With 1.5 Million Customers, Marcus Remains Focused on High-FICO Borrowers

Marcus, the retail arm of Goldman Sachs, is growing at steady pace with 1.5 million customers in its second quarter, as it continues to underwrite loans to a “narrow credit sandbox,” according to CFO Marty Chavez.

In the earnings call yesterday, Chavez revealed that Marcus has so far originated over $4 billion in loans as of June 30. This amount signifies a sizable growth given that just last month at a conference Marcus head, Harit Talwar, revealed its origination amount to be a  little over $3.5 billion.

Many digital lenders are carving a niche for themselves by using non-traditional methods and alternative data to determine the creditworthiness of a borrower. Marcus is not one of them. In fact, the consumer lender said it would continue to serve a specific type of high FICO score, creditworthy audience.

“We continued to be prudent in our underwriting and pricing of risk in our consumer lending business to ensure attractive risk-adjusted returns,” Chavez said during the call yesterday. “We only lend to creditworthy customers with a demonstrated ability to pay. We employ a conservative underwriting process using multiple hard cuts to define the narrow credit sandbox in which we operate. In addition to FICO, we use proprietary scoring models which have been carefully vetted by our central risk management process.”

When it comes to competition from the likes of bank-backed digital banks such as JPMorgan Chase‘s Finn, Chavez noted that Marcus is no rush to enter a new market just because it is in vogue. Risk Management seems to be key for Chavez, who said Marcus will decide on its products, services, and markets based on the need to solve its client’s pain-points.

On this matter, Chavez said:

…Something that we have been doing for decades that the firm is prudently managing risk in deploying capital and also building software? And is it an opportunity where we can have results that are material for us without requiring a large market share and other attractive risk returns for our shareholders? So as we developed this vision, you are seeing more of the offerings and it’s coming into focus? And the emphasis for us is on what is the consumer’s pain point and how can we solve it in a differentiated way given also that we don’t have the legacy of scale mainframe systems and we don’t have the bricks and mortars. And so as we are doing this and this was of course one of the things that attracted us to Clarity Money, it’s the AB testing, it’s the emphasis on making it an easy user experience leading with the behavioral economics, a better service. We know this is a competitive and commoditized business and we know that we have to differentiate ourselves and earn our way into it. That’s what we are doing.

Currently, Marcus has two core products: a fixed-rate, no-fee personal loan that ranges between $3K-$40K and an online savings account, which yields 1.8% interest. Earlier this year, Marcus said it would provide home-improvement loans ranging between $3,500 to $40,000 for periods of three to six years. Thanks to its purchase of Clarity Money in April, Marcus also provides users with PFM features.

According to the Q2 earnings results, Marcus held $3.1 billion of loans on its balance sheet as of June 30, and grew its deposits to over $23 billion.

Later this year, Marcus will launch a deposit product in the U.K. Details on this product have not been revealed yet.

Launched in 2016, Marcus’s platform provides access to products either manufactured or distributed by Goldman Sachs.

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