Marcus Acquires Fintech Firms to Become Dominant Banking Power

Jim Marous:
Hello, and welcome to Banking Transformed, the top podcast in retail banking. I'm your host, Jim Marous, owner and CEO of the Digital Banking Report, and co-publisher of the Financial Brand. Guest today is from the team at Marcus by Goldman Sachs, so not new to banking transform. This is because the team at Marcus has continued to evolve, the product offerings and the way they're doing business. In the past six years, Marcus have created a digital platform for consumer loans, credit cards, high yield savings accounts, automated investing, as well as providing many tools to help consumers manage their money. More recently, Goldman Sachs completed the acquisition of Greensky, the largest FinTech platform for home improvement and other large scale POS purchases.

Jim Marous:
We are very fortunate, Swati Bhatia partnering head of direct to consumer business at Marcus on the show. Swati discusses the continued product expansion by Goldman Sachs, and how Marcus intends to become the dominant force in retail banking. So welcome to show, Swati. As I mentioned in the intro, the team from Marcus are no strangers to our show. In fact, this is the third visit by a leader from Marcus to discuss the ongoing expansive services at your firm. Could you provide a short background on your career and your role at Marcus today?

Swati Bhatia:
Hi Jim, thank you so much for having me over, and thank you for giving us an opportunity to talk about our story. Currently, I serve as the head of Marcus. It's Goldman Sachs direct to consumer business. I'm responsible for all Marcus by Goldman Sachs products, that meet customers needs around saving, investing, borrowing, spending, and optimizing their financial lives. Before Goldman Sachs, I joined here in February of 2021. Before coming here, I was Stripe's chief payments risk officer, where I led a team responsible for ensuring financial loss minimization and financial crimes mitigation across the platform. Before that I was at PayPal, and before that I held a number of senior leadership roles at capital One. So have been at the intersection of payments, consumer financial services and technology, my entire career.

Jim Marous:
And all digital. I mean, the reality is Capital One was one of the first digital organizations driven by data and analytics and they were just recently a guest of ours. And it's amazing what's happening from the outside of the creation of Marcus platform. Your firm is focused on developing a digital platform that is simple, transparent, easy to use, and also provides value. From your high yield savings account to your low cost lending programs. Can you discuss a little bit about the engineering and research and development that goes on behind the scene? Because when we look at legacy organizations versus FinTech organizations such as yours, the biggest difference seems to be in how the back office runs. Now I realize you started from a clean sheet of paper with Marcus, and it was built as a digital organization. But how do you keep engineering going, and the research development going to know what is a good fit, what's not a good fit and how do you keep it simple and transparent?

Swati Bhatia:
Wow, that's a big question. The key word here, Jim, is research. Before Marcus even began, there was conversation with 10,000 consumers to understand what are the unmet consumer needs that still needs to be solved in this space. And since then, we have actually spoken with a hundred thousand customers outside of our call centers, where we constantly get feedback from our customers or on our app and [inaudible 00:04:08]. So the research piece of it is really, really important. That combined with, I like to say best people. If you hire the best people who have been attracted to this because of the purpose of this business, then innovation is absolutely the outcome that you get out of it. You are specifically about engineering. We have found the right balance of building our business with technology guiding us. The business team and engineering team work hand in hand together to build what is truly a FinTech.

Swati Bhatia:
Our leadership in fact, consists of a very right balance of the two functions. As you said, my background is all from technology companies, our head of consumer Peeyush Nahar, his background is entirely in technology companies, and we have deep expertise in financial services. Engineers make up a quarter of employees at Goldman Sachs, and our teams are at the forefront of innovation and financial services space. So that's the crux of how the best people set up the right environment, where customer is the first thing we think about, and business and engineering work hand in hand together, it leads to R&D. You also asked about back office, right? You said, how do you keep it simple. Think our principle, I'll say two things. First, we start with a premise. That we want to service the customer the way they want it. People don't want to spend 20 minutes of their day to make a customer support call.

Swati Bhatia:
I don't know about you, I don't look forward to actually calling up to solve some of my problems. We want to be able to serve them in our app or website if that's what they prefer, and we will always be there for them on standby if they want to speak to us. So that's our principle. The second thing is, I say this, that banking is not about inventing a new financial product. I don't think that a new financial product has been invented in decades. It is about making every step of the experience better than it used to be. It's creating more value for the consumer. It's actually understanding their need and solving that, so we keep that front and center and we say, we're going to just work to an end where our financial expertise is available at all customer touch points. And those are the principles with which we are building this business.

