Goldman Offloads Some Marcus Loans, Looks For GreenSky Buyer
Robinhood to Launch P2P Payments, Investor Looks to Sell N26 Stake at Steep Discount, CFPB Data Breach Is Another Distraction
Hey all, Jason here.
By the time this hits your inbox, I’ll be in New York — probably awake for hours, thanks to jet lag!
Looking forward to the great programming lined up for New York Fintech Week. While the happy hour/panel discussion event I’m hosting with Valley Bank and Unit at Rise is sold out, there’s still time to snag your spot at Unit21’s event on Tuesday and Empire Fintech’s conference on Wednesday (both of which I’ll be speaking at.)
If you see me around town this week, please feel free to say hi!
Existing subscriber? Please consider supporting this newsletter by upgrading to a paid subscription. New here? Subscribe to get Fintech Business Weekly each Sunday:
Painless fair lending compliance. Real-time insights.
Sponsored content: Leading fintechs rely on FairPlay for the simplest and quickest solution to fair lending compliance. FairPlay provides continuous disparate impact monitoring and credit model validation so you can focus on your growth, instead of keeping up with the latest regulations. Need to tweak your model? We can show you the potential impacts in real time, allowing you to easily overcome any tradeoffs between performance and disparities. BaaS platforms and sponsor banks alike use FairPlay to provide model validation, ongoing fair lending monitoring, and in-depth audits.
Goldman Offloads Some Marcus Loans, Looks For GreenSky Buyer
Goldman Sachs reported its first quarter earnings last week, and its overall performance reflected a slowdown in dealmaking and lackluster performance in its fixed-income business.
Plenty of analysts cover the firm broadly, but it is worth taking a deeper look at what is happening with the firm’s consumer and Platform Solutions businesses.
Late last year, Goldman announced a significant reorganization, splitting its consumer businesses into different reporting segments. Its “Marcus” digital bank, which includes unsecured personal loans, deposit products, and a roboadvisory offering went in to the newly combined Asset and Wealth Management (AWM) division. The newly-created Platform Solutions division encompasses card partnerships (Apple, GM), GreenSky, and transaction banking (TxB).
Goldman continued its drawback from its direct-to-consumer ambitions by selling off a portion of its Marcus loan portfolio and shifting the remainder from being held to maturity to available for sale, suggesting additional sales are likely. While the sale of Marcus loans incurred a headline loss of $470 million, that was mostly offset by a release of $440 million in loan loss reserves — making the move largely a wash on the overall P&L.
Platform Solutions: Japan TxB, Bye Bye Bye GreenSky, Apple Savings Launch
On the Platform Solutions side, Goldman’s refocused strategy is beginning to become more clear. While operating expenses exceed revenue, that is likely driven, at least in part, by continuing investments in the business unit, including the recently announced plan to launch transaction banking in Japan.
Overall, revenue for the business unit more than doubled from Q1’22, driven by significantly higher average card and deposit balances:
Outstanding credit card loans, which include Apple and GM card programs, grew 36% vs. Q1’22 to $15 billion — though loans outstanding declined slightly sequentially:
Goldman’s strategy to deepen its existing Platform Solutions relationships was demonstrated with the much-anticipated launch of Apple’s Savings feature last week. While only currently available to existing Apple Card holders, the savings feature presumably will roll out more broadly in the coming months.
One notable oddity is that the Savings account via Apple offers 4.15% APY, while Goldman’s own savings offering, Marcus, offers 3.90% APY.
Asked on the earnings call if he was worried about Apple cannibalizing Goldman customers, CEO David Solomon said:
“We've obviously looked very closely at the overlap between who holds credit cards and who holds -- who has a Marcus deposit and that overlap is small, but we'll obviously watch closely to see whether or not there is any cannibalization. But this is a way for us to try to open up another deposit channel and it's always good for us to broaden our deposit base. And so this is small at the moment and we'll watch it carefully, but I think it's an interesting opportunity for the firm.”
In perhaps an anti-climatic move, Goldman also revealed it’s exploring a sale of GreenSky, a lender focused on originating loans for home improvement through a network of merchants and contractors.
Goldman announced the deal to acquire GreenSky near the top of the market in September 2021, but, at its investor day earlier this year, said it was exploring “strategic alternatives” for its consumer business.
Valuations for companies in the same sector as GreenSky have come down significantly since Goldman’s acquisition. Affirm — though an imperfect comparison, as its loans are significantly smaller in size, shorter in duration, and many were 0% APR — has seen its market cap plummet ~88% since Q3’21. Upstart, which has a more similar business model to GreenSky pre-acquisition, has seen its valuation drop about 94%.
