Goldman Readies Mass Market Roboadvisor

PayActiv Wins EWA Approval, Oportun Charter Woes

Hey all, Jason here.

Well, we did it -- survived 2020. The US election is finally over (well, more or less), multiple COVID vaccines are becoming available (well, slowly), and there’s light at the end of the tunnel -- though rather than things “returning to normal,” we’ll be entering a new era, much like the “post 9/11” or “post Great Recession” eras that came before, with social, political, and economic consequences playing out over years (if not decades).

We’re still a bit on holiday mode here in the Netherlands, so this first issue of 2021 will be a bit briefer than normal. If you missed previous issues, check out my four fintech predictions for 2021, interview with BlockFi’s VP of biz dev, and how regulatory updates on industrial loan companies and brokered deposits may impact fintech. New to Fintech Business Weekly?

Goldman Readies Its Robo…

According to reporting by Hugh Son based on an internal memo, Goldman is preparing to launch its mass-market roboadvisory product as part of its Marcus consumer brand, dubbing it Marcus Invest.

While plenty of others have been offering robo or hybrid robo-human advisor products for years, entering the space as a follower, rather than a leader, is consistent with Goldman’s strategy in the consumer space broadly: less innovation than ruthless execution.

The firm’s unique competitive position vs other consumer banks (no legacy business or tech infrastructure) on the one hand and startups on the other (virtually unlimited funding, much longer time horizon, bank charter) enables it to enter established categories and fight (or pay) to win market share.

(I should add, there ARE areas where the firm is innovating, namely in its attempts to establish itself as  a ‘platform’ business through its TxB APIs and partnering with Stripe, for example.)

Goldman’s move into the space dovetails with a number of other initiatives and business lines:

• extends Goldman’s existing presence in wealth management to mass affluent / HENRYs.

  While best known for catering to ultra high net worth individuals (over ~$20m) through its Private Wealth Management arm, the firm moved down market through its United Capital Advisors acquisition (since renamed Goldman Sachs Personal Financial Management). It also offers financial counseling and investment management through employers under its Ayco brand.

• complements its existing Marcus consumer offerings. With lending, savings, and a PFM tool live, and checking announced for 2021, Goldman has demonstrated its dedication to expanding Marcus into a full-service consumer bank. If Goldman can successfully cross-sell existing savings customers (or future checking customers) into the robo product, it’s an easy ~0.35-0.45% of AUM with essentially $0 CAC. 

  This is the kind of stable, recurring revenue Goldman has been looking to diversify into since launching Marcus.

• presents an opportunity to generate assets for its GSAM offerings - products like its ActiveBeta and Access ETFs.

• leverages Goldman’s reputation as the ‘smartest guys in the room.’ By touting portfolios developed by its Investment Strategy Group -- the same team that works with Private Wealth Management clients -- Goldman has a marketing and PR advantage vs other robos in attracting client capital with an attractive CAC.

Marcus Invest (and Goldman’s wider wealth management play) is likely more of a concern for traditional brokerages and startup robos (E*Trade, Fidelity, Personal Capital, Wealthfront, SoFI) than it is for trend-driven, active trading apps like Robinhood or eToro.

…and Starts Suing Defaulted Borrowers

According to Bloomberg reporting, Goldman has filed lawsuits against over 100 defaulted borrowers (including a high school guidance counselor).

While a common collections strategy, it does represent a shift for Goldman, which has gone to great lengths to position its Marcus products as consumer friendly -- to regulators as well as borrowers. 

With over 82,000 borrowers taking advantage of loan deferments, expect to see more defaults -- and lawsuits -- as economic pain from the pandemic drags on into 2021.

PayActiv Wins CFPB Approval for Earned Wage Access

On the heels of its recent advisory opinion on EWAs, the CFPB has granted approval of PayActiv’s Compliance Assistance Sandbox (CAS) application -- the first such approval under this policy (an approval for a Synchrony secured card product was simultaneously announced).

The Compliance Assistance Sandbox approval, intended to foster product innovation within a regulatory framework, states that PayActiv’s EWA product does not create debt because “the accrued cash value of an employee’s earned but unpaid wages is the employee’s own money.”

Because the CAS approval determines that PayActiv’s product is not credit, it is freed from any liability under the Truth in Lending Act or Reg Z. The CAS approval gives PayActiv a meaningful advantage vs competitors in marketing itself to employers interested in offering Earned Wage Access programs.

It also further clarifies the CFPB’s position that no (or minimal) fee EWAs offered through employers are the preferred approach vs those carrying fees and offered directly to consumers.

Charter Watch: Oportun Faces Consumer Advocate Pushback

Oportun, which filed for a national bank charter with the OCC in November, is encountering resistance from consumer advocates for some of its controversial practices.

Oportun, a Treasury-designated Community Development Financial Institution (CDFI) is, in theory, dedicated to delivering responsible, affordable lending to low/moderate income communities.

Multiple consumer advocacy groups submitted comment letters highlighting concerns about customer repeat borrowing (a sign that loans may be unaffordable), high interest rates (an average of 36% but going as high as 69.99%), and aggressive use of lawsuits as a debt collection tactic (as reported on by ProPublica).

One such letter signed by groups including the Center for Responsible Lending, Mission Asset Fund, National Consumer Law Center, and Consumer Reports stated:

“Unfortunately, recent investigations and research have revealed egregious debt collection practices by Oportun. The investigation raised problems including unaffordable loans, high volumes of collections suits, and abusive and intimidating debt collection tactics. These raise substantial and serious questions regarding Oportun’s application.”

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