Jim Marous:
It's interesting. I've done hundreds now, interviews of different firms, and there's not a time where a FinTech firm or a digital banking firm, such as yours, doesn't mention how important leadership is in the process. That the view of the organization and setting the tone for what is going to be the objective, it's at the forefront of everything. I don't hear it nearly as much from legacy financial institutions. And I believe, and just from my interviews back and forth, that's the biggest difference between the FinTech organizations and legacy banking organizations, is the mentality of leadership that sets the tone for everything else. In addition, I would imagine that your ability to hire top talent at a time when it's so hard to get good talent is, there's an advantage to being a firm that's already a digital financial institution, and at the forefront of change. So what's interesting is, you've attracted well over 10 million users since market was launched six years ago.

Swati Bhatia:
13 million now. So I'm just updating your number.

Jim Marous:
I said well over 10, so it's well over 10 at 13, but you continue to buy organizations like Greensky and previously GM credit card that provides you scale instantly. Is this an ongoing strategy, or you're also trying to implement what we'll call an organic growth strategy as well?

Swati Bhatia:
We have, and will continue to blend organic and inorganic growth. We will build by and blend capabilities, so we can scale in a way that makes sense and helps us meet customers where they are. So far in consumer business, if we look at it, we built our loans business, we bought GE's deposit book, which became market savings, but we've grown our customer base tremendously, and our deposits now are over a hundred billion globally. We have partnered with a player like Apple, we now have acquired Greensky, we have partnered with a brand like GM. So our entire strategy is a mix of build by partner and grow the business. We do do a lot of organic activity, and we use channels that are currently the place where customers want us to meet them. We use the digital channels. In fact, we do paid media, we do earned media and podcasts like this also are a great source for us, Jim, for getting our story out there and organically acquiring customers.

Jim Marous:
So you mentioned Greensky, and I mentioned Greensky. It's a B to B to C home improvement platform, but it's also for big purchase items beyond home improvement items. How is that leveraged to sell additional services offered by Marcus, and is this most recent acquisition of potential gateway to maybe buying a buy now pay later market?

Swati Bhatia:
Let me tell you how we are seeing Greensky. For our direct to consumer business, point of sale lending is a very important customer need that we want to meet. It helps our customers spend and borrow, and it's available seamlessly. At the point of sale. Greensky is a market leader in serving home improvement point of sale financing, and to us home improvement is the most attractive point of sale market. Because it's securely growing, it serves a customer base that owns a home, has high FICO score. Transactions are large, they're generally greater than $10,000 per transaction. And us having a balance sheet is a competitive advantage in that space. Even from customer acquisition perspective, we gain access to millions of customers, we are expecting to add one million new customers per year from the Greensky platform. Even for our partnerships business, we are a strong believer in embedded financial services.

Swati Bhatia:
We think that people want to meet and experience financial services in ecosystems that they love and trust. Greensky is an example of embedded financial services system because we embed point of sale financing in merchants ecosystem. A merchant who is installing window in a customer's home gets to offer the customer a point of sale financing solution in the moment. We are acquiring a leading network of 10,000 plus loyal merchants. And Greensky customers will be integrated into the Marcus overall ecosystem and they will be serviced through Marcus app, they will have access to all Marcus products. Regarding a question about buy pay later, we are focusing on specializing in financing special moments at point of sale for a customer. Large dollar purchases, like I mentioned in Greensky case, it's 10,000 plus transactions, we have a product called Marcus pay, which we have a partnership with jet blue where we finance customers vacation and travel.

Swati Bhatia:
So our strategy is large dollar transactions. We also think that consumers deserve options for how they spend or borrow in any given moment or in any given situation. So part of our goal is to be helpful as we can to the customers, by providing them a variety of solutions. So we have point of financing, we have card solutions, we have personal loan solutions, as they need them, where they need them.

Jim Marous:
So it's interesting. We go back to my GM card rewards program also, that you did in conjunction and partnership with General Motors and MasterCard. How is that performed? And you've mentioned already, the other acquisitions, how you build them around a product, but then you take that major customer base almost, and make almost a super app where you're able to offer them savings accounts, you're able to offer them installment lending, maybe an apple card. How well does this work overall in getting current customers that you acquire embedded into other market services?

Swati Bhatia:
You asked about how GM card is doing. On Tuesday, Feb second, we welcome new customers to Marcus and as we officially converted the general motors credit card portfolio from Capital One to Marcus by Goldman Sachs. And we are thrilled with how it's been received so far. We are really excited to help these customers achieve their goals. GM has millions of very loyal card members, many of whom have been leveraging the benefits of their cards for years, and we really look forward to serving them. We expect and imagine this to be highly integrated experience for our consumers in Marcus ecosystem. We have several products, but we are shooting for the experience of our customers to not be like many stores in a mall, but have an integrated end-to-end experience on our website and our app seamlessly across products.

