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Goldman Sachs to Give Investors More Transparency on Lending Operations

The bank hopes that additional information about their business will change how investors value their stock

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The Wall Street Journal reports that Goldman Sachs is planning to share more information about their different business units. The new financial disclosures will finally give investors insight into both their lending practices and their trading business, areas where the bank has previously shared very little.

Currently, shares of competing banks like JPMorgan Chase and Bank of America are valued much higher. and the Goldman Sachs CEO believes their stock is significantly undervalued. The hope is that the increased transparency will help their stock which currently trades at levels around their 2007 stock price. From the WSJ:

Mr. Solomon and his deputies, including finance chief Stephen Scherr, are betting that more openness will help in the meantime. For all of Goldman’s changes since the financial crisis—building a consumer bank, reining in freewheeling traders, lowering its funding costs—investors still view the firm as more prone to market swings than rivals and less willing to explain its results.

The build out of their consumer bank and their Marcus brand has been one of the biggest strategic changes for the firm. Marcus is now one of the leading digital banks in the US and they have also recently moved aggressively into the UK with plans to expand elsewhere in Europe.

One of the big changes is breaking out their investing and lending segment which previously included various loans and bets that the bank had made. Loans to companies will now be reported as well as loans to hedge funds, but it remains to be seen whether we will learn more about their personal loan business. Investors will also be able to see revenue from wealth management which is noteworthy given the bank has recently opened up to serving a younger demographic who aren’t necessarily wealthy.

The Ten Biggest News Stories of the Decade in Marketplace Lending

We take a look back at the news stories that shaped marketplace lending in the 2010s

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I started writing about marketplace lending back in 2010, so I have spent almost the entire decade immersed in this space. While we have expanded our coverage on Lend Academy today beyond marketplace lending this remains a major focus.

We have certainly come a long way in the past ten years and the industry is almost unrecognizable from where it was in 2010. Back then there were just two notable companies in the space, LendingClub and Prosper, originating just a few million dollars a month in loans. No one could have predicted that by the end of the decade marketplace lending would have led to a resurgence in personal loans and changed expectations for customer experience across all lending verticals.

As I look back at the past decade here are, in my opinion, the top ten most important news stories in chronological order.

Prosper Recapitalizes and Brings in a New Management Team
(January 2013)

At the time this was a huge story. The number two marketplace lender had been struggling for some time and was in serious danger of running out of money. This new funding round was small by today’s standards at $20 million but it ensured that Prosper would remain a going concern. The deal was architected by, the now fintech legend, Ron Suber as he brought in a new management team and a new board to guide Prosper on to their future growth path. It helped set the industry up for success over the next several years.

LendingClub Becomes First Marketplace Lender to go Public
(December 2014)

This was a momentous day for marketplace lending as market leader LendingClub became the industry’s first company to go public. The IPO was a huge success by any measure. By the end of the first day of trading LendingClub was valued at $8.46 billion and they had raised $870 million in cash. Of course, at the time we had no idea what would happen to the stock but there was a sense a real optimism that this company was going to change the world.

Second Circuit Rules on The Madden Decision
(August 2015)

The biggest legal issue the industry dealt with this decade was the ramifications of the Madden v Midland decision. We have been following this case since the Second Circuit ruling in 2015 and it has had far reaching consequences for the industry. It has led to a reduction in lending activity in Second Circuit states (NY, CT and VT) but the bigger concern was that this kind of ruling would spread nationally. That has not happened and there have been multiple regulatory fixes proposed plus the OCC and FDIC have weighed in as well. But as of this writing nothing concrete has changed since the 2015 decision.

SoFi Raises $1 Billion Led by SoftBank
(September 2015) [Read more…]

The Superior User Experience of the New Apple Card

I share my experience applying for the new Apple Card and where I think it breaks new ground

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I just signed up for the Apple Card. I have been fascinated by this partnership between Apple and Goldman Sachs ever since we learned about it last year. So, when it went live earlier this month I knew I had to get it.

While I may not be a true Apple fanboy I use many of their products including a Mac, iPad and iPhone. The Apple Card is designed to work seamlessly with the iPhone, in fact you must have an iPhone 6 or later to be able to apply for the Apple Card. There is no web-based application, you have to do it from inside the Wallet app.

I like to play the mileage and points game so I have several Chase and Amex credit cards and I regularly (2-3 times a year) apply for new cards. It never ceases to amaze me that, despite all the credit cards these companies issue, the online application process always feels clunky and unfriendly. They could and should make it much more simple.

