Goldman Sachs enters point-of-sale financing with Marcus Pay
OBSERVATIONS FROM THE FINTECH SNARK TANK
CNBC reported The:
“Goldman Sachs is taking another step into the retail banking market with an installment loan product launched with JetBlue. The bank released MarcusPay this week, which allows users to split large purchases into monthly payments. Loans between $ 750 and $ 10,000 are repaid over 12 or 18 months at a fixed rate of 10.99% to 25.99% with no fees other than interest. ”
Ian Kar, author of the Fintech Today newsletter, is quoted as saying, “The installment product makes Marcus a payment method, contributes to it becoming more popular with users and penetrating into the everyday life of their customers.”
My opinion: Marcus Pay is unlikely to help Marcus “come first for users” or do anything to “break into consumers’ daily lives”. Point-of-sale, or installment loans, are used by a very small percentage of consumers for an incredibly small percentage of transactions – hardly the kind of product that helps an issuer become “aware” or “invade customers’ everyday lives.” “. . “
If this announcement had come two months early, it would have been touted as a great idea. In the middle of the COVID-19 crisis, it seems like an odd timing.
The demand for point-of-sale (POS) financing is (or was) Growing
POS financing is certainly not new. In 2016, merchants in nine different retail categories received more than 160 million POS loan applications – but only 53% of them were approved. According to The economist:
“Partly driven by younger consumers, point of sale credit is becoming increasingly popular in America. Consumers who previously financed purchases such as furniture, electronics or construction projects with a credit card are now opting for a loan at the checkout. ”
This is confirmed by a recent study by Cornerstone Advisors. Approximately 6% of Millennials currently have one or more POS loans – twice the percentage of Generation X and quadruples the percentage of Baby Boomers using this type of loan.
Additionally, at the time of the study (February 2020), nearly 8% of millennials under the age of 30 expected to apply for a POS loan sometime in 2020.
Filene Research Institute estimated the annual size of the POS finance market at $ 391 billion – about 3.5% of annual consumer spending – with healthcare, electronics and housewares being the leading categories.
An unusual time to introduce a point of sale finance product
Two months ago, the outlook for POS funding looked promising. Unemployment was low, wages rose, consumer confidence was high.
Today is a completely different story.
So why start now?
Mere speculation on my part, but my guess is that JetBlue – whose revenues have risen sharply in recent weeks – is testing the market to see if consumers are ready to fund fall and winter vacations.
In the long run, a few things will determine the success of Marcus Pay:
1) How will consumer behavior and attitudes change after the crisis? After the financial crisis in 2008, experts announced the death of credit cards. That did not happen, and even before the economy turned, credit card demand and credit card spending increased.
The COVID-19 crisis is a different kind of shock to the system. While we are sitting here in the middle of the crisis, it is nearly impossible to determine the long-term impact on consumer spending and demand for POS credit.
The good news for Marcus Pay is that as demand grows, we get into the flow.
2) How will Marcus Pay expand its retailer presence? Goldman Sachs undoubtedly has the resources to build a dealer network. But competition in this area – especially when it comes to large-format articles – is intense. Acknowledge that a niche is being created to buy vendors with smaller tickets. But Marcus Pay is already promoting loans in the $ 750-10,000 range.
3) Can Marcus Pay Benefit From Goldman Sachs’ Relationship With Apple? One trick Marcus Pay has up his sleeve is his relationship with Apple and the Apple Card.
Most Apple card Customers are young – 70% are millennials (almost evenly split between younger millennials in their twenties and older millennials in their thirties). A third have an annual household income of less than $ 50,000 and another third of cardholders have an income of less than $ 100,000.
Many Apple Card holders may have low spending limits that require them to find funding for purchases that exceed their limit.