The Land of the Rising Fund: Goldman Applies for a Tokyo Banking Licence
May 16, 2019
2 min read
What's going on here?
Leading global investment bank Goldman Sachs has recently decided to apply for a Tokyo banking licence.
What does this mean?
Goldman Sachs needs a Tokyo banking licence in order to improve its cash management efficiency (cash management is the corporate process of collecting and managing cash, as well as using it for short-term investing). Having a global network is key for good cash management, as it allows companies to pay or receive money from all over the world and do more work in-house. Goldman currently runs its cash management business not only via its banking licences but also through banking relationships – in other words, it uses other banks as middlemen for transactions. Obtaining a banking licence in Tokyo would give it access to its cash in yen, euros, sterling and US dollars (the four most traded currencies globally). CEO David Solomon claimed that this would save Goldman around $100 million every year. Goldman would be adding to its banking licences in the UK, the US, Germany and Hong Kong if this application is approved by the Japanese Financial Services agency.
What's the big picture effect?
This is a big strategic move by Goldman as it strives to challenge some of the industry’s leaders (the likes of HSBC, Citibank and JPMorgan) who already have well-established global networks. Goldman only became a bank out of necessity, during the 2008 financial crisis. Its previous 150 years of existence was actually operating as a financial brokerage (the middleman that connect buyers to sellers and makes money through commissions). But as Goldman is a newcomer, it believes that it’s more agile, while the well-established banks are being weighed down by old and less efficient technology.
This is just the next step in a series of advancements in Japan across all elements of its business. In October 2018 Goldman announced that it would launch its emerging retail banking business to Japan, following its successful US launch in 2016 that saw it gain 2 million customers. Following on from this, in January 2019 Goldman hired the former head of M&A at Deutsche Bank and consequently fought its way into the top three of Japan’s merger advisory rankings. In the past year, it has handled deals totalling $403 billion.
As Goldman is a newcomer, it has the opportunity to exploit a competitive advantage with more efficient technology even beyond its Japanese venture. Last year, Goldman acquired the personal finance app Clarity Money and collaborated with Apple on the Apple Pay branded credit card. But can Goldman’s youthful and opportunistic attitude really match the deep-rooted networks of more experienced banks that may be too deeply entrenched to exploit the latest technologies?
Report written by Will H
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