Goldman’s new direction cashes in on its old one

Like Goldman’s credit-card deal with Apple last year, the Amazon tie-up puts new icing on a familiar cake

  
The Goldman Sachs company logo is seen in the company's space on the floor of the New York Stock Exchange, (NYSE) in New York, U.S., April 17, 2018.

The Goldman Sachs company logo is seen in the company's space on the floor of the New York Stock Exchange, (NYSE) in New York, U.S., April 17, 2018.

REUTERS/Brendan McDermid

(The author is a Reuters Breakingviews columnist. The opinions expressed are his own.)

NEW YORK  - Goldman Sachs has used its name to open doors around the world; now it’s using other people’s. The Wall Street firm is offering credit lines to select customers of Amazon.com, enlisting another big brand to help fulfill its consumer-banking aspirations. Goldman has whizzy technology and a lack of baggage on its side, along with some old-school Goldman qualities, like supreme self-confidence and a knack for milking elite relationships.

Like Goldman’s credit-card deal with Apple last year, the Amazon tie-up puts new icing on a familiar cake. Vendors who are invited can get a line of credit from Goldman’s retail bank, Marcus, which had $7 billion of loans at the end of March. Behind the curtain, Goldman will use Amazon’s data on vendors to make its credit decisions and will keep the loans – its first foray into small business lending – on its own balance sheet.

The idea of mixing finance with e-commerce is tried and tested – especially in China. A decade ago, Alibaba started making loans to vendors using their online activity to size up creditworthiness. The principle is similar, though less freewheeling. Alibaba can, say, look at messages between vendors and buyers and access an expansive trove of consumer data, where clients of the $1.3 trillion Amazon are likely to be more cautious over what data is used and how.

Hubris is Goldman’s biggest risk. The bank is implicitly assuming that it will be better at lending efficiently than its rivals, who have been in the business for decades. True, it has a fresh eye. But Goldman’s aptitude for risk assessment – which has not always served its trading business well in the past two years, let alone during the financial crisis – will not necessarily translate to small-business lending. Chief Executive David Solomon has invested amply in technology, but so have his rivals.

Where Goldman really gets its edge is having friends in the right places. It advised Amazon on its purchase of supermarket Whole Foods Market in 2017, and helped a then-troubled Apple raise cash during the 1990s. Overall the firm has advised on more of their bond deals and mergers than any other firm, according to Refinitiv. Goldman might be edging into the mass-market, but its strategy remains one of being in the right club.

CONTEXT NEWS

- Amazon.com has partnered with Goldman Sachs to offer credit lines to some of its vendors through the Wall Street firm’s consumer bank, Marcus.

- Vendors invited to participate would consent to Goldman Sachs accessing data on their Amazon activity, but this data would not be available for the bank to cross-sell other products.

- Amazon already offers term loans to select vendors through a partnership with Bank of America called Amazon Lending. The new credit lines would not be extended by Amazon itself, but by Goldman Sachs.

- Marcus, which launched in 2016, had $80 billion of deposits and $7 billion of loans by May 2020. Amazon Lending extended $1 billion to businesses in 2019.

(The author is a Reuters Breakingviews columnist. The opinions expressed are his own.)

(Editing by Antony Currie and Amanda Gomez) ((john.foley@thomsonreuters.com; Reuters Messaging: john.foley.thomsonreuters.com@reuters.net))