A little over a year ago Goldman Sachs launched their consumer lending platform Marcus as part of a digital strategy to move into the retail banking segment. They have since grown faster than any online lending platform with originations approaching $2 billion. Goldman Sachs now believes revenues from online loans will equal that of trading in the near future.
Last week I was at the Digital Lending + Investing conference in New York. One of the most interesting sessions there, aside from the one I chaired of course, was a discussion with the leaders of Marcus. Omer Ismail, the Chief Commercial Officer (listen to my podcast with Omer here) and Boe Hartman, the Chief Information Officer were interviewed by Kevin Wack of American Banker.
Here at Lend Academy we have been following the developments at Marcus very closely since they launched a little over a year ago. We learned back in June that Marcus had already originated $1 billion in loans (in just eight months) and at the end of their first year we have now learned total originations have grown to $1.7 billion. This makes Marcus the fastest growing online lender in history, at least in this country.
Goldman Sachs Brings Their Deposit Business Under the Marcus Brand
Earlier this year we wrote about Goldman Sachs Bank aggressively going after deposits. For savings accounts and CDs they usually offer one of the highest interest rates available. They now have 300,000 retail deposit accounts with average interest rates of 1.3%.
Goldman Sachs has been very happy with the way the Marcus brand has been received by consumers given their success with personal loans. So much so, that they are going to rebrand their deposit offering from GS Bank to Marcus. This will mean that both retail deposits and lending will be under the Marcus brand. Ismail said at the conference that Marcus has reflected positively on the Goldman Sachs brand and now they will be extending that brand.
The deposit business is expanding to the UK. They plan to launch there in the middle of next year. They have no other countries on the roadmap, they will focus on the US and UK businesses for now. And the Marcus brand will be front and center in both countries.
Loan Performance Will be Key
While it is still early days in their lending business Goldman Sachs is showing that they are a force to be reckoned with. I have been impressed with their execution so far and their approach to user experience has been outstanding.
Now, having said all that, we have learned that fast origination growth, while impressive, is not nearly as important as the quality of underwriting. Given that Marcus has only been issuing loans for a little over a year we don’t have much of a window yet into their loan performance. Also, their decision to keep all their loans on their balance sheet means they won’t be tapping the securitization markets, so that won’t provide a window either. We will have to rely on what Goldman Sachs reports in their public filings.
On a panel at LendIt Europe last year, just days before the launch of Marcus, I remember asking a group of US industry leaders on what they expected from Marcus. Most thought that they would struggle given their lack of history in consumer credit and the fact that their brand was built for wealthy investors not the mass market consumer. Ram Ahluwalia of PeerIQ was the lone dissenter. I remember him saying it is a brave person who underestimates Goldman Sachs. At least so far that is proving to be true.
Here is how I see it. The entry of Goldman Sachs into online consumer lending is a good thing for the industry. It has given more legitimacy to the online lenders and brought more awareness to personal loans. Sure, it has also brought competition. But despite all this competition for debt consolidation loans, according to the latest Federal Reserve data total revolving debt has grown from $952 billion to $1.01 trillion in the past 12 months. Clearly there is room for many successful entrants in the personal loan category. And I will be surprised if Marcus isn’t right at or near the very top.
Last week Goldman Sachs launched a new product called GS Select. Before we get into the new product I think it’s important to discuss a little bit of the history of Goldman Sachs because a lot has changed over the last few years. Originally known for servicing the ultra high net worth clients, the company has put a significant focus recently on serving consumers more broadly.
In April, 2016 Goldman Sachs officially acquired the online deposit platform of GE Capital. With it, the company assumed $16 billion of assets making GS Bank accounts available for all. According to Goldman, they have increased deposits by 151% over the last five years. Not only are they taking deposits, but they are aggressively trying to bring in new customers to the bank, consistently ranking high against their competitors in the interest rate paid on deposits accounts as Peter Renton recently explored.
On the other side of the equation they launched Marcus, their online unsecured personal loan business that competes directly with online lenders Lending Club and Prosper as well as the banks playing in the personal loans space. You can learn more about Marcus in a fascinating episode of the Lend Academy podcast episode we did with Marcus’s first employee. Not only are they one of the first banks to build an online lending platform from scratch, but the business seems to be doing well. It was recently announced that the Marcus platform crossed a billion dollars in originations in just 8 months.
Goldman’s ambitions to become a big name in lending and expanding their customer base didn’t stop with Marcus. The firm created GS Select to reach clients of nearly 4,000 independent investment advisors from Fidelity Investments. Clients will be able to borrow from $75,000 to $25 million backed by their investment portfolios. This is a service that in the past hasn’t been offered because independent advisers aren’t banks, so they will leverage the technology built by Goldman Sachs to offer services to compete with other major brokerages. Borrowers will be able to receive a loan in as little as one day.
