TOKYO/NEW YORK — Goldman Sachs was granted a license to operate banks in Japan on Wednesday, allowing it to expand its thriving business into a new country as its trading desk loses its viability as a cash cow. Goldman Sachs Bank USA, a consumer and corporate banking subsidiary, will provide services such as assisting Japanese multinationals with dollar finance. In September, it plans to open a location in Tokyo. Goldman is putting transaction banking at the center of its growth strategy, which includes cash management, payments, and other services for corporate clients. The company, which began operations in the United States last year and now has over 250 clients and $35 billion in deposits, entered into the United Kingdom in June. The firm is a latecomer to the market. JPMorgan Chase, Citigroup, and HSBC, among other major American and European commercial banks, have already moved into transaction banking, which provides consistent earnings even with lower margins than investment banking, and have snatched up prime clients. “With no true legacy technology… to defend, we are positioned to innovate unlike many others in the sector,” CEO David Solomon wrote in an internal memo when Apple Card was introduced in 2019. Goldman’s choice to enter transaction banking behind rivals is thought to be based on the same logic. Goldman hired engineers ahead of many of its American competitors to create a new cloud-based platform for online transaction banking from the ground up. The platform’s key selling features are its simplicity and ease of use, since it can handle domestic and international payments in over 120 currencies. A venture into retail banking is part of the diversification strategy. With accounts boasting relatively high payouts in a moment of rock-bottom interest rates, Goldman’s consumer bank, now known as Marcus, has attracted clients. Goldman had $97 billion in deposits at the end of 2020, which was on level with midtier US banks, resulting in cheaper funding costs. Goldman Sachs, which has no bank offices or ATMs, is attempting to compensate for its lack of brand recognition with technology. “Banking as a service,” or providing financial services to nonbank consumers, is a part of this concept. The Apple Card, which was debuted in 2019, is a successful example of this approach. Apple is in charge of the user experience features, such as mobile device integration, while Goldman is in charge of the back end, which includes payments, account administration, and customer service. In a transaction announced in January, Goldman Sachs would buy General Motors’ credit card business. The corporation is striving to break free from a structure that makes it more exposed to market fluctuations than its competitors. Tighter financial regulations and low interest rates hampered the trading sector, which contributed roughly half of Goldman’s revenue last year, before volatility prompted by the coronavirus outbreak increased earnings. Since the financial crisis of 2008, stock markets have rewarded banks that have consistently generated profits. Morgan Stanley’s price-earnings ratio is 12.9, owing to expectations of a steady supply of commission income. With a focus on in-house development, Goldman has been slower to pivot, resulting in a lower ratio of 8.1. In the first quarter of this year, Goldman’s trading desk posted its largest quarterly pretax profit since 2010. However, its second-quarter earnings, which are set to be released next week, are expected to bring investors’ focus back to its diversification goals./n
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