The Card Application Process Felt Like Visiting the Future

This is what Apple has done. The user experience in the application process is simply superb. They have clearly thought long and hard about ways to reduce friction, especially considering you are applying on your phone. Here are some screenshots of the process: [Read more…]

PeerIQ’s Q4 2018 Lending Earnings Insights Report

PeerIQ's latest Lending Earnings Insights Report points to a strong economy but bank and card issuer CEOs are cautious about being late in the credit cycle.

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PeerIQ released their Q4 2018 Lending Earnings Insights Report which points to a number of themes showing the economy is strong but CEOs are striking a cautious tone. Delinquencies and defaults continue to be low as consumers have seen their wages rise and taxes drop. Lenders are increasing reserves as they anticipate credit to renormalize in the near future, saying the economy right now was too good to be true.

The report covers earnings reports from big banks and fintech lenders. Stock performance was mixed with the flattening yield curve causing banks and card issuer stocks in particular to suffer. Companies covered include Enova, LendingClub, One Main Financial, OnDeck, GreenSky, Bank of America, Citibank, Goldman Sachs, JP Morgan Chase, Morgan Stanley, Wells Fargo, Capital One, Discover, Synchrony and American Express.

One of the growing trends has been the pull back by banks lending directly to consumers and small businesses. Banks are instead increasing funding lines to non bank lenders, credit facility volume has grown 6x since 2010. The growth in originations from non bank lenders has forced regulators to look at them more closely, while the FDIC is considering granting ILC charters to non banks.

Broadly across the credit spectrum fintech lenders have seen delinquencies and charge offs remain at near record lows. All the companies in this segment saw double digit revenue and origination growth YoY. Lenders have started to raised borrowing rates, though not at the same pace as the Fed Funds Rate. The flattening yield curve has raised the cost of borrowing on credit facilities, causing margins for lenders and investors to be compressed.

Big banks experienced another strong earnings quarter as all covered in the report saw double digit increase in earnings. Revenue drivers vary from bank type to bank type. Big banks covered within the report saw deposits rise due to a better digital banking experience, an integration between wealth and banking products and a retail branch expansion. As a group the banks are growing, albeit slower than in the past, through digital means and are focused on the long term potential of products they are currently building.

Credit card issuers all saw their earnings grow by more than 20 percent YoY. Most card issuers also saw growth in revenue and their loan books. Growth in total allowances for losses outpaced loan growth, pointing to the fact that most card issuers see a credit normalization coming. Card issuers have used the partnership model with stores like Walmart, JC Penney and Lowes to grow revenues.

Overall economic health, low delinquencies and low charge offs show that the credit space is doing quite well. Though the report points out that most of these companies do not expect this environment to last forever, they are in the midst of preparing for a change while they keep growth humming along.

Marcus Scaling Back Originations Plans for 2019

The Goldman Sachs unit is reportedly concerned about where we are in the credit cycle so they are scaling back growth

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Source: Bloomberg

There was an interesting article in Bloomberg yesterday on Marcus. Bloomberg cites sources claiming that Marcus will be scaling back on its origination goals for next year. Now, we don’t know exactly what the origination goals were or what they have been scaled back to, we only know that their origination goals are now less than originally planned.

As we reported last year Marcus was the fastest company ever to $1 billion in loan originations, they passed that milestone in just eight months. Since then they have continued this frenetic pace, passing $4 billion in Q2 of this year, in under two years. No company has ever grown their personal loan book so quickly.

From the Bloomberg piece:

The reduction in 2019 plans is based on current market conditions for consumer lending and could still change, said the people, who didn’t provide exact figures. A spokesman for Goldman Sachs declined to comment.

It is not surprising that they are putting the brakes on somewhat. We are very likely late in the credit cycle and Marcus wants to get ahead of any possible downturn. They hold these loans on their own balance sheet so we don’t have much of a window into loan performance so far. The Goldman Sachs CFO did say that defaults are running at around 5% and other Marcus executives have said that defaults are in line with expectations.

I don’t think this changes Goldman’s approach with Marcus. The new CEO, David Solomon, has indicated his commitment to the online bank as an important part of Goldman’s future growth. It is good not to get ahead of yourself, we have seen what can happen when online lenders put origination growth as the major focus. It is very easy for underwriting standards to slip in the pursuit of ever more borrowers.

We should find out more on the Goldman Sachs Q3 earnings call coming up soon. But this pullback in growth is probably a good thing for Marcus in the long run.

How Goldman Sachs Created Marcus To Be a Dominant Force in Consumer Banking

In just two years the Goldman Sachs digital initiative called Marcus has changed the banking landscape

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[Editor’s note: This article was written for our Chinese audience and will be translated into Mandarin and released with several other articles at the Lendit Fintech China conference in Shanghai in September.]