Jim Marous:
So it's interesting. The elephant in the room, and I mentioned this in our pre-call as well, is that you build an impressive array of digital banking products among your platform overall of Marcus. You've had new acquisitions, you've had new products introduced. That said, the elephant in the room as I mentioned, is the fact that you still don't offer a checking account. Why is that offering lagged or has it lagged? And is it that important to the overall view of the markets platform?

Swati Bhatia:
We have grown into products that address first borrowing needs, then saving needs, then Marcus insights, which meets customers personal financial management needs, then we launched investing product. These are all customer informed products that we launched as we heard from them, the need for that product. We spend time on designing them. We are making sure that we are bringing to consumers, a product that addresses their needs. And we take the time to make sure that the products are actually doing that. We are going to launch checking this year, we are very excited about it. We believe checking is a tip of the spear product that will help us in establishing a primary relationship with our consumers. And our focus is on helping our consumers better manage their financial lives, and checking is just going to be a very important capability that will allow us to do that.

Jim Marous:
Is the checking account... We talked about checking account now for three or four years, or actually since you probably introduced Marcus, people mentioned, "When are they going to offer a checking account?" But has the primary financial account view changed over the years where maybe now more than ever, people don't see their primary finance institution just as their checking account bank, it may be their home improvement bank. It may be their credit card bank. It may be their installment lending bank or their savings bank. Is the checking account really any more the primary financial account, or it's simply just part of an overarching platform?

Swati Bhatia:
Checking is a core need. This is where our paycheck comes in, this is where bills get paid from. A recent survey we did, Jim, we asked customers this question, "Which financial institution is your partner in your financial success?" 75% consumers said, "No financial institution." And all of them have a checking account. We believe that to be truly a partner in a customer's success, you have to build the range of products. You have to be the institution that they pick up the phone and call and say, "I have started making more money, what should I do with it?" Or "I've had a change in my life, what should I do with it?" It's the moment of change in a customer's life that then judges, who is it that they see as their financial institution. We think that checking is going to help us build that relationship with the customer, but our bigger plan is to democratize Goldman Sachs expertise in financial services and bring that to every consumer. We believe that money should work for everyone. And that's what we want to do through the relationship that we build with the customer.

Jim Marous:
You know, it's interesting you say that, because I wrote an article this week around the fact that finance institutions are not being viewed as a great partner. They're being viewed as product sales people, they're being viewed as organizations that don't listen to where customers going and what their journey is, and that overall, the belief that any finance institution is really doing what's best for them for their financial wellness is missed. And I think that's one of the things that Marcus has continually tried to pursue is saying, in all your acquisitions and the integration, you're saying, "We're trying to provide the services that will help a consumer get to their... To help them loan their financial journey." And you obviously, through your research development, the engineering, everything being done, the back office, you use the data that you collect from these acquisitions, the GM card, or the Greensky relationship, is that you're going to use these data points to say, "How can we help this consumer move to the next level when their financial relationship?"

Jim Marous:
And really, a checking account is in many ways the least engaging product with the exception of the fact that we're doing transactions. The reality is, if I'm talking about what helps me in my daily life, my acorns account on savings accounts. Or my PayPal account on my acquisition and disbursement of funds for my business. Or my Robin hood account for investments, really helped me reach my goal more. So I think at the end of the day, your point around, "Yeah, we're going to offer a checking account, but the checking account doesn't have to be the foundation." You have multiple foundations as you've acquired different companies, so.

Swati Bhatia:
I think it's meeting all of those needs. Like you said, it's meeting all of those needs. It's the high yield saving account, plus combined with a great investing platform, combined with personal financial management tools for the customers. Combined with lending options when you need them at point of sale or otherwise. It's the combination of them that makes it a primary financial institution for a customer.

Jim Marous:
So, Swati, many of your products in portfolio acquisitions appear to be targeted toward the middle market. Goldman Sachs, obviously, their legacy has been in helping people of substantially greater means do essentially the same thing. How does your down market strategy pay dividends to the consumer that maybe isn't as familiar with Goldman Sachs as they are with Marcus?

Swati Bhatia:
150 year old bank, and six years ago, this business started. It was because we noticed an opportunity to improve simplicity, transparency, and value to the customer in their financial lives. We've built up this startup within our walls to bring expertise of Goldman Sachs to all consumers. Our strategy in consumer is focused on transforming the way every customer manages their money on a daily basis, and around their major life moments. Because life can be on autopilot, or life can be combination of really good financial decisions. And that's what we hope to bring to all our consumers.

