Goldman Sachs is expanding its transaction banking business to the European Union with the opening of a new location in Frankfurt, to be followed by Amsterdam, capable of providing payments, treasury and other services to clients across EU states.
Goldman launched the business, dubbed TxB, in the US in 2020 and expanded to the UK in 2021. The bank said on Tuesday the roll-out starting in Frankfurt will deepen its relationships with clients who have banking needs in the EU and open the door to new clients on the Continent.
IFR reported in February that Goldman planned to expand TxB to 36 countries over 18 months. It wants to bring in at least US$1bn in annual revenues from the business, which helps treasury departments manage their cash and accounts, accept receivables, make payments and handle other processes. Hari Moorthy, global head of TxB, told IFR at the time the bank was looking to launch in EU countries and Japan.
The offices in Frankfurt and Amsterdam will cater for clients across the EU, so launches in more EU countries may not be necessary.
Goldman said TxB has attracted more than 400 clients, accepted US$65bn in deposits, and processed trillions of dollars through its systems.
When the bank first told analysts and investors in January 2020 about its plans to move into transaction banking it said it wanted TxB's revenues to hit US$1bn and deposits of US$50bn about five years after launch.
The business produced revenues of US$175m in the first six months of this year, chief financial officer Denis Coleman told analysts after second-quarter results on July 18. That indicates revenues are on track to exceed US$350m this year, up from US$225m in 2021 and about US$150m in 2020, but still some distance from the US$1bn annual target.
Higher interest rates could improve margins across transaction banking, analysts have said.
"We'll continue to focus on growing overall clients, balances and continuing to incrementally operationalise that business," Coleman said. "It's obviously a profitable business already. And it's a business ... that benefits from leveraging the relationships that we have already inside the firm to grow it incrementally,"
Transaction banking is often derided as the "boring" side of banking, but it provides stable and significant revenues and can open the door to other fees, and major banks have been investing heavily in the area for several years. Revenues from transaction banking are estimated to be about US$150bn annually, about half of which is in the US. Big commercial banks including HSBC, JP Morgan, Citigroup, Bank of America and Deutsche Bank are among the leading firms.
Much of the work involves manual processing. Banks are investing in technology to transform processes and Goldman said its cloud-based technology gives it an edge over outdated legacy platforms.
Updated story: Adds details on rollout and revenues paras 4 and 7-9