Why Goldman Is Really Buying GreenSky Amid BNPL Installment Lending Push
- Goldman Sachs has announced plans to buy installment lender GreenSky for $ 2.2 billion.
- GreenSky specializes in point-of-sale loans for home improvement projects.
- Goldman will win over 10,000 GreenSky entrepreneur and merchant customers.
Goldman Sachs is entering the buy now, pay later frenzy, but not in the typical fast fashion segment that has made installments so popular.
The famous Wall Street bank took a big step forward in consumer lending, launching its retail bank Marcus in 2016 and creating a series of more recent partnerships and deals. The latest came on Wednesday, when Goldman revealed plans to buy home improvement installment lender GreenSky in an all-stock transaction worth $ 2.2 billion.
GreenSky facilitates installment loans and revolving lines of credit for home improvement projects such as window replacement and HVAC installations. The Atlanta-based company debuted on the stock exchange in 2018, with Goldman Sachs as the primary underwriter. This all-stock deal values GreenSky at around $ 12 per share, or nearly half of its listing price of $ 23 per share.
GreenSky will join Marcus by Goldman Sachs, which is part of the bank’s consumer and wealth management division co-led by Stephanie Cohen. A 22-year Goldman veteran and rising star, Cohen served as chief strategy officer before becoming co-head of the consumer and wealth management division last September – a move that left her in. discussion as a candidate for general management.
When the deal goes through, GreenSky’s more than 10,000 merchant customers – small construction companies and contractors, for example – will become Goldman customers, along with more than $ 9.4 billion in serviced loans. As Cohen explains in an interview with Insider, it’s a deal that gives Goldman immediate access to fees traders pay Greensky for loans on major purchases, like a kitchen remodel or orthodontic work.
GreenSky makes money by charging its merchant customers a transaction fee of approximately 6.6%.
“For us to build the GreenSky Merchant Network, which they’ve been building since 2006, I think it easily would have taken us at least a decade,” Cohen told Insider. And merchants really love these loans, she said, “because they know it helps them grow their business by improving customer conversions.”
Goldman Sachs advised itself in the transaction, according to a press release, while JPMorgan and Financial Technology Partners advised GreenSky.
GreenSky also offers funding for healthcare, including dental care and cosmetic surgeries, although this is less than 10% of GreenSky’s total volume, CEO David Zalik said during the second earnings call. company quarter. It offers revolving and installment lines of credit up to $ 65,000 to consumers requesting financing from GreenSky merchant customers.
This is not Marcus’ first game of forging partnerships or making acquisitions as a means of acquiring more clients.
Last year, Goldman won a bid to acquire General Motors’ credit card business for approximately $ 2.5 billion. In 2019, Goldman Sachs and Apple announced a partnership to launch the Apple Card. Goldman is also Jet Blue’s payout partner, providing point-of-sale financing for flights to travelers.
So far, Goldman’s interest in buying now, paying later has shifted towards higher value purchases, with GreenSky being no exception. Regarding small purchases, Cohen pointed out that Goldman serves as the partner bank for the Apple Card and its installment offering for Apple products. Goldman is said to be working with Apple on installment payments through Apple Pay, unrelated to the Apple card.
Goldman Sachs to Transfer GreenSky Loans to Bank’s Balance Sheet
The deal will also bring a major change in the way GreenSky itself does business.
Currently, GreenSky relies on a number of partner banks, including Fifth Third Bank and BMO Harris, according to S&P Global Market Intelligence – to fund its loan portfolio. He has already faced challenges in retaining these bank funding partners. In 2019, for example, Regions Bank opted not to renew a financing deal with GreenSky when it expired, and Truist severed ties with the company in August after signing an agreement with a competitor of the outlet.
According to Cohen, as GreenSky joins Goldman Sachs, these loans will gradually be transferred to Goldman Sachs own balance sheet.
“Having a scale and a track record is a real competitive advantage,” Cohen said.
Now Goldman Can Offer $ 1.4 trillion Balance Sheet to Use as Funding Base for loans.
Living under the aegis of Marcus, GreenSky will be able to diversify its income, which currently comes mainly from merchant fees. Not only will GreenSky have access to its balance sheet, but there will also be opportunities for integration with the rest of the bank’s services, such as banking transactions, Cohen said.
The deal will also see Goldman strengthen its presence in Atlanta, where GreenSky and its approximately 1,200 employees are based. GreenSky Chairman and CEO David Zalik will join Goldman Sachs as a partner, and Cohen said the company intends to hire all GreenSky employees as part of the acquisition.
As Goldman Sachs and other banks add to their mainstream fintech offerings through acquisitions, they also face new consumer protection and regulatory challenges. Last July, GreenSky settled with the Consumer Financial Protection Bureau a case that saw fintech pay a $ 2.5 million fine and repay or cancel up to $ 9 million in loans for taking out loans without the customer consent.
On behalf of Goldman Sachs, Cohen said, the bank “strives to be on the good side of the customer” and “to provide simple, valuable and transparent products.”
“The culture and philosophy of Marcus, Goldman Sachs and GreenSky are well aligned,” Cohen said.