The rise of digital banking, especially consumer finance, has given regulators new attention.
As reported last week, the Federal Reserve is investigating Goldman Sachs’ oversight of consumer business Marcus, its management and governance, and its handling of customer issues.
Very few details are known at this time. In particular, what exactly is being investigated.
In response to a PYMNTS inquiry last week and when requested for comment, a Goldman Sachs spokesperson told PYMNTS in an email: or inaccuracies in matters related to discussions with them. ”
And, when contacted by PYMNTS on Monday (Jan. 23), a spokesman for the Federal Reserve Board said the bank would not comment on the Goldman issue or similar consumer-facing operations at larger banks. He stated that he would not direct the film.
PYMNTS noted that an investigation does not equate to cheating. However, consumer finance and digital channels in banks and non-banks are still in growth mode. Goldman’s research and the fact that it’s focused on digital-only Marcus speaks to the complexity of building platforms and digital-only efforts (no, we’re not focusing on crypto here. ).
Meanwhile, Goldman reported $6 billion in installment loans on book for the fourth quarter ended December 31, up from $4 billion a year ago. Goldman also reported $16 billion in credit to his credit card, up from $8 billion in the fourth quarter of 2021.
Mobile shift continues at major banks
Data from PYMNTS shows that the use of digital channels among Goldman Sachs’ peers, whose consumer facing businesses are relatively entrenched, continues to grow as consumer use of mobile and digital channels to conduct banking operations continues to grow. shows that it is increasing.
Bank of America is a prime example. In its earnings release and commentary, the bank said digital “sales” made through its online channels increased by 22% year-on-year and now account for 49% of its activity. increase. Another of his PYMNTS data shows that the majority of credit unions are investing in digital innovations related to personal loans.
In a hint that scrutiny of banks could be increased, Deputy Currency Comptroller Michael J. Hsu paid tribute to the larger banks in a speech at Brookings last week when he said: There is a limit to management capacity.Based on my experience as a bank supervisor and deputy currency supervisor, I believe there is a growing body of evidence to support this premise.
“Companies can be very large and complex, and failures of control, disruption of risk management, and negative surprises can occur frequently. It’s all about complexity,” Hsu said.
And, as he puts it, the best way to deal with the “too big to manage” bank problem is to simplify it through a sale.
Digital shift happens as debt grows.
In its latest article in the Federal Reserve’s Supervisory and Regulatory Report, the Fed noted that loan balances increased in the first three quarters of 2022, with strong loan growth across all major loan categories. . The increase in consumer loans was primarily due to higher credit card balances. Total household debt is now over $16.5 trillion, according to Federal Reserve data. Credit card debt has risen from about $880 billion at the beginning of the year to over $900 billion.
Banks aren’t the only ones building digital channels.
Separately, as noted in the US Treasury Department’s November report on the entry of nonbank firms into consumer finance, “New nonbank entrants are competing in the core consumer finance market. and diversification of business models, while adding complexity.
“Digital innovation and new business models have reduced barriers to entry…By separating core consumer financial products into more limited was not subject to strict regulation and supervision. [insured depository institutions are subject]’ said the report.
Last October, the Monetary Authority announced that it would establish a Financial Technology Department this year to strengthen its expertise and capacity to adapt to the rapidly changing banking environment. It remains to be seen what the regulatory landscape will look like in the coming months, but for banks and non-banks the focus will be on processes, internal controls and results.
PYMNTS Data: Why Consumers Are Trying Digital Wallets
According to the PYMNTS survey, New Payment Options: Why Consumers Are Trying Digital Wallets, 52% of US consumers will try new payment methods in 2022, with many choosing to try digital wallets for the first time. bottom.