It all began at the home of a senior Goldman Sachs executive in the summer of 2014. A select group of leaders were there to discuss new growth opportunities for the firm. They wanted to start a new line of business where there was a large unmet customer need and where Goldman Sachs could leverage its resources to gain a competitive advantage in the market.

After 145 years serving only the very wealthiest of clients it was decided that they would launch a consumer bank. In reality, they already had a banking license because during the financial crisis they opted to become a bank holding company. But for years they had never really used this to launch any new products. That changed in 2016.

First, there was the launch of GS Bank in April 2016. Six months later Goldman Sachs introduced the world to their Marcus brand. They began as an online lending platform offering unsecured consumer loans up to $30,000 with interest rates ranging from 5.99% to 22.99% (they now offer loans up to $40,000 and rates range from 6.99% to 24.99% as of August 2018). Their big differentiator was offering no fees. There was no origination fee for the borrower, no prepayment fees and no late fees.

They gained traction very quickly. They crossed $1 billion in total originations within eight month of launch. At the end of their first year they were at $1.7 billion. At that time they brought their deposit business under the Marcus brand, it was formerly branded under GS Bank. Now when you go to the Marcus website you are presented with two options: personal loans and savings accounts (which includes certificates of deposits).

[Read more…]

Goldman Sachs Shares Their Vision for the Future of the Marcus Platform

At the recent Bernstein Strategic Decisions Conference Goldman Sachs President David Solomon provides some insight into the future direction of Marcus

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I write a lot here on Lend Academy about Marcus by Goldman Sachs. The reason I do so is because they are such a great example of what is possible when a well funded incumbent gets serious about fintech. Now, Goldman is an unusual case in that they have been around for about 150 years as an investment bank but they have only been a commercial bank since 2008. So, they have the big advantage of having a globally trusted brand but no legacy technology infrastructure or processes when it comes to consumer banking.

Anyway, last week at the Bernstein Strategic Decisions Conference we learned a little more about what Goldman has planned for Marcus. This is an annual event run by AllianceBernstein that goes back decades and it attracts CEOs from some of the largest companies in the world as they share plans for the company’s growth. David Solomon, the President of Goldman Sachs, and the handpicked future CEO to Lloyd Blankfein, gave the presentation.

You can listen to the full presentation here where you can also download the PDF of his slide deck. While the bulk of the presentation was on the many other Goldman Sachs initiatives towards the end he spent some time discussing Marcus. We learned that Goldman has contributed a significant amount of capital already to Marcus:

Since we started working on Marcus, we’re very pleased with our progress and have invested, through capital spend and operating losses, $600 million, including reserves. That’s up $100 million from $500 million, including reserves, at the end of 2017. It’s important to note that we’ve done this out of our operating earnings while, at the same point in 2017 and the first quarter of 2018, delivering strong returns to our shareholders.

In the slide deck there was just one slide on Marcus (slide 14) but it did reveal some interesting plans for the first time. I have reproduced the slide below (click to view it at full size):

[Read more…]

Goldman Sachs Said to be Partnering With Apple on a New Credit Card

The new credit card will carry the Apple Pay brand and will be the first foray into credit cards for Marcus by Goldman Sachs

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On stage last month at LendIt Fintech USA 2018 Omer Ismail, the Chief Commercial Officer for Marcus by Goldman Sachs, said that one of the new products his firm was looking at was credit cards. Not that surprising, really, for a company working hard to grow their consumer finance business.

Earlier today the Wall Street Journal broke the story that Goldman Sachs would be partnering with Apple on a new credit card. When I was thinking about potential ways Marcus would launch a credit card, a partnership with Apple was not what came to mind. It points to the many advantages that Marcus has over pretty much every other fintech company. They have the Goldman Sachs name behind them and have deep relationships with some of the largest companies on the planet. That opens doors that are simply not available to even the more established fintech platforms.

So how will this partnership work? I reached out to Goldman Sachs but not surprisingly they had no comment, so we will have to go with the information in the WSJ article:

The planned card would carry the Apple Pay brand and could launch early next year, people familiar with the matter said. Apple will replace its longstanding rewards-card partnership with Barclays, the people said.

Apple has had a card relationship with Barclays going back to 2005 so this is a significant move on Apple’s part as well. Given this is going to be an Apple Pay branded card Apple is clearly focused on building that part of the business. The WSJ states that the economics of any Apple Pay transaction would be significantly improved with this new Marcus card. [Read more…]

Savings and Deposit Rates in a Rising Rate Environment

As rates rise fixed income investors are looking for places to put cash.

