Competition is one of the many ingredients that brings flavourful value to any market – be it in the form of innovative products and services, an assortment of choices, or affordable prices. The FinTech space has been basking in the glory of such competition, with numerous industry participants bringing in novelty at every turn and making customer convenience via personalised experiences the ultimate destination. While many of these ecosystem players have realised that the next wave of advancement lies in joining forces with the newbies in town, banking stalwarts, in particular, have left no stone unturned in furthering their strategic goals through investing in the progressing segment.
These FinTech streets haven’t exactly been paved with gold at all times, though, especially concerning matters of mergers and acquisitions in recent months. Yet, one bank has been able to dig past the rocks to reach the end of the rainbow towards the pot of FinTech gold through concentrated bids for many years.
Goldman Sachs has recorded several global deals that have contributed to making its investments bag full. From private companies to small and medium-sized businesses, the bank has gone on a buying spree that has changed its face from being just a Wall Street giant to a full-blown consumer finance business. Goldman Sachs’ online bank Marcus may have been launched on a positive note of forward-thinking to expand revenue streams, but the initiative has yet to generate a profit – especially in a competitive market where other challengers have made quite a name for themselves. Having previously examined the expedition of Marcus from Wall Street to Main Street, in this blog, we are keen on scrutinising the many investments the bank has deployed in pushing its consumer banking up.
Vesting Interest in Technology: 2021 Deals
Goldman Sachs was quick to see the potential in becoming a part of the FinTech movement and wasted no time fishing out vast amounts of funds in diverse global markets to bring meaningful growth to their technology and digitisation efforts.
The bank participated as a principal in the $17.5M Series B funding round of FinTech innovation firm HQLAᵡ, followed by a provision of a $150M debt facility to US-based FinTech Ramp and a $60M Series F investment in payments-enablement company Flywire. The Wall Street giant, along with Temasek and other investors, extended a €750M ($895M) debt facility to London-based payment provider SumUp to accelerate the startup’s growth and international expansion, as well as any potential merger and acquisition opportunities.
After an undisclosed investment in the Turkish FinTech DgPays, Goldman Sachs participated in the $25M Series-C financing round of OpenCo, a Brazilian consumer financing FinTech along with International Finance Corporation (IFC), to drive FinTech innovations and help improve access to finance in the country. Soon afterwards, the banking giant invested $69M in UK’s leading technology-first digital bank, Starling, and led a $45M financing round into auto FinTech startup Caribou to help turbocharge its auto refinancing business.
Goldman further expanded its portfolio in the US by extending a $300M credit facility to Fundrise and provided $360M in equity and debt funding to AI-based auto finance platform Lendbuzz to support the FinTech’s expansion plans in the US. In July, the US bank joined a $170M funding round for French FinTech Younited and the $440M financing round of iCapital Network, where it was a participant amongst the likes of Temasek, Blackstone, UBS, Pivot, BNY Mellon, Wells Fargo, and Morgan Stanley. At the same time, it also contributed to the $180M Series B equity and debt funding round of London-based BNPL FinTech Zilch to help enable its growth both nationally and in the US.
In a bid to bolster its consumer finance business, Goldman Sachs agreed to an all-stock deal worth $2.24B to acquire FinTech lender GreenSky, with plans to leverage the platform’s differentiated lending capabilities and market-leading merchant and consumer ecosystem. In Australia, the bank extended a $270M debt facility to Melbourne-based Timelio as a senior lender and invested $271.4M in debt funding in the buy now pay later platform Openpay along with Atalaya Capital Management to support its US expansion ambitions.
Goldman further expanded its footprint in Brazil by investing $256M in personal credit specialist FinTech Provu. The funding was a non-controlling equity interest through a Credit Rights Investment Fund. As for Colombia, Goldman provided $125M in debt financing to buy-now-pay-later firm Addi to support the FinTech’s entry into more Latin American markets. In the far east, the investment bank participated in the $63.4M Series C funding round of South Korea-based peer-to-peer lending platform PeopleFund.
It is evident that the banking giant had some motivation behind betting on these FinTechs, mainly targeting the areas of global expansion, adapting hi-tech prospects like Artificial Intelligence for better security and data analytics, and growing the pillars of asset wealth management, sales, and trading for its consumer business’ foundation.
To Lend a Hand for Lending: 2022 Deals
Goldman Sachs Group also continued on its bidding spree the following year, actively focusing on equity research and scaling across emerging markets.
The goliath kicked off 2022 by participating in the strategic funding round of Capital Markets Gateway, along with Citi, Fidelity Investments, Franklin Templeton, J.P. Morgan, and Morgan Stanley. Afterwards, the US bank provided Berlin unicorn Raisin with a convertible loan of $34M and participated in the $115M debt financing round of London-based FinTech Selina, which provides Home Equity Line of Credit (HELOC) loans. The Wall Street giant, along with CITI, provided finance automation platform Ramp with a $300M debt financing line to support the FinTech’s rapid scaling.
Goldman was grabbing headlines again as it announced an agreement to acquire NextCapital, a Chicago-based FinTech firm that provides automated advice to corporate retirement plan participants. The deal, the terms of which were not disclosed, will be completed in the second half of 2022 and will help Goldman to build compelling client solutions in asset management and accelerate investment in technology to serve the growing defined contribution market.
2022 saw a string of bids from Goldman Sachs in the Latin American market, starting with a $650M line of credit to Brazilian FinTech Nubank, where other financiers like Morgan Stanley, Citigroup Inc, and HSBC were also involved. The investment bank extended an asset-backed securitisation facility of up to $250M to Hong Kong-based FundPark. It also led the extension of the Series D funding round of British digital bank Starling, which raised $165M at a £2.5B (~$2.6B) valuation.
The following month the investment goliath further strengthened its portfolio in its home country by providing a $250M credit facility to Deserve, a FinTech expanding and powering the real-time credit card economy with Cross River and Waterfall Asset Management also participating in the funding round. At the same time, it led the $115M oversubscribed Series C funding round for Caribou. Apart from providing a private financing line of $233M to Mercado Pago, Goldman extended a $150M debt financing line to spend management platform Airbase. The bank also extended a $150M credit line to Mexican startup Clara, which lends to corporations and helps manage their spending so as to boost the FinTech’s lending operations, accelerate its expansion throughout Latin America and invest in its technology. Goldman’s latest investment came in the form of a $140M credit line to Latin American FinTech Xepelin, which offers services including payments and credit to small and midsize companies that do business with other firms.
While Goldman’s investment moves showcase an interest in varying FinTech sectors, there has been a profound willingness from startups to explore debt financing options in 2022 – especially in the regions of Latin America and the Asian e-commerce landscape – to reduce the valuation risks when it comes to selling equity at a time of shrinking stock prices.
A Costly Hunt in the Gold Rush
Goldman Sachs has surely been busy making FinTech investments far and wide. It has also been taking slow but sure steps on the growth ladder to build a consumer banking presence and establish itself in the lending and payments space. Despite the cash burn and diversification efforts, its encroachment on Main Street seems to be plagued by high turnover, dysfunctional product allocations, and piling up of losses.
With an insanely competitive market that is equally keen to climb the ladder of success, Goldman Sachs will have to use its vast resources efficiently to retain its brand and persevere on its promise of establishing a consumer-centric banking model. The gold rush is only going to rise from here, and only the contenders that concentrate on the vision of long-term gains will sustain in this race of customer satisfaction.