Andrew Kaiser, Goldman Sachs’s global head of private banking stated:
We’re building a marketplace for RIAs and other financial advisers to help manage liquidity and liabilities for their clients. To the extent, down the road, that we will add more products, they will be scalable.
What’s interesting about this move is that it could be expanded to other RIAs and financial advisors not just through Fidelity. We’ve seen this type of model before with self described “Lending as a Service” fintech companies, but this time it’s a big bank that has built this technology. We were able to see a short demo of the platform from a financial advisor’s perspective. The below screenshots were taken from the demonstration.
As of late we’ve been seeing a lot of news coming out from Goldman Sachs, a company that from a consumer lending or consumer banking perspective wasn’t really on our radar in early 2016. Now these initiatives started much earlier than that, but it’s interesting to see just how much things have changed at Goldman Sachs and the impact that they’ve had on the market in such a short amount of time. The market certainly is a lot different than it was just a year ago and it will fascinating to see how other big banks respond.
In an interview on CNBC last week Goldman Sachs CEO Lloyd Blankfein shared some news about their consumer lending platform. He said that Marcus had already crossed $1 billion in total loans issued and was on track to cross $2 billion by the end of the year.
Having launched in October 2016 Marcus crossed $1 billion in just eight months. For the online lending industry that is truly breathtaking speed. And it got me wondering. How does that speed compare to many of the industry leaders we know today?
Now, before I present this research let me say one thing. While it is an interesting data point, the speed at which a platform reaches $1 billion in total loans issued it is not an indicator of how successful a platform will become. Clearly, there are many other factors that are more important than speed of growth.
Anyway, I did a little digging and through publicly available information I was mostly able to figure out how quickly many of the major platforms reached their first billion in total loans issued. While the data here may not be exact I am confident it is close and the order is correct.
1. Marcus – 8 months
Marcus has something of an unfair advantage given that it has access to the many billions of dollars sitting on the balance sheet of its parent company, Goldman Sachs Bank. It did not need to secure outside capital to fund its loans and is able to grow as fast as the company wants.
2. SoFi – 14 months
SoFi made its start with its student loan refinance product, a category it invented but in this article we are looking only at personal loans. SoFi launched a personal loan product in February, 2015 and while they never publicly disclose the breakdown of their business lines we can glean enough information from its securitizations to make an educated guess as to when they reached $1 billion in total loans funded. Based on data from Kroll Bond Rating Agency, we know that by August 1, 2016 (when the SCLP 2016-2 securitization closed) SoFi had issued at least $1.3 billion in loans based on the loan pool balance of their first three personal loan securitizations. Based on that data I estimate they crossed the $1 billion mark around April of 2016, 14 months after they launched the product.
3. Marlette – 17 months
We first wrote about Marlette back in June of 2015. Back then they had been in business just 15 months with the Best Egg brand having made their first loan in March 2014. In those 15 months they had reached $800 million, taking just five months to go from $400 million to $800 million. So, most likely by August they had crossed the billion dollar mark. [Read more…]
I noticed this report in Forbes last week which discussed a recent increase that Goldman Sachs was making on their savings account interest rates. As you can see in the above graphic they now offer a 1.2% return on their savings account with a minimum investment of just $1. They are aggressively seeking new savings to boost their deposits.
So, I did a bit of research on what Goldman Sachs Bank is offering compared to others in the market. I looked at Bankrate and Nerdwallet to see who were the top offerings for savings accounts and CDs of various duration. What was interesting to me is that Goldman Sachs was at or near the top in every category.
For savings accounts there were a couple of small regional or local banks that had slightly higher rates but no major national banks were higher. If you look at 3-year CDs with a minimum investment of $500 (the Goldman Sachs minimum) I could not find an offering anywhere in the country that came close to matching Goldman’s 1.90% rate. In fact, the second highest rate available anywhere for a $500 3-year CD was 1.65% from Barclays. These deposits are all insured up to the FDIC maximum.
What was also noticeable was that Goldman Sachs is advertising heavily on Google. Their ad in the search results for savings accounts and CDs was always right near the top and their display ads kept on following me around at many websites since I started this research. What was also interesting is that their ratings on the aggregator sites was usually very high, often 5-stars. People seem to like dealing with them.
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
According to the New York Times the long awaited online lending platform from Goldman Sachs now has a name: Marcus. This name was chosen in honor of one of the founding partners of the firm, Marcus Goldman.
We first wrote about the new Goldman Sachs initiative in June of last year. The new platform has long been known as Mosaic and details have been very hard to come by but as Goldman gets closer to a launch date more information is slowly coming out.
Goldman has been building out its online lending platform since early last year. They hired Harit Talwar, a former executive with Discover, to lead the effort and they have also been looking to hire people from Lending Club and Prosper. They supposedly have built a team of around 100 people now – a much larger pre-launch team than any other company I have come across.