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Exclusive: Goldman Sachs on course to launch cash management in mid-2020

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NEW YORK/HONG KONG (Reuters) – Goldman Sachs Group Inc (GS.N) is considering paying big multinational corporations more for their deposits than other banks as it paves the way for its entry into a mundane but prized business: managing cash.

FILE PHOTO: The ticker symbol and logo for Goldman Sachs is displayed on a screen on the floor at the New York Stock Exchange (NYSE) in New York, U.S., December 18, 2018. REUTERS/Brendan McDermid/File Photo

The global investment banking powerhouse and fifth-largest U.S. bank, which is six months into building the required technology, aims to start the service in the first half of 2020, according to two people familiar with the plan. They agreed to discuss internal strategy on the condition they not be named.

The bank, which will earn fees and gain a captive client base for its foreign exchange business, could offer existing corporate clients more on deposits if they sign up for Goldman’s cash management services, a person familiar with the plan told Reuters.

Long considered a low-margin, utility-like service, the wholesale payments and cash management business generated about $250 billion in global revenue in 2017 for big banks, according to management consulting firm Oliver Wyman.

The steady stream of income has grown more attractive to banks that have been shifting away from volatile areas such as trading and investment banking in the aftermath of the financial crisis a decade ago.

Citigroup Inc (C.N), JPMorgan Chase & Co (JPM.N), Bank of New York Mellon Corp (BK.N), HSBC Holdings PLC (HSBA.L), Standard Chartered PLC (STAN.L) and Deutsche Bank AG (DBKGn.DE) currently dominate the market, handling corporations’ payments and receivables across different regions.

As Goldman seeks to grow stable revenue by adding a cash management service for clients whom it already offers hedging and strategic advice, the investment bank further evolves to match rival universal banks’ range of businesses.

Goldman Sachs is about half way to a goal management set in 2017 to generate $5 billion more in annual revenue by next year, largely by boosting reliable, fee-based businesses. (Graphic: tmsnrt.rs/2H81K9a)

However, rivals privately scoff at the idea Goldman can gain significant market share in a business where contracts often last five years, clients tend to stick with their banks and a global network of banking licenses greases the wheels.

“The regulatory and operational costs of building a global cash management platform will be very steep and will take many years to achieve the scale that will justify the costs,” said a senior commercial banker at a large European bank.

“Large multinational companies are consolidating the number of banks they deal with, and they don’t tend to switch service providers frequently for workday functions like facilitating supplier payments and managing payrolls.”

FIRST CLIENT

Nonetheless, Goldman believes it can make inroads.

Its investment bankers have heard corporate treasurers at big U.S. multinational corporations complain that other banks’ systems are clunky and outdated, one person familiar with Goldman’s plans said. Goldman will try to woo those accounts with a user-friendly interface and other improvements, and eventually hopes to be the third or fourth bank corporate clients use, in addition to other banks, for cash management.

Later this year, Goldman will become its own first client by moving its deposits from other banks onto its own cash management platform. Goldman stands to earn money from cash management in three ways: fees earned for processing funds, fees earned on exchanging a client’s cash into other currencies during a transaction, and by using deposits as operational account balances, a cheaper alternative to wholesale funding.

Oliver Wyman predicts that wholesale payments and cash management revenue will grow 5 percent annually over the next five years. Growing volumes and rising interest rates will more than offset narrowing profit margins caused by increased competition, the consulting firm said.

Paying clients more for deposits and offering new technology is a strategy Goldman used when it launched Marcus, its online retail bank, in 2016.

FILE PHOTO: The Goldman Sachs Headquarters building is pictured in the Manhattan borough of New York City, New York, U.S., December 19, 2018. REUTERS/Carlo Allegri/File Photo

It has paid off. Marcus had $30 billion of deposits in the United States and the United Kingdom and $4 billion in loans as of November, and is contributing about $200 million to Goldman’s revenue, according to a November presentation.