Swati Bhatia:
So meeting consumers where they already are, bringing together customer centric brands that people are engaged with, combination of all the products that we just talked about, make an institution a customer's primary institution is the strategy to bring Goldman Sachs to the entire customer base. If we look across our products, Jim, we serve across all wealth levels. And we are excited to do so, because the commonality across all of them is that they're attracted to our brand, because they want to experience their savings digitally. They can see a world where banking is done entirely digitally, without ever walking into a branch.

Jim Marous:
So you have six years in your experience at Marcus, where the organization has been in existence six years. I asked this question, I think it was four years ago, when I did my first interview of somebody from Marcus, somebody from New York. If somebody is working for Marcus, and obviously part of Goldman Sachs, when they get introduced to somebody, do they say, "I work for Marcus." Or do they say they worked for Goldman Sachs?

Swati Bhatia:
When it was four years ago, they probably said they worked for Marcus. I wasn't here, but I'm assuming that the identity was Marcus. It was a startup inside Goldman Sachs. And a few months ago, we announced that we are changing our brand from Marcus by Goldman Sachs to Goldman Sachs Marcus. And that is a pretty significant change because it's the power of our larger brand that actually gives wind to Marcus. It's the 150 year old legacy. It's the power of the financial expertise brand. It's our balance sheet. It is our risk management culture. All of those have been extremely important to Marcus growth. And similarly, Marcus innovation is something that adds value to Goldman Sachs brand. So we are Goldman Sachs Marcus, and I think people introduce themselves with pride either way.

Jim Marous:
Yeah, it's interesting because, we have very few organizations that have not only the big legacy organization, but also the startup within it, and it's interest what people identify themselves as part of. So last year, you announced the offering of a robo advisory tool for the mass market. Obviously, the marketplace is very saturated with both legacy and new entrants from the digital wealth management field. How's your advisory product performing to date, and within your overall portfolio, who do you target for those services?

Swati Bhatia:
It's actually very early days for this product, but we are very, very pleased with how the product has performed so far, and the reaction from our customers. This is actually one of the great examples of us leveraging broader expertise of Goldman Sachs to package it, and bring it to our customers in a digital first way. We are funneling GS investing expertise through a product called GS Smart Beta in the portfolio. And as we've been listening to our customers feedback and seeing the numbers, many of our existing saving customers have become invest customers and GS Smart Beta is our most popular portfolio that the customers choose. And it shows that people want a digital investing product, but fueled by the investing expertise that we have. It's early days, we are going to continue to launch additional options for our consumers as we build upon it.

Jim Marous:
So I'm going to do a pivot here, and it's an important pivot that I talked to you about before we got on the podcast today, but we recently celebrated international women's day and I want to find out little bit more about your rise through the ranks in a business that still is very male dominated, the financial services business. And be it Stripe, or PayPal, or your days at Capital One, you were rising through the ranks at a time that wasn't necessarily a foregone conclusion you could do so. So has the awareness of historical disparity and opportunities for women in finance helped expand the potential for women to play more important roles in organizations such as Goldman Sachs?

Swati Bhatia:
I think it's women making it in impactful, visible roles that has actually created the effect of encouraging more women to become interested in finance, because it allows people to believe that they can have that career. It also fosters an environment in which female leaders can support and mentor emerging leaders and pay it forward. I have learned, Jim, that you don't accomplish much alone. We all stand on the shoulders of giants. For me, my parents, my husband, my family, all the trail blazing women who've hacked through the forest before me, and all the people that I've worked with and learned from who believed in me, took chances on me, mentored me, have helped me to become who I am. So I think more women there are, easier it gets to imagine even more women. At Goldman Sachs, there are a lot of influential women who serve as role models.

Swati Bhatia:
Even our division head consumer and wealth management is Stephanie Cohen, she's one of four division heads at Goldman Sachs and a really, really powerful and impactful leader. Within consumer business, I run the proprietary direct to consumer business, and my colleague, my partner, Liz Martin runs the large partnerships business. So both of the businesses within consumer business are female leaders. So there's still a lot of work to be done, but as a firm, we are continuing to foster female talent across all levels. Not just as a check the box exercise, but because it produces strong business results, it may makes sense. It's obvious to do it.

Jim Marous:
Well, it's interesting because when I started the podcast, it was something I was really dedicated to try and see some balance in who he had as guests. And from my perspective, the job on my hand has become easier to get diversity of guests. And it's interesting because it maybe reflects the fact that people are raising through the ranks, not based on just titles, but based on skill sets, which is very important. If you were to give advice to any woman that wants to become more influential in a banking industry that still is tough, what would be the one thing you suggested, maybe you suggest already. Maybe it was to rely on Others. Don't be afraid to stand on the shoulders of giants, as you said.

