- Goldman Sachs has announced a partnership with SAP to offer cross-border payments functionality on the German tech giant's Ariba Network, which matches corporate purchasers with their vendors.
- The partnership is the first to be made public from Goldman's nascent transaction banking business, which it began building just 13 months ago.
- Goldman can offer one-click functionality and transparent prices thanks to the way it built the business, using APIs, based in the cloud, with a digital-first mentality.
- Goldman has been looking to build stickier sources of revenue to lessen a reliance on more episodic investment banking fees such as those from its underperforming trading arm.
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Goldman Sachs just announced the first partner for its fledgling transaction-banking business, inking a deal to handle cross-border payments for clients of SAP, the German enterprise tech giant.
Goldman will help customers of SAP's Ariba Network to pay bills in 125 currencies, offering them one-click functionality and a transparent fee structure, according to a statement and interviews with senior executives at both firms.
The tie-up is the latest evidence of Goldman's attempts to redefine itself as a commercial bank. The company has been looking to build stickier sources of revenue to lessen a reliance on more episodic investment banking fees such as those from its underperforming trading arm.
The strategy – which also includes a digital consumer bank, a mass market wealth management offering, and a credit card – has elicited widespread skepticism from investors and analysts who question if the firm can successfully pivot its 150-year old franchise.
In transaction banking, it's going after a business that's been dominated for decades by the likes of Citigroup, HSBC and JPMorgan.
And yet Goldman CEO David Solomon expects to generate $1 billion from the business by 2025. He wants to have $50 billion in deposits on behalf of clients.
A new middleman
In partnering with SAP, Goldman is stepping into the middle of an Ariba Network that connects corporate purchase officers with the vendors that supply them goods and services. In doing so, it's significantly simplified the user experience, according to Hari Moorthy, the Goldman partner who runs the business.
"With the click of a button, we take a direct integration with Ariba to process the payment and process the FX in one singular transaction," Moorthy said. "The client gets complete transparency on where is the payment and how much they have paid for that service. We do the whole thing in one single process."
Sean Thompson, an executive vice president at SAP, explained how that integration is different than how it's been done in the past.
"Historically that has meant that treasuries had to do their own system and they've had to do what I call the swivel-chair integration, which is a human being that's sitting in a chair going from one system, swiveling over and entering information into another system," he said.
And yet, Goldman's competitive advantage is probably its ability to offer its expertise in financial markets to lower prices for converting payments from US dollars into other currencies, according to Thompson.
"The special sauce is their intellectual capital in how to drive down the cost of cross-border payments and foreign currency hedging," said Thompson. "That results in a lower cost of doing cross-border payments."
Goldman joins a growing list of banks offering their services on SAP's network, including Standard Chartered's trade financing, and the ability to use credit card rails through Barclays and Discover, Thompson said.
Ariba facilitates tens of billions of dollars in cross-border payments each year, a chunk of the more than $3 trillion in transactions that cross the platform.
Friday meditation sessions spur innovation
Goldman and SAP have a relationship that traces back decades to the firm's founding in the early 1970s, according to the bank. More recently, Goldman represented SAP in its $2.4 billion acquisition of Callidus Software in 2018. Goldman is also a big customer of SAP's technology.
Ryan Limaye, a partner and co-head of global TMT banking, helped make the introduction to SAP's top execs, according to a spokesman.
While the SAP integration is a bespoke arrangement, Goldman has built the business so it can do many customized solutions for different clients relatively easily, Moorthy said.
That's enabled by some of the very same techniques that Goldman has used elsewhere in the company to gain digital advantage – services built and hosted entirely in the cloud, driven by application programming interfaces, or APIs, and designed to be digital-first and nimble.
Moorthy has overseen a relatively rapid build out, growing a team of roughly 320 employees within Goldman Sachs' investment banking division just since the end of 2018 when he joined from JPMorgan. He reports to division co-heads Gregg Lemkau and Dan Dees.
Like some of Goldman's other digital-first efforts, Moorthy has been allowed to foster a culture within a culture.
Every Friday, he hosts a meditation session for his staff on the 27th floor of the bank's Manhattan headquarters. A practitioner of 27 years, Moorthy credits the meditation sessions with helping his team to come up with ideas.
Years ago, when Goldman was building its digital consumer bank Marcus, execs credited weekly standing huddles, relaxed dress codes and writing on the walls with bringing a more relaxed vibe to the larger Goldman population, known for its stuffy shirts and white-shoe roots.
Goldman was the first client of the fledgling operation. Between last July, when it was turned on for Goldman, and today, the firm has processed more than $5 trillion in payments. It's on pace to save the firm something like $100 million by not having to pay fees to other banks.
The bank disclosed during its investor day in January that it was already working with 20 clients. All told, US large corporations spend about $70 billion each years on these services, Moorthy said. And they're looking for some new service offerings.
"The number one feedback they had given us is make it simple, make it easy, make it operationally less manual and make bank fees and costs transparent," Moorthy said. "Which implies none of those are true today."
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