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Goldman Sachs CEO David Solomon believes government regulations actually work in his favor.
“One of the moats around the business, of a heavily regulated business, is it keeps people out because of the cost of regulation. If the business was much less regulated, companies with much more customers, [for example] Amazon, would step into the space,” Solomon said at the Vanity Fair New Establishment Summit 2018 in Los Angeles on Wednesday.
The Trump administration’s relatively lax approach to regulation has benefited banks with assets of less than $250 billion, but giants like Goldman Sachs (GS) are still very much hampered by the costs and headaches that come with complying to stringent regulations. Solomon believes this will keep behemoths like Amazon (AMZN) and upstarts like Affirm from gaining traction.
But Solomon may be underestimating Amazon’s ambitions and demand from consumers.
According to a Bain survey of 6,000 people, 65% of Amazon Prime members would try a free online bank from Amazon. Forty-three percent of regular Amazon customers and 37% of non-Amazon customers would try an account. Banks like JPMorgan Chase and Capital One are reportedly in talks with the e-commerce giant to roll out digital-only accounts for millennials and Gen Z folks.
Still, he acknowledges that banking needs to grow up with the next generation consumer.
“Finance is going to continue to evolve. You wouldn’t see my daughters in a physical branch in a bank. if you look at the infrastructure and the way the world still works, the world will look vastly different than it looks today,” he said.
“Our firm and the industry have changed enormously. It’s been remade. Capital liquidity of the whole industry has changed. The industry can do a better job at talking to mainstream Americans — what we do, why it’s valuable, transparency. We as an industry have to do a better job helping people understand why the movement of capital, availability of credit, etc. are important to everybody. Candidly, the industry could do better.”
In an attempt to diversify its revenue streams and shake up its elitist image, Goldman launched Marcus in 2016. The consumer banking arm has lent more than $4 billion to date. But according to Bloomberg, the company is looking to curb its growth as analysts and investors speculate how borrowers will be able to pay their loans back in a less exuberant economy.
Solomon emphasized his big ambitions for Marcus on Wednesday. “We have a couple things that tech-enabled companies don’t have. We have funding, a balance sheet, a platform. You have to be able to lend, you can’t be capital markets-reliant on that. We also have a great history — decades on decades -— experience around managing risk. At the end of the day these are risk businesses. We’re positioned in an interesting place between the incumbents and upstarts.”