In recent months, Goldman has advertised that it is hiring cash management compliance, technology, and legal professionals.

In one LinkedIn post seeking applications for lead data architect in the commercial banking engineering team, Goldman said it was looking for “innovative solutions to traditional banking activities” by combining the “heritage of a 148-year-old financial institution with the agility and entrepreneurial spirit of a tech start-up.”

Reporting by Elizabeth Dilts in New York and Sumeet Chatterjee in Hong Kong; Editing by Lauren Tara LaCapra and Tomasz Janowski

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Canadian Tire and NuPort Robotics to commercialize Canada’s first automated heavy duty trucks

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Canadian Tire Corporation and Toronto based start-up NuPort Robotics, Canada’s first autonomous trucking company, are partnering with the Ontario government to invest $3 million to undertake an automated heavy duty trucking project to test a “first-of-its-kind-in-the-world” technology. 

The breakthrough technology provides a transportation solution for the middle mile, the short-haul shuttle runs that semi-tractor trailers make between distribution centres, warehouses and terminals each day.

It is designed to enable next-generation automated trucks that are more fuel efficient, safer to operate, and provide an enhanced driver experience.

Backed by $1 million in support from the Ontario government through Ontario’s Autonomous Vehicle Innovation Network and matched by $1 million investments from Canadian Tire and NuPort Robotics, respectively, the two-year project is applying proprietary, artificial intelligence technology from NuPort Robotics to retrofit two conventional semi-tractor trailers – which will always be attended by a driver – with high-tech sensors and controls, a touchscreen navigation system, and other advanced features such as obstacle and collision avoidance.

Caroline Mulroney, Minister of Transportation, says: “Ontario is proud to be a global leader in automated and connected vehicle technology and this innovative project is an exciting milestone toward automated vehicle tech in the trucking industry.

“Ontarians rely on goods being delivered by trucks across the province every day and projects like this are demonstrating the ways that automated truck technology could help businesses meet delivery demands more efficiently while supporting a strong supply chain in Ontario.”

Vic Fedeli, Ontario Minister of Economic Development, Job Creation and Trade, says: “This project applies unique and made-in-Ontario Artificial Intelligence technology that offers increased safety and efficiency, with a reduced carbon footprint, to the goods supply chains on which we all rely.

“This is the latest example of how Ontario’s Autonomous Vehicle Innovation Network acts as a catalyst, fostering partnerships between ambitious technology start-ups and industry to develop and commercialize next generation transportation technologies that strengthen our economy and benefit society.”

Raghavender Sahdev, CEO of NuPort Robotics, says: “The trucks are currently transporting goods between a Canadian Tire distribution centre in the Greater Toronto Area and nearby rail terminals within a 12.5 mile radius, and early results are promising.

“The aim of the project is to develop a system that incorporates an autopilot feature for conventional trucks with a driver, leading to the most efficient way to drive and increase safety.

“The sensors work as a ‘safety cocoon’ to cover blind spots and prevent accidents and the end result is peak fuel efficiency, meaning lower carbon emissions, and peak driving performance for an overall more optimal transportation experience.”

NuPort Robotic’s approach to autonomous trucking is unique in the industry because it focuses only on solving the middle mile challenge, using a known set of predetermined trucking routes that are repetitive and high frequency as opposed to general highway driving.

Ultimately, when implemented on fixed routes in the future, Canadian Tire will benefit from faster commercial deployments and improvements in supply chain sustainability.

Gary Fast, vice-president of transportation, Canadian Tire, says: “Canadian Tire embraces innovation and is always testing new technologies to improve our operational efficiency and safety.

“As proud Canadian companies, the safety of all stakeholders, including drivers, employees, customers, and public will be the top priority as we work together towards deployment of this technology.”

Cari Covent, vice president of intelligent automation, Canadian Tire, says: “Over the last three years, Canadian Tire has made a significant effort to solve complex business problems by using the Canadian start-up Artificial Intelligence ecosystem, and NuPort Robotics exemplifies what we look for in a start-up with a focus on innovation, automation and artificial intelligence.”