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For many years there have been few opportunities for yield which is one of the reasons some investors turned to marketplace lending or real estate. For those looking into safe investments there weren’t any appealing options as savings deposit rates and CD rates at banks haven’t been attractive for years. Since Lend Academy attracts fixed income investors it’s no surprise that they have been watching rates closely.

This thread called Cash Parking on the Lend Academy Forum was created back in December 2016 and since then, forum members have discussed opportunities at banks and credit unions. Forum members have discussed where it makes most sense to have their money and how other investment opportunities like marketplace lending compare.

The discussion caught my eye when one user posted a 3% 5 year CD which happened to be offered by my local credit union. Since these accounts offer FDIC insurance earning 3% guaranteed by the government is a good deal some investor’s eyes. In fact this is the best deal in almost 10 years. I have since been following CD rates and savings deposit rates at various banks over at Bankrate.com which I find is a simple site to use. Another website mentioned on the forum thread is DepositAccounts.com by LendingTree.

Signing Up for a Savings Account at Marcus

Although rates vary from day to day by any given bank, Marcus by Goldman Sachs has been near the top of the list since I began checking. We last did a piece on savings account rates back in June 2017 when Goldman Sachs’ deposit accounts were still branded under GS Bank. Rates are now 30 basis points higher at 1.5% on Marcus accounts. I already hold one savings account at Ally which tends to be competitive with other banks and as I was looking to open up another savings account I decided to test out the newly branded Marcus by Goldman Sachs.

The user experience was about what I expected as the branding around Marcus has always been simple and modern. The signup process was straight forward as they took a minimalistic approach to signup as well as the account homepage. A few screenshots from the process are included below.

Marcus has invested heavily into consumer finance and the newly branded Marcus savings accounts are just one example. Their investment has paid off and it was recently reported that they had $17 billion of deposits. These deposits can be drawn on to fund the personal loans branded under the same name. Since Goldman Sachs acquired GE Capital’s retail deposits, deposits have grown a whopping 90%.

Conclusion

With rates where they currently are it is probably a bit too early to get excited with more rate hikes expected this year. However, a strong case can be made for holding your savings account at one of the banks with current rates in the 1.5% range if your bank’s rates are significantly lower. Current CD rates for 1 year are hovering around 2% while 5 year CD rates at the large institutions are around 2.60%. It’s important to be aware of these options and weigh the risk and rewards of each. For me, I am keeping an eye on CD rates as they approach the mortgage rates on my home and investment properties. If I can earn what I am paying in interest on a mortgage I have the additional benefit of the cash cushion for emergencies.

Have you made any changes as rates have increased? Where are you parking cash? Let us know in the comments section below.

Is Marcus Going to Launch a Credit Card?

Goldman Sachs has acquired the talent from a recently defunct credit card startup

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Ainsley Harris reported in Fast Company today that Goldman Sachs is acquiring the employees who built Final, a credit card startup based in Oakland. Final offered a unique kind of credit card, one that would create a different virtual card number for every merchant, thereby reducing the risk of credit card fraud. The company announced in December that they were shutting down.

According to Fast Company:

Goldman gains about a dozen engineers and product managers with experience building a consumer finance product from scratch. When they arrive at Goldman in the spring, they will join a growing roster of consumer-oriented employees, all part of the bank’s new Consumer and Commercial Banking division.

It has been a busy couple of years for Goldman Sachs when it comes to their consumer facing business. This latest deal follows a long list of acquisitions for Goldman recently:

  1. Acquisition of GE Capital Bank – this jumpstarted GS Bank giving it a huge deposit base.
  2. Acquisition of Honest Dollar – the digital retirement savings app was acquired in March 2016.
  3. Launch of Marcus with debt consolidation loans.
  4. Acquisition of Genesis Capital – not really consumer facing but could add a real estate development arm to the bank.
  5. Bond Street – employees of the online small business lender moved to Goldman Sachs.
  6. Addition of home improvement loans to the Marcus offerings.

Marcus to Offer a Full Suite of Banking Products?

[Read more…]

ABOUT LENDIT FINTECH NEWS

LendIt Fintech News, Powered by Lend Academy, has been bringing you all the news and information about fintech and online lending since 2010 when it was founded by Peter Renton. We not only have the industry’s most active news site, but also the largest investor forum and the first and most popular podcast.

We are a team of fintech enthusiasts who have been covering the industry for many years. With a deep knowledge of online lending, digital banking, blockchain, artificial intelligence and more our team covers the daily news and writes in-depth editorials.

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