Goldman Sachs enters the consumer lending market with its new product, Marcus, rousing mixed responses from the industry.
Last week, Goldman Sachs debuted Marcus, an online-loan service geared toward prime consumers paying down credit-card debt. Essentially, as representatives at Goldman put it, Marcus aims “to help Americans manage debt better.”
In sum, consumers (typically those with a credit score of 680 or above) may apply for a no-fee, fixed-rate loan for up to $30,000, and may opt to pay back the amount in up to six years. As a recent Bloomberg article states, Marcus “creates an option for consumers who are searching for a simpler alternative to credit-card borrowing, where rates can change and multiple fees can be charged.”
There are obvious consumer incentives, as stated on the official website for Marcus, including the promise of no fees (no origination or late charges incurred) and flexible loan terms (with customers choosing the length of the loan, monthly payment, and payment date).
Additionally, representatives from Goldman Sachs claim that Marcus provides a “more competitive” service than the industry “newcomers” in Silicon Valley, offering annual percentage rates averaging around 12.99 percent.
There are, however, varied reactions from the industry on Goldman’s new product.
Fast Company for one isn’t ignoring the reputation of Goldman Sachs as “a financial institution that many labeled a pariah during the financial crisis.” As the article goes on to state: “The long shadow cast by public anger continues to haunt Goldman Sachs’s reputation, undermining its ability to attract talent and fuel growth.”
Will this poor reputation affect the success of Marcus with the consumer market?
Chief strategy officer at Goldman, Stephen Scherr, doesn’t think so. He acknowledges the challenges of building Marcus: reaching a new kind of customer, allowing a greater scope of regulation, opening up the franchise/brand, to name a few. Essentially, the challenges of building a startup within an established Wall Street investment bank.
As Harit Talwar, partner at Goldman and managing director of online lending, says, “We are building a startup inside Goldman to help Americans manage debt better … To be able to do that well, we have kept the customer at the center of everything that we do.”
According to Talwar, Marcus blends “the best of online lending (modern technology) with the best of legacy banks (cheap funding, via balance sheet deposits).”
However, the product has received less than enthused reactions from three out of four panelists at the recent LendIt Europe conference.
Phin Upham, a Principal at San Francisco-based Thiel Capital, said at the event: “There are hungrier, more aggressive, and more technologically sophisticated guys in this room who I think would do better.”
Matt Burton, cofounder and CEO at Orchard, wondered “if Goldman will actually be able to keep up, because this is not a mature industry, everything changes sometimes within months.”
Kathryn Petralia, cofounder and head of operations at Kabbage, observed: “There have been delays. They were originally supposed to launch the product in April, it’s now October. They’re talking about the next products they’re going to launch, they haven’t launched the first one yet.”
Yet another challenge identified by Fast Company requires “destigmatizing a delicate topic,” which involves reaching a demographic with “decent credit but ballooning debt.”
One positive reaction to the product though, came from LendIt panelist Ram Ahluwalia, CEO of PeerIQ in New York, who says: “Don’t underestimate a large, well-capitalised bank that understands consumer credit risk.” For what Goldman lacks in customer service advantage, Ahluwalia argues, it makes up for in data edge and capital advantage.
Above everything, Marcus is a major validation for direct lending, coming from Goldman. We expect that Marcus will further “mainstream” this asset class, giving investors on the fence a reason to take a closer look.
Other major banks are no doubt watching very closely as well; if Marcus gains traction, the case for direct participation in this sector (as opposed to buying loans from existing platforms) gets stronger.
The question is: how will Marcus fare in comparison to the existing startup “newcomers” in the industry? And how will consumers respond to this new product? Share your thoughts with us in the comment section, below.