Swati Bhatia:
That's definitely important. The other word that comes to mind, and this would be my advice to any leader, not just female, is courage. Just taking risks, walking through the doors. I think to women specifically, I would say fight and succeed in a man's world without losing your spirit as a woman. Blend the best of your feminine and masculine strengths by taking strong action, but with a deep heart. If I may add a couple other lessons, it is, I've learned, Jim, that no matter where you are, your destiny is not set. The next wave of your life can be and will be better than your last wave. And how much greater, depends on how inspired you are, where you set your sights, and how hard you strive for it. And it depends on the purity of your heart and strength of your action that gets you there.

Swati Bhatia:
I've also learned that you have to be yourself. You discover who you are, you accept who you are, you create who you are, in the image of your desire and ambition. And not in that of what the world thinks it can allow you to be. I have broken every expectation from my family from everyone, and so I openly say, you don't have to fit any mold, just break it.

Jim Marous:
Those are great words. And it seems, because my wife started her career in retail, retired from retail just recently, and what you said about being yourself is so important because, you can't fake it because you get caught. And especially if you're dealing with a gender differential there. And to be yourself, to be proud of who you are, and then to go from there. And I think the whole concept of learning as you go along, it's important as well, but finally, and I'm going to get back to the banking world again. Now, what form of financial institution do you think will be most successful in the next three to five years? Will it be the big legacy bank, the community bank, the FinTech firm, the tech company, or a combination of those?

Swati Bhatia:
I think customers will choose their winners. I think any player, the criteria will be any player that can meet them where they are, with a web app based banking solution. Two, builds a true partner relationship with the customer. Three, provides value to the customer. Customers know value when they see it, either financial terms or value of their time. Four, I would say is personalized experiences. Five, I would say it's a strange word to use in banking context, but it is transcendental magical experiences, not just a functional one. If I look at trend in bankingship, like 40 years ago, bank was what you walked into a branch and the bank people knew you. They probably knew your family, they probably know what your potential is, and the entire banking was based on relationship. And 20 years ago it was customer became a data point.

Swati Bhatia:
And that data point was, I want to give card to, or I want to give loan to someone who looks like this, whose debt to income is this, or whose FICO score is this, or who is going to be ex risk predicted, et cetera. And suddenly, customers had their banking with somebody, their card with somebody else, their mortgage with somebody else. From there, then came breakthrough experiences. And FinTechs came, and customers started trying those. And now there are multiple cards, multiple mortgages, P2P, wallet. There are many other experiences that the customers have in their life. But if you still ask the customer the question, "Who is your partner?" There is no one partner. They have to do the research. They have to figure out where to put their money. They have figure out what's best for them. And I think where this is going to move to, is this true customer-centric banking. Partnership in its true sense, and customers will demand this offers, and they will choose their winners.

Jim Marous:
Great. Great podcast and great interview. I appreciate your time. It's always great to catch up on what's going on at Marcus, but more importantly, how the strategy overall has stayed pretty consistent and the growth has become exponential. I keep on warning people that Marcus should be a firm that keeps them up at night because the ability to do things behind the scenes. It's interesting, because Capital One is, you go back in legacy times and their ability to use data to make an impact on the marketplace was astronomical and still is. But again, you've built your organization from scratch and built a very large customer portfolio that you can play off the different product sets that you have. And now with Greensky, with the home improvement loans, and the big purchases, and the POS relations and the relations with the merchants.

Jim Marous:
All these things play into the same overall mold of... And it's overused, I guess, the word super app, but as I look at what PayPal wants to do, and some of the other organizations, the ability to really solve a customer's exponential needs around experiences and around engagement. If I can keep them engaged, they will be able to pick who my favorite organization is. And I think it's going to be interesting to see how it all plays out, but very nice to have you on the show, I appreciate you being with us.

Swati Bhatia:
Thank you so much, Jim, for having me, I really enjoyed our conversation.

Jim Marous:
Thanks for listening to Banking Transform. Winner of three international awards for podcast excellence. I generally appreciate the support you've provided since you started this endeavor. If you enjoy our show, please be sure to give us a review on your favorite podcast app. Finally, be sure to catch my recent articles on the financial brand, and the research we're doing for the digital banking report. This has been a production of Evergreen podcasts. A special thank you to our producer, Leah Longbrake, audio engineer, Sean Rule-Hoffman, and video producer will Pritts. I'm your host, Jim Marous. Until next time, take time each day to look beyond what you're doing, to better understand what is going on around you.