Goldman’s Platform Losses Show Embedded Finance’s Path May Be Rocky

Marcus aside, Goldman Sachs has heavy lifting ahead as the Wall Street giant pursues embedded finance.

As reported in SEC filings from Friday (Jan. 13), Goldman has detailed how it will document financial and operating performance on a go-forward basis with new segment reporting. Within the Asset and Wealth Management business, we’ll see how the direct-to-consumer banking operations fare (read: Marcus).

There’s also the Platform Solutions segment, another new feature of the revamped reporting structure, including the card efforts, the Apple card, and point-of-sale financing. The platform unit also includes payments solutions for enterprise clients.

Platform Solutions, in other words, represents the initiatives tied to, in Goldman’s words, “building and embedding cloud-based, developer-centric financial products and services in our clients’ ecosystems to help them better serve their own clients and customers.” It’s akin to a B2B service — banking as a service — that has been on many financial firms’ radars. The 8-K notes that the “transaction banking” operation includes “cash management services, such as deposit-taking and payment solutions for corporate and institutional clients.” Embedding those banking solutions and activities can, as PYMNTS has reported, generate new top-line momentum for banks and their corporate clients.

We’ll know more when Goldman reports its latest quarterly results next week (the platform solutions include specialty lender GreenSky.) But Friday’s reporting shows that as the overall Platform segment logged $1.2 billion in losses through the first nine months of the year and as provisions for credit losses amounted to $465 million in the September quarter vs. $310 million in the June quarter.

Much of that provisioning is tied to consumer-facing operations. Goldman’s not alone here, as banking giants started reporting earnings on Friday and ramping up their provisions for anticipated losses. J.P. Morgan has said that a recession is a base-case scenario for the economy at present.

Deposit Taking and Payments

Transaction banking is facing its own headwinds. The data show that transaction banking revenues in the September quarter were $88 million, down from $91 million in June. Overall segment operating expenses for platforms are also growing to $525 million in the most recent period from $399 million in the June reporting period.

As they say, it takes money to make money, but the “making money” part of it all seems far off. And with recent headlines shedding some light on the turmoil at Marcus, by extension Goldman will likely, increasingly, be looking at its transaction banking endeavors to provide ancillary revenue streams beyond its core investment management/banking activities. Exiting personal loans seems a good way to refocus.

As detailed in past earnings calls, CEO David Solomon has said that the company had been “building a business from scratch” in the consumer segment. Perhaps that sentiment’s been dashed, but we note that the “from scratch” mentality applies to embedded finance, FinTech and payments solutions too.