Two of the biggest proofs of Goldman’s transformation were its launch of GS Bank, a internet bank with a $1 deposit requirement, and Marcus, an online consumer lending platform through which well-qualified consumers could obtain personal loans of up to $30,000. GS Bank has since been merged into Marcus, which now serves as Goldman’s consumer brand.
That a Wall Street firm once known for serving the extremely well-heeled would create a new brand to target mainstream consumers at all would have been difficult to predict a couple of decades ago, but because of the changes in the market, it’s a no-brainer today. As QZ pointed out, “Goldman thinks it can make $1 billion in extra revenue from its consumer lending business over the next three years, as much as it expects for its trading operations.”
The challenge for Goldman is that the competition in the consumer deposit and lending spaces is significant and Goldman’s name, however storied, doesn’t have the same cachet with consumers. So Goldman is taking a page from fintech upstarts to grow Marcus.
As detailed by the Wall Street Journal, Goldman is reportedly in talks with Apple to offer buyers of Apple devices financing at point-of-sale. “Customers purchasing a $1,000 iPhone X could take out a loan from Goldman instead of charging it to credit cards that often carry high interest rates,” the Journal explained.
This type of financing is big business: by one estimate, $80bn of the $200bn consumers borrowed using retailer-affiliated credit cards or point-of-sale loans went towards big-ticket items including electronic gadgets. So if Goldman can position Marcus to offer loans for Apple device purchases, it could be a real shot in the arm for Goldman’s consumer brand.
Of course, if the model of the potential deals sounds familiar to you, that’s because it is. A number of consumer lending upstarts have targeted point-of-sale to reach consumers. For example, Affirm, which was co-founded by former Paypal co-founder and CTO Max Levchin, has partnered with retailers to offer consumers loans for their purchases at point-of-sale.
Affirm, which bills itself as a “financial company for everyday people”, reportedly has over 1,000 merchant partners and is said to have originated more than a million loans with an average order size of $750. The company uses its own underwriting model, which is capable of looking at alternative data and doesn’t necessarily require a FICO score, or a good FICO score. On the customer experience side, Affirm is seamlessly integrated into the checkout experience of its merchant partners, making it far easier to convert shoppers into borrowers.
By embracing a similar model to grow its consumer lending business, Goldman could find that it has some big advantages over smaller upstarts like Affirm.
First, while the Goldman name might not be a deal-maker for consumers, it could help the firm woo merchants, especially those like Apple, which have worked with Goldman in the past. Second, Goldman’s size means it has more capital to lend and it will likely be able to offer interest rates that are more competitive than upstarts.
So if Goldman can ink the right deals and deliver customer experiences that are on par with successful fintechs, it’s entirely possible that it could quickly become a dominant player in this space. That very real possibility is yet another reminder of why fintechs themselves are trying to get bigger and diversify, which is reshaping the financial services landscape they disrupted.