Goldman’s Marcus loans hit Main Street
The launch on Thursday of Marcus.com, which offers personal loans of up to $30,000, comes six months after Goldman started offering online savings accounts with as little as $1 down.
Both moves are a sign of the bank’s desire to find new streams of revenue, as its core businesses are squeezed by tighter regulation, a shift to electronic platforms and patchy activity among big companies and investors.
Harit Talwar, head of the division, said that he was hoping to lure people with big balances outstanding on credit cards, where interest rates can vary and multiple fees can rack up.
That pits the 147-year-old bank against Lending Club and Prosper, the two San Francisco-based upstarts that have originated billions of dollars of loans in recent years. Both stress in their marketing materials that they offer a better deal to people labouring under expensive credit-card debt.
American households had a total of $729bn in credit-card debt at the end of the second quarter, according to the Federal Reserve Bank of New York.
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“We’ve put the customer in the centre of everything,” said Mr Talwar, who joined the bank last year from Discover Financial Services, the credit-card company. “It is all about the product, which is transparent, simple and customisable.”
Goldman declined to disclose projections for loan volumes, but stressed that it was aiming at “prime” consumers, normally defined as those with a score of 660 and above on the commonly used FICO scale. Unlike Lending Club — which charges an origination fee to borrowers of between 1 and 6 per cent, depending on the riskiness of the loan — Goldman will charge no fees, making money solely from interest instead.
Annual rates range from 5.99 per cent to 22.99 per cent, on loans of between two and six years. The average APR will be 12.99 per cent, compared to about 17 per cent on credit cards.
Goldman is due to report profits for the third-quarter on Tuesday. Analysts expect net income to rise more than a fifth from a year earlier, to $1.65bn, thanks largely to more lively conditions in fixed-income sales and trading.
But the bank’s key measure of profitability — its return on equity — is expected to come in at 8.1 per cent, marking the fifth quarter in a row of single-digit returns. Before the crisis, when Goldman was operating with much lower levels of equity capital, ROEs were regularly above 20 per cent.
Hopes are therefore high for Marcus, whose 130 or so employees in New York — some of them in the classic “fintech” uniform of plaid shirt and jeans — are housed on the 26th floor of Goldman’s head office in lower Manhattan. About one-third were hired from within Goldman; another third came from credit-card specialists such as American Express, Capital One and Citi; and the rest from the likes of Google, Amazon, PayPal and Etsy.
Despite the backing of a $900bn balance sheet, some prominent figures within the online lending community are sceptical that Marcus will amount to much, noting that it has taken the venture more than a year to make its first loan.
Matt Burton, chief executive of Orchard, said the slow pace is an ominous sign of “bureaucracy” at Goldman, likening Marcus to unsuccessful efforts by Viacom and Disney to keep up with more nimble digital ad groups. Within a few years, he said, Goldman’s “experiment” is likely to result in an acquisition of an established operator, or some kind of partnership.
“What is there to be scared of?” he said. “With Goldman you’re afraid of the investment bank. But Michael Jordan playing basketball is very different from Michael Jordan playing, I don’t know, cricket. Just because you’re good at one thing doesn’t make you automatically good at another.”