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Goldman CIO touts new consumer lending business as 'fintech startup'

Goldman Sachs CIO Martin Chavez talks up APIs, cloud services and open source as key to meeting digital disruption head on.

Goldman Sachs Group Inc., financial adviser to corporations, governments and the world's one-percenters, is stepping...

out of its comfort zone. The global investment bank recently unveiled Marcus.com, an online lending platform for consumers. The platform not only represents a new customer focus -- ordinary people who get into debt -- but a new technology strategy at Goldman.

With Marcus, named after the bank's founder, Goldman will be going head-to-head with a new generation of consumer online lenders such as Prosper and Lending Club. These are among a slew of  fintech startups, which have exploded in recent years and are often hyper-focused on a niche market.

Fintech startups rely on technology to provide faster, more agile customer service than the traditional Wall Street behemoths. Marcus, which is built on APIs, was born out of the same thinking.

"There is no human intervention; there are no spreadsheets in the middle of the supply chain which is usually the case in finance," said Martin Chavez, CIO and deputy CFO at the New York-based investment bank.

Martin ChavezMartin Chavez

Indeed, Chavez said Goldman is not only exploiting APIs, but open source and cloud services as well -- a trio he referred to as the most "profound drivers" of innovation in financial services he's ever experienced. They are transforming both the Goldman culture and the Goldman clientele.

"One of the things we say in the tagline for our new consumer business is it's a fintech startup with 147 years of experience," Chavez said.

APIs key to 'fintech startup'

During his keynote talk at the recent Data, Dollars and Algorithms: The Computational Economy event hosted by Harvard University's Institute for Applied Computational Science, Chavez compared Goldman Sachs to another paragon of cutting-edge tech -- Google. He suggested their business models share similarities; at a very basic level, they are both in the business of "intermediation," or matching buyers with sellers, Google for advertising space and Goldman for risk. Other aspects of their similarity, he noted, including their embrace of the platform business model to connect producers directly with consumers, are more "aspirational," he said.

Chavez said Goldman has been thinking platform business model since at least 1993, when he helped architect Securities Database or SecDB, which provides visibility into the bank's risks and what might happen to those risks. Back in those days, humans and telephones were Wall Street's APIs, he said. It's only recently that the investment bank has opened up that kind of platform digitally to its clients, taking a page directly from the Silicon Valley playbook. Money managers, hedge fund managers and other clients can now access tools, content and analytics through APIs, a necessary technology if a platform is to succeed. "We're turning all of the verbs, all of the activities at Goldman Sachs, into APIs," Chavez said.

Goldman is not alone. The use of APIs has skyrocketed in the last couple of years. In 2015, there was a 12-fold increase in API calls. A majority of the revenue at Salesforce, Expedia and eBay -- between 50% and 90% -- comes from APIs; for some companies such as Twilio, a cloud communications platform, 100% of its revenue comes from APIs, Chavez said. "We are going the same route and shifting to a service-oriented architecture," he said.

APIs also enable business combinations that wouldn't otherwise exist, Chavez said. He pointed to Netflix, which relies on AWS to provide streaming services, and Uber, which sits on top of Google Maps, as examples of businesses that would have struggled without APIs. "If Uber had to go out and digitize the planet, and then get digital maps on phones and then get phones into the hands of lots and lots of consumers before Uber had its first passenger meet its first driver, I think that would have been hard," Chavez said. "But because all of this existed, Uber could just plug into it."

The Marcus online lending offering is an example of a plug-and-play API strategy; Chavez and his team built and launched the platform in 12 months. "The only way you can do this is through platforms and APIs," he said. Marcus is built on top of technology platforms such as Elasticsearch and Kafka, and is a platform itself, connecting customers with service providers such as Twilio, for which Goldman led the initial public offering, FICO, a data analytics company, and Adobe, the marketer and content management company.

"One of the things we're insisting on is a very high standard of lovely and impeccable documentation for these APIs because we're opening up the vertical monolith, which used to have only one API point, which was human beings on the phone, and now has many RESTful APIs," he said, which enable communication between online systems.

Another priority? User experience. "We thought hard about things like if we can underwrite the loan by asking for 17 pieces of information rather than 18 pieces of information, let's do that; if we can have the approval happen in seconds, let's do that. If we can cause the funds to be wired the same day, let's do that," he said.

The customer service is not just Goldman-centric. If customers would rather look at the data visualizations or analytics in an application other than the ones Goldman is building, they can. "It's all available by API. Everything that our clients do, which is to understand the risk, to measure it, to tailor it, to get from where they are to where they want to be, can now be done by API verbs."

Technology is the business

Marcus has not just reordered how Goldman does business but underscored the importance of IT and of the CIO role for business growth and customer acquisition.

Indeed, in May, Chavez will become the financial institution's CFO.

When he was asked by analysts about the unusual career move in his first earnings call, Chavez said, "I talked about how everything we do is underpinned by math and a lot of software."

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