GreenSky deal accelerates Goldman's consumer banking ambitions

Goldman Sachs’s deal to buy the point-of-sale loan provider GreenSky fits neatly into a two-pronged strategy the New York bank has been pursuing this year.

On one side, the deal would expand Goldman's direct-to-consumer banking business, which the company had been steadily building since launching its consumer banking arm, Marcus, in 2016. On the other, it would allow Goldman to offer banking-as-a-service or embedded finance to more companies, in this case GreenSky's network of 10,000 merchants.

GreenSky was built as an intermediary between merchants — typically home-improvement contractors or health care providers — and lenders. The merchants offer point-of-sale loans to consumers that the banks quietly fund. The lenders, which pay loan servicing fees to GreenSky, acquire consumer loans without having to develop customer relationships themselves.

Goldman agreed to buy GreenSky for $2.24 billion, or $12.11 per share; the deal was announced Wednesday and is expected to close in late 2021 or early 2022. The $1.4 trillion-asset bank hopes the acquisition of the company, its technology and its 1,200 employees will help it develop relationships with GreenSky’s merchant network and consumer base, and over time broaden those relationships with additional products and services.

GreenSky first spoke publicly about the possibility of a sale after a disappointing earnings report in 2019. Shares in the Atlanta company, which debuted at $23 in 2018, traded at below $10 over the last two years until getting a boost from news of the Goldman Sachs deal. In midday trading Wednesday, GreenSky’s stock price was up 40% to $11.82.

Some of the regional banks that partnered with GreenSky have more recently severed ties. In 2019, Regions Financial in Birmingham, Alabama, exited its relationship with GreenSky, saying that it wanted to pursue more direct relationships with consumers. Earlier this summer, Regions announced it was acquiring the home-improvement lender EnerBank USA.

Last month, Truist Financial announced a deal to acquire another home-improvement lender, Service Finance Co., and a plan to end its partnership with GreenSky.

In July, GreenSky was fined $2.5 million and forced to refund up to $9 million in loans. The Consumer Financial Protection Bureau alleged that the company allowed its merchant partners to take out loans on behalf of customers who hadn’t authorized the financing.

GreenSky did not admit wrongdoing and said that it had already implemented many of the protocols and business practices called for under the settlement, which requires the company to obtain evidence of a borrower’s authorization before activating a loan.

GreenSky’s retail partners include Home Depot and the window company Renewal by Andersen.

This merchant network was a major draw for Goldman, according to Stephanie Cohen, global co-head of consumer and wealth management.

“They have long-standing relationships with these merchants,” she said. “Building that merchant ecosystem would have been hard-slash-impossible for us to do on our own.”

The GreenSky business will give Goldman access to a million customers every year, Cohen said. These are typically people who own their home and have a high income, she said. Marcus by Goldman Sachs will be able to “holistically manage their financial lives and provide them with the full suite of Marcus's products,” Cohen said.

Marcus currently has 8 million customers, $100 billion of deposits and $9 billion in loans.

“We're just getting started,” Cohen said. “The broader vision is to help tens of millions of customers achieve their financial goals.”

In addition to the merchant network and customer base, Goldman was attracted to GreenSky’s technology, Cohen said.

“GreenSky’s is a cloud native, modern technology,” Cohen said. “They've gotten their technology stack to a place where it's more modular than monolithic. They have spent time making the interaction that happens at the customer's house really seamless. That's why the merchants like it, it's a much better experience for the contractor that's sitting next to the customer and it's a better experience for that customer.”

GreenSky will become part of Goldman's Marcus unit. The 1,200 employees of GreenSky, who are mainly in Georgia and Kentucky, will become Goldman employees, Cohen said. David Zalik, GreenSky’s cofounder and CEO, will become a partner at Goldman Sachs.

Importantly, the bank partnerships that GreenSky built over the years will eventually be phased out, and Goldman will hold the bulk of loans. GreenSky facilitated more than $1.5 billion of loans for its bank partners last quarter and and has arranged an average of $1.4 billion over the last five quarters.

“We'll go through a period of transition in which they will continue to finance GreenSky loans and then post- closing, we will migrate the vast majority of all the business onto the balance sheet," Cohen said. "But we'll do that in a thoughtful manner, respecting the relationships they've had with those banks over time.”

The idea of getting financing at the point of sale is a trend that’s here to stay, in Cohen’s view, because of the seamless experience that’s been built for consumers and merchants.

The broader concept of embedded finance, in which consumers obtain financial services somewhere other than a bank, will also grow, she said.

“We think people want everything to be easier, and we think that that's something that the buy now/pay later universe has gotten right,” Cohen said.

Kevin Wack contributed to this story.