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Marcus, Goldman Sachs’ digital-only challenger brand, has signed up more than 250,000 customers and taken in more than $8 billion in deposits in the UK, less than eight months after launching in the country, reports Yahoo Finance UK.
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The bank, which signed up 50,000 customers within the first two weeks of its UK launch, offers a market-beating 1.5% interest rate for its easy access savings account.
Here’s what it means: Marcus’ impressive performance highlights that the biggest threat to incumbents’ lunch may not be fintechs.
- The UK’s neobank market is flourishing — but Marcus’ whirlwind growth suggests there’s still plenty of room for disruption. Early movers like Monzo and Revolut have upended the UK’s retail banking industry, with neobanks holding more than 4.5 million users in the country, per a finder.com report. However, Marcus’ rapid ascent in the UK points to a long runway for new entrants into the country’s retail banking industry.
- And its latest figures highlight it’s a much bigger threat. Despite neobanks’ impressive customer acquisition, the road to profitability remains a way off, with these players struggling to make money. One reason for this has been an inability, as of yet, to convince customers to up their deposits, including directly from paychecks. For context, Monzo only had £71.3 million ($90.9 million) in customer deposits across 590,000 users for the year ending in February 2018, per CB Insights, compared with Marcus’ current $8 billion, or an average of $32,000 per customer.
- Marcus’ growth is all the more remarkable given its product proposition — or lack thereof.In contrast to neobanks, and increasingly incumbents, that offer products and add-on features like money management tools, Marcus’ sole offering in the UK is its savings account. Even there, the bank doesn’t offer an app, with access only through a web browser, although customers can sign up for the account within minutes. Marcus’ success is likely the result of combining three core ingredients: a highly competitive product proposition, ease of access, and the reputational capital of its well-known parent.
The bigger picture: Marcus is only likely to increase its product suite, and that’s bad news for incumbents — here’s how they can push back.
- In the US, Marcus began with a consumer loans product before bolstering it with high-yield savings and money management tools. Given its success in the UK, the bank will only likely expand its proposition in the country, which should propel further growth, both in terms of customer numbers and balance sheet. To this end, Des McDaid, Marcus’ UK head, has said the bank will likely roll out new products next year, suggesting cash ISAs, joint accounts, and term accounts as likely add-ons, per Yahoo Finance UK.
- Incumbents in the UK and afar should take a leaf out of Marcus’ strategy. Its market-beating interest rate is undoubtedly a big reason why Marcus has gained traction in the UK. It also highlights a crucial strategy for success: identifying genuine pain points for consumers. Coupling that focus with incumbents’ existing advantage of deep resources and consumer trust remains a powerful combination.
- In the UK, Open Banking is driving a shift toward financial marketplaces. As a result, incumbents and fintechs are increasingly competing on value proposition as opposed to brand recognition. In this climate, a narrow focus on delivering the best products will become crucial. Legacy players will do well to identify their areas of expertise and competitive advantage, like Marcus has done.
Here’s an industry opinion, as told to Business Insider Intelligence:
"Marcus is designed with the ‘customer at the center of a lifestyle experience.’ It is an innovative experiment which looks at the entire ecosystem as an opportunity to serve customers and enable their financial well-being. For years, anyone who wanted a basic banking service was challenged with a series of filters based on their ability and willingness to pay. They would have to stand in line to be served with banks assessing them from a ‘target market’ definition of whom they wanted to serve and how. Marcus changes that with a simple value proposition: ‘If you want to deposit a dollar or borrow a dollar or transact in any shape or form, we are here for you with very low friction and very low transaction costs.’ This unique approach with improved digital integration is why Goldman Sachs’ Marcus has had the success it has in both the US and the UK." — Sankar Krishnan, executive VP of Banking and Capital Markets at Capgemini
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