Goldman Sachs is quietly building out a payments business - and it's a sign of just how big its ambitions really are

Reuters/Chip East

Goldman CEO Lloyd Blankfein

• Goldman Sachs is quietly building out a payments business that helps big companies move around money.
• It's a far cry from the Wall Street bank's traditional 'high finance' business of advising companies on M&A and helping them raise money.
• The move will pit Goldman against larger firms with much bigger balance sheets like JPMorgan and Citigroup, which have controlled commercial banking market share for decades.
• The project is the latest in a series of Goldman moves into basic banking, which started with its Marcus consumer lending platform and is now extending into working with corporations.

Goldman Sachs is quietly building out a business in a humdrum area of the market that helps big corporations manage and move their money. It's a far cry from the Wall Street bank's traditional business of advising companies on mergers and acquisitions and helping them raise capital.

The bank is hiring for a London-based technology executive to help lead a new payments business that it's building, according to an online job ad. The executive will lead an engineering team in charge of the product, including its design and development, existing systems integration and evaluation of third-party applications.

Payments is the unglamorous task of moving money from one account to another, enabling US companies to pay workers or vendors in Europe, say, without dispensing envelopes of cash. Commercial bankers, known more for their scale than their smarts, often handle the low-margin business.

The project is the latest in a series of Goldman moves into basic banking that have left many on Wall Street scratching their heads. Long known for its expertise in trading derivatives, advising on takeovers and managing money for the super wealthy, the bank has sought to diversify by capitalizing on a banking charter received during the financial crisis.

Much of the attention has centered on the firm's retail offerings, which Goldman has been marketing over the last couple of years. It started making personal loans online a little over 18 months ago, and has since lent more than $3 billion. A recent partnership with JoJo Fletcher, a star of ABC's 'The Bachelorette', will promote home-renovation loans. It's even reportedly talking to Apple about a co-branded credit card.

But the firm is quietly going after corporations as well.

It's already started hiring for the payments business, according to a person with knowledge of the project. It will initially be housed within the fixed-income, currencies and commodities technology team due to the foreign-exchange component of swapping payments into different currencies.

And earlier this year it hired Hari Moorthy from JPMorgan to develop a cash-management business and an interest-paying account for corporate customers.

A Goldman spokesman declined to comment on the bank's plans.

Goldman Sachs

Stephen Scherr, who is leading Goldman's consumer banking effort

Stephen Scherr, a buttoned-up banker said to be close to CEO Lloyd Blankfein, is leading the firm's advance into banking. Scherr gave up his role as chief strategy officer in 2017 to focus on the task.

It's not clear how Goldman executives expect to take meaningful market share from commercial banks like JPMorgan Chase or Citigroup, which traditionally have focused on the payments business. Citigroup, which became the first nationally chartered US bank to boast a foreign branch with its 1914 opening in Argentina, has used the last century to build a presence in over 100 countries.

Competing with the big boys

To compete, Goldman is using a playbook it long avoided.

With the rollback of the Glass Steagall Act in 1999, commercial banks leveraged their corporate relationships to push into the securities business, using their near constant contact with treasurers and chief financial officers to pitch debt underwriting or foreign-exchange hedges. Investment bankers long felt that was unfair.

Yet post-crisis financial rules that cut leverage and shrunk banks' bond inventories have made "flow" businesses coming from corporate clients all the more attractive. That boosted the fixed-income trading departments at Citigroup, JPMorgan and Bank of America to the detriment of Goldman Sachs.

"It's a natural feeder into FICC that JPMorgan and Citi are exploiting effectively," said Guy Moszkowski, an analyst at Autonomous Research. "[Goldman] needs to be involved."

Citigroup brought in $8.9 billion in revenue last year in interest-rates and currencies trading, and it's said in that past that nearly half of such revenue comes from routine business for corporate clients. Goldman produced about two-thirds of Citigroup's total across its entire fixed-income unit.

Goldman has responded by asking its investment bankers to pitch in. The bank moved a commodities sales team from the trading business into the investment bank earlier this year to make it easier to service corporate clients. A related joint venture has already led to 16 new assignments, Blankfein said in February. Foreign-exchange experts are also looking to handle more daily business.

Goldman has said it expects the renewed focus on corporate clients will help it generate $250 million in additional revenue from trading in the next three years, with most of that coming from commodities and currencies.

Establishing a payments business may help Goldman with this endeavor, though it won't be easy. First, the bank must find a way to lessen its rivals' advantage, Moszkowski said.

"The problem is that [JPMorgan and Citigroup] in particular, but also many other large 'traditional' banks, are highly entrenched into their clients' workflows in areas like payments, short-term investing, FX and trade finance," he said. Goldman "may very well be able to take advantage of the fact that they have no legacy business or systems so they can build something very tech-driven with lower embedded costs and better functionality. But it won't come free and it won't happen overnight."

Get the latest Goldman Sachs stock price here.