My second job out of school was working for Deluxe Check Printers calling on banks in Alabama. One of my favorite banks was an independent bank in Guntersville Alabama. This particular bank was your typical bank, friendly hometown bank with conservative financials. However, this bank recognized the opportunity to service more customers who may not qualify for traditional bank loans loans and they started a consumer lending program through a separate division.
Fast forward 9 months and the consumer lending division was growing rapidly. In just a short time, they had already gained millions in new loans and added a considerable profit margin to the banks bottomline. I asked the Consumer Lending Manager how happy the bank President was with all of this new business. “He wasn’t happy at all. The bank is used to 2.5% in loan losses and we are at 8%. So, even though we still added $800,000 in profits after loan losses, the board wants him to pull the plug on the consumer finance businesss.” This was in 1991.
Years later the Fintech boom happened and some banks felt like they were getting squeezed and that a ripe, rich new product line was there for the taking. Enter Goldman Sachs. The old school bankers thinking they could enter a market, throw a BUNCH of money as in billions into it and reap the profits. The problem is they forgot about the Tech part of Fintech. You see these new Fintech companies have mastered the use of data and analytics. They have mastered the ability to adjust risk models and marketing techniques to streamline their operations. And they answer to a different set of investors than Goldman Sachs or other “old school” banks. Even worse for Goldman, they aren’t even that familiar with personal loans as they are primarily a commercial lender.
So, according to a WSJ article on October 16, 2023, “Goldman Sachs Wants Out of Consumer Lending. Employees Say It Can’t Happen Fast Enough.” Goldman is learning the hard way the same lesson that my hometown Guntersville Alabama bank learned. Stay in your lane when it comes to personal lending.
Yes, the Goldman Sachs that provides the Apple Card and the GM card is getting out of the business. The Goldman who created the Marcus brand and was the largest direct marketer of consumer loan offers in 2021, flooding the market with billions of dollars in advertising dollars is leaving the market. It’s going to leave a large void that will be a great opportunity for the right companies.
