Goldman Sachs to Acquire GreenSky for $2.2 Billion

Goldman Sachs to Acquire GreenSky for $2.24 Billion

Goldman Sachs revealed this morning its intention to acquire B2B2C lending platform GreenSky in a transaction valued at $2.24 billion. The acquisition, pending regulatory clearances, is anticipated to finalize during either the fourth quarter of 2020 or the first quarter of 2021. This strategic move aims to strengthen the firm’s consumer-facing operations and introduce innovative products designed to attract customers to the Marcus by Goldman Sachs suite of financial services.

Marcus and the Competitive Landscape

Five years ago, Goldman Sachs initiated Marcus as a consumer brand, partly to contend with the increasing number of fintech companies, neobanks, and online investment platforms that have emerged in the past decade. Since its launch, Marcus has garnered 8 million users, surpassing many challenger banks in terms of customer acquisition.

However, Marcus currently lags behind competitors like Chime and Robinhood in overall user numbers within the banking and trading app sectors.

The acquisition of GreenSky is expected to provide an additional avenue for attracting consumers into the Marcus ecosystem.

GreenSky’s Role in Facilitating Loans

GreenSky manages a platform that streamlines loan processes for substantial purchases, such as home renovations or elective medical and dental treatments. The platform empowers brands like Home Depot, alongside medical and dental practices, to offer installment loan options to customers at the point of sale, ultimately boosting sales and conversion rates for these businesses.

GreenSky subsequently transfers these loans to a network of banks and other lending institutions.

Positioning in the “Buy Now, Pay Later” Market

This deal can be interpreted as Goldman Sachs’ entry into the rapidly expanding “buy now, pay later” (BNPL) market. Recent acquisitions in this space include Square’s purchase of Afterpay, PayPal’s acquisition of Paidy, and Amazon’s agreement with Affirm to provide BNPL financing.

Strategic Vision Beyond BNPL

Stephanie Cohen, global co-head of Consumer & Wealth Management at Goldman Sachs, clarified that the acquisition is equally focused on integrating GreenSky’s existing customer base into the Marcus framework. She further emphasized that leveraging Goldman Sachs’ balance sheet will remove limitations on GreenSky’s potential for growth.

However, Cohen indicated that an immediate expansion of Marcus into everyday BNPL lending is not planned, as GreenSky’s strength lies in financing larger-ticket home improvement projects.

Interview with Stephanie Cohen

To gain deeper insights into the firm’s strategy, an interview was conducted with Cohen regarding the deal and its alignment with Marcus and Goldman Sachs’ broader business objectives. The following is a slightly edited version of that conversation.

Insights from the Interview

Update on Goldman’s Consumer Business and Marcus

Currently, Goldman Sachs’ consumer division serves 8 million customers, holds over $100 billion in deposits, and manages $9 billion in loans. The firm views this as just the beginning of its expansion in the consumer market.

The company pursues two complementary strategies: a direct-to-consumer approach through Marcus by Goldman Sachs, offering savings, lending, and investment products, and embedding its capabilities within partner ecosystems, exemplified by collaborations with Apple and General Motors.

The ultimate goal is to assist tens of millions of customers in achieving their financial aspirations.

How GreenSky Complements the Existing Strategy

The acquisition of GreenSky provides access to an additional million customers annually, seamlessly integrating them into the Marcus by Goldman Sachs ecosystem. Beyond offering point-of-sale loans, customers gain access to a comprehensive suite of financial management tools.

Unlike the direct acquisition model of Marcus, GreenSky’s customer acquisition occurs through its network of over 10,000 merchants, reducing the need for individual customer outreach.

The Appeal of the Home Improvement Sector

GreenSky’s leadership in the home improvement market is a key factor in the acquisition. The sector offers advantages such as increased business growth for merchants and improved conversion rates. GreenSky charges merchants a fee, known as a merchant discount rate, for these services.

The larger transaction sizes associated with home improvement projects benefit from the scale and financial strength of Goldman Sachs. Furthermore, homeowners undertaking renovations represent a desirable customer demographic with strong credit profiles.

The anticipated return on investment for the GreenSky business within Goldman Sachs is projected to exceed 20% at scale, operating within a growing market.

Integrating GreenSky Customers into the Marcus Ecosystem

GreenSky has successfully provided point-of-sale loans and assisted merchants in growing their businesses. By joining Goldman Sachs, these customers will have access to a wider range of products, including savings accounts, investment options, and other services offered by Marcus.

Potential for Expansion into New Verticals

The company will evaluate opportunities to expand GreenSky’s reach into other sectors, focusing on large-ticket purchases where a strong balance sheet and the Goldman Sachs/Marcus brand are advantageous. Initial efforts will concentrate on maximizing growth within GreenSky’s existing home improvement market and exploring new merchant partnerships.

Addressing the “Buy Now, Pay Later” Landscape

Goldman Sachs aims to serve customers holistically across their financial lives, offering solutions for spending, borrowing, and saving. The point-of-sale capability provided by GreenSky is a crucial component of this strategy, and the company will determine the optimal way to productize this offering over time.

Existing partnerships with Apple and General Motors demonstrate Goldman Sachs’ commitment to integrating financial services into customer shopping experiences, and GreenSky will extend this approach to the home improvement sector.

Improving Underwriting Practices

A key difference between GreenSky’s current operations and its future within Goldman Sachs lies in the backing of a substantial balance sheet. Currently, GreenSky relies on partnerships with banks and capital providers, which limits its growth potential.

Goldman Sachs’ scale and financial strength will enable GreenSky to expand its operations and enhance its underwriting capabilities. The acquisition has been positively received by GreenSky’s merchant partners, who anticipate increased support from Goldman Sachs.

Goldman Sachs brings over 150 years of risk management expertise to the consumer business, emphasizing a focus on understanding the individual customer rather than solely relying on credit scores. This approach will be applied to GreenSky, leveraging data and insights to make informed credit decisions.