Credit unions already promote themselves as being different from the big banks, but one mega bank has entered the marketplace with a new product that could cut into CUs' market share.
Goldman Sachs, the huge Wall Street investment bank, is entering the consumer personal lending market through the introduction of a new online platform called "Marcus by Goldman Sachs." Loans will feature terms ranging from 24 to 72 months, with fixed APRs ranging from 5.99% to 22.99%.
The move marks a major step forward in Goldman Sachs's long road into "bread-and-butter" banking. It is also a rare example in the banking industry of a company that has developed an online loan operation from scratch.
But how might Goldman Sachs' decision to wade into consumer lending impact credit unions? Voices from the industry offered a variety of reactions, but the general theme was the same: concerns over a new competitor, but confidence that members trust credit unions more than Wall Street banks.
Deidre Davis, vice president of marketing and communications at Michigan State University Federal Credit Union (MSUFCU), a $3.3 billion institution based in East Lansing, Mich., said that due to the Goldman Sachs' brand name recognition and existing client relationships, "we would expect them to be a competitor and agree that this has the potential to shift consumer lending to Goldman Sachs from credit unions as well as from community banks."
Mike Mattone, vice president of public relations and corporate communications for the $2.5 billion Municipal Credit Union (MCU) of New York, said that Goldman's entrance into the consumer lending space naturally means that there will be more competition for credit unions such as MCU.
"That being said, we feel that we have the same competitive advantage over Goldman Sachs that we do over other financial institutions in that we have built strong personal relationships with our members and know that they trust us to provide them with the best products and service possible when they need access to liquidity," he said.
Mattone noted that Marcus' proposed fixed-rate, no-fee unsecured personal loan product is "quite similar" to the unsecured personal loan products that MCU currently offer its members. "We offer unsecured personal loans at a fixed rate for up to $50,000," he explained. "We have terms up to 84 months." And in the 18-month period ending on June 30, 2016, Municipal saw its portfolio expand by more than 20%, to the point where more than 80,000 members now have personal loans from the credit union.
'Pay Close Attention' to the Behemoth
Jon Paukovich, chief lending officer at Ent Credit Union, a $4.4 billion institution based in Colorado Springs, Colo., said that the entry of a "well-capitalized, well-managed" behemoth like Goldman Sachs into the consumer lending space should definitely prompt credit unions to "pay close attention."
However, Paukovich noted that despite its "strong brand recognition and deep pockets," consumer lending is an entirely new business for Goldman Sachs, and it is unlikely to pose any immediate threats to credit unions or other established online players in the consumer lending market.
"Goldman Sachs has largely been known as an international investment banker catering to high-net-worth individuals," Paukovich said. "Credit unions, on the other hand, have a long and deep footprint in the personal loan business and have established strong relationships with their members. Goldman Sachs is not so attuned to this area of the lending market as credit unions are."
Mark Kretzschmar, senior vice president of loan servicing at State Employees' Credit Union, the $34 billion institution based in Raleigh, N.C., said "time will tell" if Goldman Sachs poses any threat to credit unions' personal loan business.
"Credit unions – and, to a larger extent, the entire financial services industry – has been besieged in recent years by the continuous entry of non-traditional entities brought about, in part, by the fintech revolution," he stated. "These new entities have had varying degrees of success so far in making inroads into the highly competitive consumer lending marketplace."
Citing Goldman Sachs' own language in describing Marcus as an alternative to borrowers who have grown weary of dealing with lenders that impose hidden fees and provide poor customer service, Kretzschmar said this is the same market that credit unions have already embraced and planted deep roots in.
"As an industry, credit unions pride [themselves] on providing unparalleled member service, as well as fair and transparent loan terms and fees," he said. "Thus it wouldn't seem, at least initially, as if Goldman Sachs' foray into the consumer lending space poses a direct challenge to credit unions or the members they aim to serve."
At least one prominent credit union saw Goldman Sachs's entry into personal lending as a "non-issue."
"Goldman Sachs is yet another competitor in a crowded marketplace," said Joe Mecca, manager, marketing strategy & communications at Coastal Federal Credit Union, a $2.7 billion institution based in Raleigh. N.C. "They're not necessarily a new or unique threat, and their product approach isn't as much of a direct threat to the lending categories where we do quite well. The consensus here is that they'll compete more directly with [online marketplace lenders like] Sofi or Lending Club."
Ready For Prime Time?
One element that may help credit unions, noted Chris Oldag, chief lending officer and vice president at Pacific Service Credit Union, a $1.1 billion institution based in Concord, Calif., is that Goldman appears to be targeting "prime" borrowers looking to consolidate credit card debt.
"The Marcus product may be targeted at just the top tier…but credit unions serve the full array of the credit spectrum," he noted.
Kretzschmar indicated that there's already "significant competition" in the consumer lending space for "prime" borrowers. "Many credit unions, such as SECU, focus on lending to a broader segment of our membership base that, admittedly, may be overlooked by lenders that focus primarily on just 'A' paper borrowers," he said. The entry of Marcus into the competitive landscape, he added, doesn't "dramatically change the current market dynamics."
Moreover, Oldag highlighted how important the unsecured personal loan market is to credit unions. "They are one of our highest-yielding products for credit unions and they form the backbone product for our balance sheets," he said. "Best of all, they are relatively low cost, simple to produce and can be a tremendous value proposition for the members compared to the other choices available."
While the risks of such loans are higher due to the absence of requirements for collateral, Oldag added, the yield more than offsets that position on a well underwritten unsecured loan.
"Members that come to their credit unions with a financing need that can only be met with an unsecured loan will receive great service, get that loan quickly, and will be met with both open arms and pricing that will send the fintechs and the new entrants scrambling," Oldag said.