Founded in 2006, GreenSky is an online consumer lending platform specialized in home renovations and medical bills. The company recently held its IPO, through which it was able to raise over $800 million. Since then, GreenSky’s shares have stalled out — however, the lending “unicorn” may have some interesting implications for the future of banking.
GreenSky has been building its influence in the online market for the better part of the last decade, becoming one of the largest financial technology companies in the country. Through GreenSky, contractors can place bids on projects and banks can compete to lend money to the project.
In 2016, GreenSky branched into the profitable healthcare sector, offering loans for medical and dental work. By remaining specialized in specific markets, GreenSky may have been able to avoid many of the high risk issues that other lending platforms have encountered. 1.7 million customers and 12,000 lenders now use the online lending platform, which offers interest rates as low as 4.99% APY.
GreenSky’s stock was priced at $23 and opened at $22.15. By the end of the day, it had reached $25.36. GreenSky has been hovering around $24.50 to $25.00 since, giving the appearance of a stock that is stalled. At the same time, GreenSky remains optimistic, and has mentioned that it is going to be expanding in new verticals shortly. Expansion could give the lending giant some substantial room to grow, especially as competitors (such as the peer-to-peer Lending Club) suffer.
Online lending platforms have shown that consumers are increasingly looking for the ability to get hassle-free loans without having to interact directly with conventional banks. From peer-to-peer services to third-party lending marketplaces, consumers are trying to find the best deals without having to invest a significant amount of time. This has led to a rise of self service banking initiatives, such as GreenSky.
GreenSky alone may not be the vanguard of this new financial trend. Up until recently, the before mentioned Lending Club was one of the major players in this space. Conventional banks, such as PNC Bank and Barclays, will also be opening up new consumer lending platforms. When Goldman Sachs launched their online lending platform Marcus, they saw some significant growth.
This is good news to consumers, because borrowing is becoming cheaper and easier. It’s also good news for the economy; lenders are only so free with their money when the economy is solid in general. Meanwhile, investors may want to keep their eyes out for innovative new entries into this space.
It should also be noted that many of these new lending platforms are targeted to finding a lending product for everyone, including those who have fairly bad credit scores or are in bad situations. Marcus, by Goldman Sachs, offers loans up to $40,000 at terms of 24 to 72 months. However, they also offer loans up to 24% APY, which are traditionally quite high and reserved for those of poor credit.
Over-lending to high risk applicants can ultimately lead to a bubble, which (when it bursts) can have catastrophic impacts on the financial sector. Subpar lending is what initially led to the housing crash a decade ago. Short-term, banks are able to capitalize on the fees that they can charge subprime borrowers. Long-term, borrowing more than one can afford can become so rampant that a bank can experience a tremendous number of defaults at once, driving the bank itself into debt.
GreenSky is a powerful lender within its space, and its promise to soon grow into additional verticals may make it a good buy at a cheap price. Not only is the lender profitable, but it has something that sets it apart from other lending platforms: it has a specialized focus and works directly with banks. Ultimately, its platform may prove to be more sustainable than peer-to-peer lending services, or commercial lending platforms that are delivering generalized, high risk loans.
Regards,
Ethan Warrick
Editor
Wealth Authority
