Goldman Sachs has reopened its cloud-based retail bank in the UK, after suspending the account temporarily to avoid having to comply with ring-fencing rules.
The investment bank’s online offering, called Marcus, was built in the Amazon Web Services (AWS) public cloud. It is another example of a traditional bank launching a separate digital offering to keep pace with digital banking trends.
In December 2019, the bank originally slowed the expansion of its Marcus savings account after high demand from savers meant deposits looked likely to exceed £25bn, the threshold at which UK banks have to ring-fence their retail operations to keep them separate from investment banking arms.
It then suspended the Online Savings Account last summer amid surging demand. “We temporarily withdrew our Online Savings Account in June 2020 following a surge in demand from savers,” said a spokesperson at the bank.
Goldman Sachs’s decision to slow the take-up of Marcus reflects the popularity of financial technology among consumers, as well as the venture’s ability to grow rapidly through modern technology.
The bank announced this week that the account was once again available after changes in the market. “Conditions in the savings market have changed and we are able to make our Online Savings Account available again to new customers, in line with our business plan,” it said.
The account currently has £21bn in deposits, with capacity for more before the £25bn ring-fencing threshold is hit. “We continue to monitor our growth very carefully,” said the spokesperson.
After the global financial crisis of 2008, which was caused by failures in the big banks’ investment banking operations, regulators instructed UK banks to introduce a clear separation between their retail and investment operations. Banks had to comply with what is known as the ring-fencing rule. It was introduced in 2011 and banks had to comply by January 2019.
The legislation was designed to prevent the actions of risk-taking investment banks affecting consumer savings and current accounts, after the fallout of the 2008 global financial crisis.
Goldman Sachs and other large traditional banks are building standalone digital banks to run separately from their traditional organisations. These units are better placed to compete with challenger banks that are digital-first, including those that are app-based. They have adopted the same IT development techniques as the new banks, such as building them in the cloud.
Speaking at an AWS event in 2019, Joanne Hannaford, a partner in Goldman Sachs’s engineering division, said that in the first hour of its launch, Marcus had 600 times more customers applying than expected.
Using AWS, the Marcus platform was built in the UK, end to end, in just 11 months. Hannaford said this would have been unthinkable in the past if the company had done it the traditional way, by provisioning its own hardware, which alone would have taken five months.
Using the public cloud to launch new products enables banks to scale up operations rapidly, removing limits to transaction volumes.
JP Morgan Chase is another example of a traditional US bank launching a digital bank in the UK. It recently announced that it had recruited 400 staff in the UK to work for the bank, which will launch in the coming months. The digital UK bank, which will be based in Canary Wharf in London, will offer consumer banking products including current accounts.