This morning, Goldman Sachs announced plans to acquire B2B2C lender GreenSky in a deal worth $2.24 billion. The acquisition, which is still subject to regulatory approval and is expected to close in the fourth quarter of 2020 or the first quarter of 2021, is positioned to bolster the firm’s consumer business and offer new products and new ways to attract consumers to its Marcus by Goldman Sachs brand of finance products.
Goldman launched Marcus five years ago as a consumer-focused brand in part to compete with a growing set of fintech startups, neobanks and online trading platforms that have sprung up over the last decade. While it has attracted 8 million users since launch — putting it ahead of many so-called challenger banks — Marcus still trails Chime and Robinhood among banking and trading apps (at least among number of users).
But with the purchase of GreenSky, it’s hoping to add another way to pull consumers into its Marcus funnel.
GreenSky operates a platform that facilitates loans for big-ticket items like home improvement projects or elective dental or medical procedures. It enables brands like Home Depot, as well as medical and dental practices, to offer installment loans to customers at the point of sale, thereby increasing sales and conversions for its clients. GreenSky then sells off those loans to a number of banks and other lending partners.
The deal could be seen as a way for Goldman to buy its way into the “buy now, pay later” trend, offering Marcus users additional ways to finance their purchases. That market has taken off lately, as evidenced by Square’s acquisition of Afterpay, PayPal’s acquisition of Paidy, and Amazon striking a deal to offer BNPL financing through Affirm.
But according to Stephanie Cohen, the global co-head of Consumer & Wealth Management at Goldman Sachs, the acquisition is as much about bringing GreenSky’s customers into the Marcus ecosystem. She also believes that by bringing GreenSky into Goldman Sachs and lending off its balance sheet, there’s no limit to the scale at which it can grow.
That said, don’t expect Goldman or Marcus to begin offering BNPL lending for everyday shopping anytime soon, as Cohen says GreenSky is attractive in part due to the big-ticket nature of home improvement lending.
To learn more about the firm’s plans, we spoke with Cohen about the deal and asked how GreenSky fits in with Marcus and the rest of Goldman’s business. The full interview, slightly edited for length and clarity, is below.
TC: To start off, can you give us an update on Goldman’s consumer business and Marcus in particular?
If you think about the consumer business inside of Goldman Sachs today, we have 8 million customers, more than $100 billion in deposits, $9 billion in loans, and in our view, we’re just getting started.
As we go after the consumer business, we have two self-reinforcing strategies: The first one is our direct-to-consumer business, Marcus by Goldman Sachs. Today, we have savings, lending and invest. We bring that together with insights, we’re working vigorously to launch checking, and at that point in time, we can be someone’s primary bank.
We then take all of those capabilities plus our card capability, and we can embed them in the ecosystems of our partners. The best example of that is what we’re doing with Apple and General Motors. Ultimately, our vision is that we want to help tens of millions of customers achieve their financial goals.
In order for us to do that having point-of-sale capabilities is really important. And what this [deal] does is it brings together the best of those two strategies I talked about.
TC: How does GreenSky fit into the mix?
With GreenSky in particular, we gain access to a million customers per year. They come in through the GreenSky ecosystem, which ultimately means they can be in the Marcus by Goldman Sachs ecosystem.
So in addition to providing them this point-of-sale loan, we also can holistically help them manage their financial lives with our broader product set. However, unlike in our Marcus by Goldman Sachs business where people need to come to us through our app or the website, in the GreenSky business, they come to us through these merchants — and GreenSky has more than 10,000 merchants that are in people’s homes and helping them buy windows, buy a new roof, get a new HVAC system. So we don’t need to acquire those customers one at a time.
The reason why [we’re acquiring] GreenSky is they’re the market leader in home improvement. Our view is that home improvement is a really attractive sector for a couple of reasons: One, what GreenSky’s providing to those merchants is it’s helping them grow their business, it’s helping them increase conversion. GreenSky gets a fee from those merchants for doing that that’s called a merchant discount rate — an upfront fee.