But, despite the timing of its purchase, Goldman might be able to recoup a significant portion of the $2.24 billion spent acquiring GreenSky. Looking at the valuations on a price/revenue basis — though an imperfect metric for lending businesses — suggests that Affirm and Upstart had much further to fall than GreenSky as valuation multiples compressed.
Further, based on previous commentary from Goldman, the GreenSky unit seems to have performed well in its short time as part of the firm. Originations in its home improvement segment grew a respectable 25% year-over-year while keeping credit quality high, with a weighted average FICO above 780.
Robinhood Planning P2P Payment Feature, But Who Will Use It?
Commission-free trading app Robinhood sent its users an innocuous-sounding email last week notifying them of an update to the company’s privacy policy.
According to the email, Robinhood has made changes to the policy in advance of launching a new feature next month: Pay & Request.
The new capability will let users send each other funds on Robinhood.
Robinhood has struggled to move beyond its core stock and crypto trading offering. While it launched a checking account-like offering, Robinhood Cash Card, user adoption has been lackluster.
Based on what we know so far about the forthcoming P2P offering, it’s not clear why users would choose to use it vs. established market leaders like Venmo, Cash App, or Zelle.
Investor Sells Stake in German Neobank N26 At Steep Discount
In the latest sign that fintech valuations are returning to reality, Allianz X, the venture capital arm of the insurance group, is reportedly looking to sell its approximately 5% stake in N26, a Berlin-based neobank.
That’s a sharp 68% markdown from the $9 billion valuation N26 achieved during its last raise at the height of the market, in October 2021.
According to a statement to the Financial Times, representatives for N26 said it was “not currently aware of any ongoing secondary sales from existing investors, including from Allianz X.”
The reduced valuation in any potential secondary sale could complicate efforts for N26 to raise additional funds at a price close to its last round.
Data Leak Is Latest Distraction For CFPB
The Wall Street Journal reported last week that a now-former CFPB staffer sent private data on as many as 250,000 consumers and confidential supervisory information on a number of banks to a personal email address.
Per the report:
The employee, who no longer works at the CFPB, made an unauthorized transfer of records containing personal information on approximately 256,000 consumers at one institution, as well as confidential supervisory information on 45 institutions, a CFPB spokesman said. There is no evidence the records were shared beyond the former employee’s personal email account, the spokesman said.
While most of the personal information was tied to consumers at one institution, the emails included information on consumers from seven firms, the CFPB spokesman said. The CFPB hasn’t publicly identified the firms involved in the breach or the former employee who made the transfers.
The scope of the breach and direct potential impact seem relatively limited compared to other historic government and private sector data breaches.
Still, the incident is sure to give ammunition to Republicans in Congress, who already plan to call banking regulators like the CFPB’s Director Chopra to testify before oversight committees.
The news comes at a time when the agency’s legitimacy and even continued existence has been called into question in an ongoing court case challenging the constitutionality of its funding mechanism.
While it seems unlikely that case would result in the dissolution of the bureau, it could bring its budget under Congressional control. With Republican control and a looming debt ceiling fight, a potential loss of autonomy would likely imperil the bureau’s ability to pursue its agenda.
FT Partners: Q1 Fintech Funding Insights
FT Partners is out with its Q1 analysis on fintech funding and dealmaking. Nothing earth-shattering here that hasn’t been covered in recent weeks, but a good overview of what the environment looks like as of the first quarter.
Other Good Reads
The Collapse of Silicon Valley Bank: What Happened and What It Means for Banking Regulation (Todd Baker/California State Assembly)
There Are Gaps in the US Real-Time Payment System. Who Will Fill Them? (Rocio Wu/Forbes)
Mitigating the Risk of Runs on Uninsured Deposits: the Minimum Balance at Risk (Liberty Street Economics)
Why America Will Soon See A Wave of Bank Mergers (The Economist)
First Republic Worked Hard To Woo Rich Clients. It Was The Bank’s Undoing (Bloomberg)
About Fintech Business Weekly
FBW Research Report: Banking-as-a-Service 2023 Market Analysis
Looking to work with me in any of the following areas? Email me.
Fintech advising & consulting
Sponsoring this newsletter
News tip or story suggestion — reach me on Signal at +1-316-512-1571
Early stage startup looking to raise equity or debt capital
I suspect that eventually GS will shut down Marcus and just offer the banking for premium partners and private wealth...which is their target population already in the PWM business.