Goldman Sachs Lays Off Marcus Digital Bank Workers Amidst Failed Year for Neobanks

Andi C., Tech Times 17 December 2022, 07:12 am

Marcus digital bank reveals a layoff of around 4,000 employees amidst a trend of failing neobanks.

To say that this year has not been a good year for several digital banking businesses would be an understatement. There are numerous examples of digital businesses responding to the rise in interest rates and a shift in the competitive landscape that could be quite significant in the near future.

Regulating organizations like the Securities and Exchange Commission (SEC) and the Consumer Financial Protection Bureau (CFPB) have filed complaints against MoneyLion, while Chime postponed its IPO and struggled to diversify its business after attempts to buy early-wage access firm DailyPay for $2 billion fell through.

Meanwhile, multinational investment bank Goldman Sachs, with its comparatively deep pockets, may be more capable of surviving the race for the top than its competitors. However, it seems that a recent development with its up-and-coming Marcus neobank says otherwise.

What Happened to Goldman Sachs' Marcus Digital Bank?

According to Fast Company, Marcus is the retail digital bank for Goldman Sachs, a so-called neobank that has never quite pulled all the pieces together to take off. Due to quick hiring and a direct-to-consumer business model, the Wall Street giant's fledgling consumer branch has been losing money since it launched in 2016.

Following the acquisition of a deposit platform and the development of a business to provide unsecured personal loans, Goldman began promoting its consumer brand, Marcus, to potential clients through direct mail and internet advertising in 2016. Soon after it acquired Final, a credit card business, the company bought Clarity Money, the user-friendly personal finance management app founded by Adam Dell.

However, Semafor reports that Goldman is getting ready to let go of as many as 4,000 workers. Given that the bank's consumer-facing initiatives are the focus of shareholder scrutiny, it is possible that those teams may take the brunt of the blow.

Additionally, the bank will be retiring its unsecured personal loans, which were intended to represent the bank's consumer beachhead. The Marcus brand's founders have reportedly left their positions of authority.

A Year of Reckoning for Several Neobank Businesses

However, it seems that this year, Goldman is not the only up-and-coming neobank that had to face the consequences. According to Outlook, Goldman's major cause of layoffs is the sharp decline in investment banking activity. Even Goldman is getting ready for a possible recession because the global economy is suffering and moving in that direction.

Only 5% of the 400 neobanks in operation worldwide, according to one estimate, are profitable. Getting neobank users can be expensive, and persuading them to use a neobank exclusively might be considerably more challenging.

Interchange fees on debit swipes gave neobanks a quick way to start making money, but it seems that they will not be able to please investors in the long run. It may prove challenging for neobanks targeting lower-income, underbanked communities to create and scale lending-based operations.