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How Goldman Sachs is helping Main St. pay off its credit card debt

Wall Street giant Goldman Sachs (GS) opened its doors up to Main Street last year, launching an online consumer lending arm called “Marcus: By Goldman Sachs.”

Named after one of the bank’s original business partners, Marcus Goldman—who started the firm 147 years ago with Samuel Sachs—the new retail platform allows credit-worthy borrowers to apply for fixed-rate, no-fee loans of up to $30,000 for periods of two to six years.

“Our purpose is to help credit-worthy Americans manage credit card debt better,” Harit Talwar, head of Digital Finance at Goldman, told Yahoo Finance in the video above.

Traditionally, Goldman’s clients have included corporations, financial institutions, governments, and high-net-worth individuals. During the 2008 financial crisis, Goldman was required to convert from a broker-dealer to a bank holding company to gain access to the Federal Reserve’s discount window, a source of liquidity. Since that time, there have been internal discussions on how to grow the consumer side of the business. Last year, the bank made the first move in that direction when Goldman’s GS Bank acquired GE Capital’s online deposit platform and assumed approximately $16 billion in deposits. Marcus is another one of the firm’s steps into the consumer-side.

Talwar, a former head of Discover Financial Services’ US credit-card business, joined Goldman as a partner in 2015 to help lead the firm’s online lending efforts. He describes Marcus as a “start-up within a 147-year-old firm.”

Harit Talwar

The idea behind Marcus is to provide an alternative to higher-interest-rate credit card debt. In the U.S., there’s approximately $850 billion in unsecured debt. Most of that debt is on credit cards.

“It’s a big problem,” Talwar said. ” [Today] in America, there was a Fed study that [found] if a household has $400 of unexpected expenditure, then almost half the country needs to borrow, and this is across all spectrum of households …  And this is not because they are living beyond means or they are going to Las Vegas or buying jewelry. It is because life happens. Somebody has a roof leak, they need to borrow. The washing machine breaks down, your daughter’s car’s transmission breaks, and when people need to borrow most often, they borrow on credit cards.”

He explained that over time there are tens of millions of American households that are credit-worthy, with a FICO score over 660, paying high-interest rates on credit-card balances.

He noted that there are two types of credit-card customers — those who pay their balance in full and others who pay some of the balance each month. The credit card companies make their profit from the half who borrow and pay it off a little bit at a time. That is the group Goldman is targeting.

Marcus: By Goldman Sachs

Goldman views Marcus as a better option for those customers to get out of debt. During the building process, Goldman’s team spoke to 10,000 customers about their experiences.

In those discussions, they found that consumers don’t like rates that keep changing. Most rates are variable, but Marcus’ are fixed. Goldman’s interest rates are 3% to 5% lower than what customers would pay for comparable credit card debt, according to Talwar.

Goldman also found that consumers hate fine print, especially when it comes to fees. Marcus has no origination fee and no penalty for pre-payment of the loan. Goldman also offers monthly payments and allows users to pick which day they’d like to schedule payments. The firm also has a call center where a person will answer the phone.

Julia La Roche is a finance reporter at Yahoo Finance.

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