Goldman Sachs just killed its neobank. When will Silicon Valley follow suit?

It hasn't been a great year for neobanks. The nascent consumer division within the Wall Street giant has been burning cash since its debut in 2016, thanks to rapid hiring and a direct-to-consumer strategy. Soon after, it acqui-hired Final, a credit card startup, and snapped up Clarity Money, founder Adam Dell's user-friendly app for personal finance management. The storied bank even hired talent like actor Rosamund Pike to front a TV spot advertising Marcus by Goldman Sachs. 'Approach investing in a smart way,' the Gone Girl star told viewers. With shareholder scrutiny zeroed in on the bank's consumer-facing efforts, it's easy to imagine that those teams will be among the hardest hit. Earlier this week, Reuters reported that the bank would be sunsetting its unsecured personal loans, which were originally conceived to be the bank's consumer beachhead. The executives who launched the Marcus brand have moved on. He indicated that he would be directing a 'purposeful shift' toward becoming a wealth platform that grows via corporate partnership. The bank is also strong in wealth management, an area that has allowed competitors, like Morgan Stanley, to diversify its revenue and manage risk without disappointing Wall Street's return-on-equity expectations. The sector as a whole is struggling: By one estimate, just 5% of the 400 neobanks operating globally are profitable. It can be expensive to acquire neobank customers, and even harder to convince those customers to make a neobank their primary banking relationship. While interchange fees on debit swipes offered neobanks an easy path to day-one revenue, they will not satisfy investors over the long term. Neobanks who targeted lower-income, underbanked demographics may find it difficult to develop and scale lending-based offerings. There are digital wallets, such as Block's Cash App, which has used peer-to-peer transactions as a springboard for more lucrative features. There are also the buy now, pay later (BNPL) companies, like Affirm and Klarna, which have successfully expanded from big-ticket items to everyday purchases, solidifying their connection with consumers in the process.