How Marcus by Goldman Sachs combines direct products with strong partnerships – Tearsheet
With the rise of new fintechs and neobanks, many traditional banks have struggled to compete by reaching out directly to consumers. In the meantime, the alternative of being a banking partner carries a risk of disintermediation.
Goldman Sachs addressed this problem by creating Marcus both as a direct-to-customer business and as a banking partner for other businesses.
Tearsheet spoke with Abhinav Anand, Managing Director of Marcus by Goldman Sachs, at the Big Bank Theory Conference. Anand came from Discover to be one of the founding members of Marcus.
Anand described the company’s journey at the event, noting that as the company developed its platform, it realized that the winning strategy was to have this approach to two sides.
“We continue to be a direct-to-consumer business, while we also seek out like-minded digital native partners who will be ready to distribute our products on their platform,” said Anand.
Serving the consumer
Goldman Sachs launched Marcus in 2016 as a mainstream banking business aimed at empowering users to save, spend, borrow, and invest. It started with the acquisition the American online depository platform of GE Capital Bank and added Clarity Money’s personal and customer finance management capacity in 2018.
Since then, its strategy has been to attract customers by offering different ways to finance purchases, both directly to customers and also by integrating its lending capabilities with other platforms.
In 2019, Marcus announcement one of the biggest partnerships in the fintech space when it collaborated with Apple to introduce a consumer credit card, the Apple Card. More recently, he bought supplier BNPL GreenSky, giving Marcus not only his flexible payment option, but also direct access to his customer base of 10,000 home improvement merchants.
At the Big Bank Theory Conference, Anand told Tearsheet that Marcus also wants to introduce an auditing business soon.
“The goal is to strive to be the customer’s primary bank, especially for customers who are really looking for digital interaction with their banks. And there is a whole secular trend towards it.
Access SMEs through digital partners
Along with its consumer products is the company’s business lending division, where it also wants to establish itself as a banking partner for businesses looking to add financial services to small and medium businesses.
One example is its partnership with Walmart, allowing sellers in the Walmart Marketplace to apply for commercial lines of credit between $ 10,000 and up to $ 75,000 offered by Marcus.
Anand explained how Marcus focuses on three important areas in his brand partnerships:
First, the financial product distributed through a partner’s platform must be simple and at very low cost to the customer. In today’s market, there are many products for small businesses, but most of them are paid for, making them too expensive for small businesses to actually benefit from these products, according to Anand.
The second thing is to use both the platform’s revenue and sales data from marketplaces like Amazon and Walmart, as well as the digital capabilities that they have built around holistic underwriting of seller income.
“We have built a headless architecture behind the scenes, so that we can connect to the ecosystem of these platforms at the level of depth that they want.
“Even for the smallest partnerships we have made, we’ve made sure that the interaction and signals we collect from the customer in the form of data get back to our analytical warehouses,” added Anand.
The last step is to look at the trends and understand how customers interact with the platform and its products. This allows the business to iterate, test and learn to ensure that the product experience and functionality meet the needs of end customers.
Anand highlighted how market dynamics over the past few years have pushed traditional lenders to stay in the game by expanding their digital lending capabilities, either partnering with fintechs or acquiring finance.
For example, American Express acquired Kabbage small business lender in 2020, and while it did not include access to the company’s previous loan portfolio, it allowed American Express to use Kabbage’s technology and financial data.
In addition, there is an increased demand from SMEs for better access to working capital, triggered by the turbulent times caused by the pandemic.
“Over the past few months, we have witnessed unprecedented changes in the dynamics and structure of the functioning of the supply chain, the functioning of sales processes and the cycle of converting to cash which has become more unpredictable.” he told Tearsheet.
This creates a need for more accessible loan products, and Anand believes that the more popular options such as the merchant cash advance can end up being very expensive if the customer experiences financial volatility.
“We prefer a line of credit with low rates and no fees, where a customer can draw when they need it and manage the predictability of their cash conversion cycle on their own,” said Anand.
Overall, this strategy appears to be working well for Goldman Sachs as Marcus has grown significantly over the past few years. It went from $ 36 billion in deposits in 2018 to $ 97 billion two years later, according to the company reports. This year, deposits increased by an additional $ 8.5 billion in September 2021.
And in the first three quarters of this year, Goldman Sachs’ consumer and wealth management division, which includes Marcus and the Apple Card, reported net income of $ 5.5 billion. This is a 27% year-over-year increase, with similar growth figures in the consumer and wealth management segments.