There are weeks of smooth sailing in the payments and commerce ocean, and then there are those weeks when the sailing is decidedly rougher. For a lot of players this week, there were far more of the latter than the former, as some big names are putting up some big losses – and some even bigger public malfunctions.
As ships are setting themselves to right this week, the question beginning to circulate more and more often is whether the current troubles are due to sporadic choppy weather or signs of a bigger storm gathering on the horizon.
Marcus Posts Big Losses
Goldman Sachs-backed Marcus has reportedly lost $1.3 billion since launching in 2016 to offer a customer-facing wing of the bank better known for its investing services. The issue at hand: Marcus was perhaps not prepared to handle the world of high-risk lending, according to sources – and the learning curve has been steep and expensive.
Goldman’s entry into savings accounts and credit cards resulted in early loan losses, people familiar with the matter told media. They noted that in many regards, Goldman was unprepared, offering small-dollar loans and accounts with minimum balance requirements without putting things like collections mechanisms in place for consumers who were perhaps less than inclined to pay on time.
That has been improving of late, according to Goldman – the bank says it remains absolutely committed to getting consumer banking right. As evidence, the bank points to the $50 billion in new deposits it reported earlier this year.
“We’re developing muscles we didn’t know we had,” said Omer Ismail, who runs Marcus in the U.S.
Further, Godman contends that the launch of the Apple Card earlier this year is allowing Goldman Sachs to become a leader in consumer banking.
“Apple Card is big, but it’s also a beginning,” CEO David Solomon said in August. “In the decades to come, I expect us to be a leader in our consumer business, just like we are in our institutional and corporate businesses, with customer-centricity at the core of everything we do.”
Banking’s Great Worker Displacement
While the reports that the robots are coming to take human jobs from workers are not exactly a new fixture in headlines, last week there was a new entrant into the growing list of industries that will see robotic workers supplant human employees: banking.
Veteran Wall Street Analyst Mike Mayo noted that cuts of such magnitude would comprise over 10 percent of total bank jobs, and pave the way for a “golden age of banking efficiency.”
“It’s been a rocky 25-year marriage for banking and technology, but it’s finally getting on course,” he noted.
Lowering employee headcounts will not be the only thing technology brings to banking: The 225-page report discussed how artificial intelligence (AI) could cut costs for mortgage processing by 10 percent to 20 percent. Cloud computing, on the other hand, could bring significant savings, while Big Data would enable “more surgical marketing.”
But within the industry, it is becoming clear that some jobs – and some large categories of jobs – are about to be steered away from human workers’ hands, and more under the control of a piece of hardware or software. As Citigroup Chief Executive Mike Corbat noted, per the report, “tens of thousands” of call center workers could be replaced. John Cryan, former Deutsche Bank boss, warned in 2017 that up to half of the 97,000-strong workforce of the bank could go.
Could or even will go, perhaps – but as of yet, the transfer is not terribly visible in the segment. According to Federal Deposit Insurance Corporation (FDIC) data, the industry’s overall headcount has shrunk only 16 times as of 1935, and has not yet settled into a period of statistically significant contraction.
Rent the Runway’s Temporary Shutdown
Generally, when a business is forced by circumstances to pull the plug of their operations, the underlying issue is that they don’t have enough customers. Popular fashion app Rent the Runway, on the other hand, hit the opposite problem this week, when too much consumer interest caused them to temporarily stop taking new subscriptions.
The issue arises as the business is looking to solve a host of supply chain and inventory issues, and the net result is that Rent the Runway is not taking on new subscribers or event rentals until Oct. 15 at the soonest.
“I’m reaching out to further update you on delays that some of you have experienced in receiving your orders over the last few weeks,” Jennifer Hyman, co-founder and CEO, wrote in an email. “The delays, which began Sept. 13, are due to unforeseen issues associated with a significant software transformation that we are executing in our fulfillment operation. So that we can focus entirely on you, our current customers, while we fix these issues, we will not be accepting new subscribers or new event rental orders to be delivered before Oct. 15.”
Other than apologies, Rent the Runway has also reportedly begun to give as much as $200 in cash to shoppers who never got their orders. After being plagued by complaints from shoppers since September about mis-shipped or incorrect items, Hyman said they should begin to “feel this improvement within the next three weeks.”
The systemwide misfire comes at an odd time for the business, which just nabbed $125 million in a funding round that brought the company a $1 billion valuation in March.
“Shared, dynamic ownership is a movement that Rent the Runway has pioneered over the last decade, and we’re excited to continue to lead the market and innovate our subscription service,” Hyman said in an announcement at the time.
But before they can further innovate that subscription service and broaden its appeal as planned, it first has some blocking and tackling to get under control in its own supply chain.
What did we learn this week? That something can always go wrong. Sometimes, in the case of Rent the Runway, that wrong thing is objective and quite clear. For others, as in the case of the increasing automation in banking, the picture is a bit hazier; banking products might improve, but it seems a lot of workers will be out of luck. And some, like Marcus, are more of a work in progress – it remains difficult to distinguish what is working from what isn’t.
But we’ll be here each week to keep track from the outside looking in, and will keep you posted as conditions change.
Until next week.