- 5Shares
The long awaited consumer lending platform from Goldman Sachs, called Marcus, has launched today. We have written about the Goldman Sachs effort before and much has been speculated but today we are finally learning many of the details.
Unfortunately, Marcus has launched without being made available to the general public, that will apparently come at a later date. To actually go through the borrower application process you must have received a direct mail piece with a promotion code. But thanks to a detailed FAQ section there is a lot we now know:
- Interest rates will range from 5.99% to 22.99%.
- Loan amount will be up to $30,000.
- Loans will be available to residents of all states with the exception of Maryland.
- There will no origination fee nor any late fees.
- Borrowers can choose the day of the month when their repayment occurs.
Also, there is a very detailed article by Ainsley O’Connell at FastCompany who seems to have an exclusive on the Marcus launch. This article shares virtually the entire evolution of Marcus from initial concept through to launch today and is well worth a read.
Marcus Focusing on No Fees
Here is the big differentiator for Marcus. They are very much focused on no fees. There are no origination fees, prepayment penalties or even any late fees. They will make money purely on the interest rate spread.
I think this is a smart move. Goldman Sachs does not have a great reputation with middle class Americans who I expect will be the target market here. And looking at their interest rate offerings it looks like Marcus will be going head to head with Lending Club, Prosper, Marlette and others. Each of these companies charge an origination fee to the borrower whereas Marcus will not.
While the average borrower may not be attracted to the “Marcus by Goldman Sachs” brand they will be attracted to no fees. This message is displayed in bold right on the Marcus home page. They are also quite upfront about the fact that they make money from the interest on these loans.
What the Industry Thinks
On my panel at LendIt Europe (full report coming tomorrow) this week I asked the panelists what they thought of Goldman Sachs entry into the space. Interestingly, all panelists except one were quite negative on the possibilities of success for Goldman. Business Insider was struck by this and published an entire article about these responses to the question on Marcus. You can watch the panel session here.
I also asked Scott Sanborn, the CEO of Lending Club, about Marcus in our recent interview and while he was not as dismissive as some of the people on my panel he did say, “I feel good about our ability to compete” with Goldman Sachs.
My own opinion is evolving on this matter. I initially thought Goldman Sachs would struggle to create a leading brand in unsecured consumer lending. Now, having seen their offering and thought about it some more I tend to agree with Ram Ahluwalia of PeerIQ who said “Don’t underestimate a large, well-capitalized bank that understands consumer credit risk.”
We know Goldman Sachs is well-capitalized and that it has a very low cost of capital. We also know that they understand consumer credit with the investment banking side having been involved in many securitizations not to mention the Lending Club IPO. What we don’t know is their approach to branding and consumer experience. At first glance, it seems to me they have carefully considered these aspects as well.
The new kid on the block may well end up becoming a formidable force in the industry.
- 5Shares
It appears the loan term options aren’t 36 or 60, but any fixed number of months (within limits of course) as determined by the borrower’s desired monthly payment. It appears the limits are 24 months to 72 months.
Yes, Rob that is a good point. They are being very consumer friendly with their loan terms.
How did I get a letter stating I was denied a loan when I never applied for this
I find it interesting that three of the four panelists downplay the ability of Goldman to make a success of their consumer lending effort. If anybody else came along, say Newco Disruptor Loans, and said we are now doing loans with no fees and no prepayments, with flexible terms, we are not relying on the capital markets or outside investors, we have an unlimited appetite, and we have a deposit base over $100B, my guess is they would be hailed as the disruptor of the disruptors. If the industry is not careful, blinkered thinking and confirmation bias could turn the whole lot of online lenders into third party software providers.
Thanks for chiming in Loren. I agree that we underestimate Goldman Sachs at our peril. They are far from an underdog in my opinion.
Peter, I have an off topic question for you. If/ when will LC offer small business or real estate loans to retail investors. secondly, any opinion concerning recent LC changes concerning intrest rate changes for riskier loans and what seem to be potentially more aggressive collection efforts from defaulted loans
Thank you
Hi Ali,
I think it will be a long time before Lending Club offers small business loans to retail investors. They only offered to select institutional investors today and I have seen no signs of that changing. As for real estate they have not made any moves in that direction yet so unless they do an acquisition it will be many years before that becomes a reality for retail.
As for the interest rate changes I will have an article coming out on Friday discussing this.
A little late for a comment.
I’m an owner of LC stock & was watching it tank for the past two weeks wondering what could be driving that. Now I think I’ve figured it out. People are afraid of the competition from Marcus.
Seems like Marcus may be a formidable foe.
However… isn’t this a little bit crazy for them to get into given that the US taxpayers had to then out less than 10 years ago?
Why would I be sent a loan denial letter today (1/17/2017) from Marcus because of delinquent accounts when I don’t have delinquent accounts and never applied for a loan? Their information came from TransUnion. I use Credit Karma to monitor my credit, but never applied for a loan or credit card. Has anyone else had this experience?
Hi Mark,
That simply should not happen and I have not heard anyone else experiencing this.
It is likely there has been a mistake or possibly even someone has used your information to apply for a loan on your behalf. I would contact Marcus immediately to see if you can find out more.
I got one of those letters too , I never applied for a loan
Well that is bizarre. Looks like a breakdown at their end most likely. If this is widespread clearly they have some work to do at Marcus to improve their systems.
I just got off the phone with Marcus, and the representative said that they had a file on me that I had been looking at a consolation loan and that information was automatically sent to Marcus and they used that to determine if I would be a potential customer for a loan. I did look into a balance transfer credit card, but never applied for a card or loan. They determined that they didn’t want to offer me a loan so the letter was sent. The letter would say I was denied whether I actually applied or not. Their file showed I had not applied for a loan.
Thanks for the additional information Mark, that is very helpful. Looks like Goldman Sachs has some work to do on their internal systems as well as on their user experience. Clearly, this is not a good practice they have going on right now.