Sahdev says: “As NuPort Robotics continues to develop new technologies to overcome middle mile supply chain problems and advance autonomous trucking, I am extremely grateful for the support of the Ontario Government through AVIN and the Ontario Centre of Innovation.

“With their continued support, we are striving to position Canada as the leader in autonomous transportation.”

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Constellation Software is money in the bank, this fund manager says

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If you’re looking for a long-term hold in Canadian tech then Constellation Software (Constellation Software Stock Quote, Chart, News, Analysts, Financials TSX:CSU) should definitely be on your radar. So says Jason Del Vicario of Hillside Wealth Management who likes not only Constellation but its recent spin-off Topicus (Topicus Stock Quote, Chart, News, Analysts, Financials TSXV:TOI) which Del Vicario says could do even better than CSU over the next ten years.

Software consolidator Constellation has been running on the same game plan for years, buying small vertical market software companies providing so-called mission critical software solutions globally. Over the years CSU has completed over 500 such acquisitions, buying the top names in their respective niche verticals and then using its clout and breadth to grow the business and expand into new markets. The resulting cash flow is then plowed back into more acquisitions and the cycle repeats.

The strategy has worked wonders for Constellation, which has grown its revenue from $631 million in 2010 to almost $4 billion for 2020 while taking earnings from $4.12 per share in 2010 to $20.59 per share this past year.

Shareholders were given a special treat last month when Constellation spun out recently acquired Topicus, giving CSU owners about 1.9 Topicus shares for every Constellation share as a dividend-in-kind. Constellation bought Netherlands-based software company Total Specific Solutions BV (or TSS) in 2013 and that subsidiary recently acquired Topicus BV, a Dutch information service company focusing on sectors such as healthcare, education and finance.

Topicus was singled out by Constellation founder Mark Leonard for its ability to grow without using outside shareholder funding. Leonard said the spin-out was part of the intention since a purchase agreement was struck last year.

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Nuvei wins price target raise from National Bank

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Strong quarterly results and an even brighter outlook for 2021 are reasons to celebrate for Canadian payments company Nuvei (Nuvei Stock Quote, Chart, News, Analysts, Financials TSX:NVEI), according to National Bank Financial analyst Richard Tse. In an update to clients on Wednesday, Tse left his rating unchanged at “Outperform” while raising his price target from C$85.00 to C$100.00.

Montreal-headquartered Nuvei is a provider of payment technology solutions to merchants and partners around the world, with a platform geared for high-growth mobile commerce and e-commerce markets. Nuvei’s solutions include a fully integrated payments engine with global processing capabilities, a turnkey checkout solution and a suite of data-driven business intelligence and risk management tools and services.

The company released its fourth quarter and full year 2020 financials on Wednesday, showing Q4 revenue of $115.9 million, up 46 per cent year-over-year, and adjusted EBITDA of $51.3 million, up 61 per cent year-over-year. Total dollar value of transactions processed by merchants (‘total volume’) with Nuvei rose by 53 per cent to $13.9 billion. (All figures in US dollars except where noted otherwise.)

The 2020 year featured revenue up 53 per cent to $375.0 million and adjusted EBITDA up 87 per cent to $163.0 million, with total volume rising a full 76 per cent year-over-year to $43.2 billion.

“Our performance continues to be driven by strong momentum in the high-growth verticals we serve, as well as by our customizable, scalable and feature-rich technology platform which provides one of the industry’s most complete payment technology solutions going well beyond merchant acquiring,” said Philip Fayer, chairman and CEO, in a press release.

The company said the fourth quarter represented the strongest growth yet experienced by Nuvei, driven by wallet share expansion from current merchants along with accelerated uptake of new merchants. New e-commerce business almost tripled compared to a year earlier, Nuvei said, while the company expanded its connectivity coverage over the quarter, introduced new product innovations on its platform and continued to execute on M&A.

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