The second thing about the home improvement space is that it’s a larger ticket size. So having a balance sheet and having scale is a real competitive advantage, and Goldman Sachs brings that to the table.
Then the last thing I would say, if you have a home and you’re improving your home — that’s a really high-quality customer, it’s a high-FICO customer, it’s an attractive customer.
You bring that all together and the business inside GreenSky for Goldman Sachs will be a 20%-plus return business at scale, and it’s an absolutely growing market. So point-of-sale is really important, we love home improvement, and GreenSky is the market leader in that space.
TC: So you see this as a way to bring GreenSky customers into the Marcus ecosystem?
Absolutely. GreenSky has been a great business that has done a really good job of helping merchants grow their business and serving customers with point-of-sale loans. But by coming inside of Goldman Sachs, we’re able to provide those end customers with more products. So yes, they can get a point-of-sale loan, but over time, if you think about that customer, that customer has a home, so can you think about the high-yield savings product that’s inside of Marcus, you can think about something like Marcus invest — you know, all those are really great products for the GreenSky customer.
TC: You have partnerships with other merchants and other large businesses. So what’s the opportunity to expand into other verticals or categories that GreenSky can serve?
If you think about this idea of having a point-of-sale capability — we think it’s important and we like home improvement. That same funnel I took you through in why we think that home improvement is a good market is how we’re going to think about some of these other categories: the large ticket size where a balance sheet is important, the attractive customer base where the Goldman Sachs and Marcus brand really resonates.
We’re excited to integrate GreenSky, and by the way, we think there’s significant growth in the GreenSky markets today. If you think about their home improvement market and the ability to grow with their existing merchants, and also grow with new merchants. But we’ll work with the GreenSky team to figure out that there are other verticals for us to be in today.
TC: Some have suggested that this could be part of a much broader push into the buy now, pay later space but based on what you just said, that doesn’t appear to be the case.
If you think about what customers want to do, they either find themselves in a situation where they want to buy something, they want access to more money to do something, or they have extra money and they want to put that somewhere. We want to serve customers holistically across their financial life and help them make better financial choices across all of those things.
When it comes to that first bucket, being where customers transact, where they shop, is important to us and you’re seeing us do that today in our point-of-sale capability. How we specifically productize that, we’ll figure that out over time.
Today if you think about what we’re doing with Apple and will do with General Motors in a credit card — that is being where the customer shops, and we’ll now do this with GreenSky in the home improvement space. So I think the broader idea is we’re going to help our customers holistically live better financial lives and part of that is being where they ultimately transact.
TC: One of the things GreenSky has been criticized for in the past has been poor underwriting. How do you see that changing and improving as part of Goldman Sachs?
I think the main thing that’s different between GreenSky today, and what GreenSky will look like inside of Goldman Sachs is the balance sheet. Today GreenSky has a technology platform and they work with bank partners and other capital providers. So there is a ceiling on how they grow the business. If you think about the size and scale of Goldman Sachs, I think we’re going to really be able to support them as they grow.
I think that’s one of the main things that Goldman Sachs brings to this. As we’ve done this announcement, there’s been lots of outreach to their merchants and the reaction has been really great from them in terms of their excitement with Goldman Sachs coming in and being able to support them.
At Goldman Sachs, one of the things that we bring to the consumer business is our 150-plus years of being a risk manager. So we’re certainly going to bring those capabilities. We have a broad consumer business and one of the things about our consumer business is that as you grow that over time, you get more and more data and you can make better decisions.
So one of the things that Goldman Sachs is very focused on is that we don’t want to underwrite the credit score, we want to underwrite the person. We want to make credit decisions that make sense for the person. We’re going to continue to focus on that across our consumer business, and bringing something like GreenSky in will allow us to do that across more customers and have more data. So you’re going to see us take what is one of the hallmarks of Goldman Sachs, which is our risk management, and bring that to the consumer business. We’re excited to do that, and we’re excited to do it with GreenSky.