple Card, even though she has a better credit score than him and the couple had a joint tax return.