April is financial literacy month, so in this episode of Industry Focus: Financials, fool.com contributor Matt Frankel, CFP, sat down with Elizabeth Overbay, chief operating officer of Goldman Sachs' (GS 0.40%) consumer banking division, and Dustin Cohn, head of brand and marketing communications for Marcus by Goldman Sachs, to talk about the problem of financial literacy in America and what they're doing to fix it. Plus, Matt and host Jason Moser discuss first-quarter results from fintech heavyweights Visa (V +1.24%) and PayPal Holdings (PYPL +2.96%), and as always, they let listeners know what stocks they're watching this week.
To catch full episodes of all The Motley Fool's free podcasts, check out our podcast center. A full transcript follows the video.
This video was recorded on April 29, 2019.
Jason Moser: Welcome to Industry Focus, the podcast that dives into a different sector of the stock market each day. It's Monday, April 29. I'm your host, Jason Moser. On today's show, we've got some more earnings to get to. As always, we'll have One to Watch. We even have a nice tweet to read out. But we begin this week with another installment of Between Two Fools.
Elizabeth Overbay is COO of Goldman Sachs' consumer banking division, including Marcus by Goldman Sachs and Clarity Money. Dustin Cohn is the head of brand and marketing communications for Marcus by Goldman Sachs. As Financial Literacy Month here in April winds down, our own Matt Frankel sat down to talk with both of them recently about the problems with financial literacy in America today, and how Marcus is trying to be a part of the solution.
Matt Frankel: Thank you for joining our podcast on Financial Literacy Month, of all times! Does the Marcus team see financial literacy as a major problem in the U.S.? And aside from creating its financial products, what is Marcus doing to address the problem?
Dustin Cohn: It is a real opportunity, in terms of what Marcus by Goldman Sachs can provide to consumers by way of education. There is a lack of information out there. Consumers are also a bit ashamed that they don't have all the answers, and sometimes that shame creates inertia, and they don't look around for their options, even simple things like a savings account. We've found through our proprietary research that 60% of consumers don't know their interest rate, and about the same number never even shopped around when they opened up their savings account in the first place. As we all know, there are some pretty big banks out there that are offering as little as 0.03%, where Marcus by Goldman Sachs offers 2.25%. A significant opportunity for consumers to save more money in that example.
What we also do outside of our actual product offerings is provide content. We have a content hub on marcus.com with lots of videos and articles and tools to help educate consumers about their options and get them more comfortable with the fact that there are better ways to save and budget and earn money. If they feel a bit more confident in their ability to learn and apply those learnings, they can actually really improve their financial health pretty significantly.
Frankel: On that note, Marcus has something going on called the You Can Money campaign. Can you give us a little bit of an overview of what that is?
Cohn: Sure. You Can Money is our new tag line, our new campaign. It really taps into that emotion that I just described in terms of consumers feeling a bit ashamed. They lack confidence in their financial abilities. If we can inspire consumers to look around and see what options are available to them, that could give them the confidence to improve their financial health. You Can Money is our call to action for consumers to really get their heads out of the sand and see what's out there.
On a more rational front, You Can Money is about the fact that you can earn more interest with a savings account like Marcus by Goldman Sachs. You Can Money, meaning you can pay off credit card debt and potentially lower your interest rate that you're paying. You Can Money by just better managing your budget and your spending habits through tools like Clarity Money. So You Can Money is that emotional aspect, that empowerment, that sort of jolt of optimism that you can do this. It's also a rational message that we have products that can actually help you do this as well.
You Can Money launched a couple of weeks ago. We have TV, print, radio, outdoor, lots of social media and digital advertising. A big part of it is trying to educate consumers that there are easy and simple and fast ways to improve your financial health.
Frankel: Speaking of your products, Marcus has two main varieties of products. You have your lending platform and you have your high-yield deposit platform. You mentioned the proprietary research that Marcus does. I remember from our last conversation that the personal lending side, you guys did a ton of market research before you even launched to address some consumer pain points. Do you see that as one of the big reasons that Marcus has grown so fast? Do you still see this as a big addressable market? Or is personal lending getting as big as it's going to get?
Elizabeth Overbay: No, I think we are still really excited about the road ahead. I think we still think we're in early innings for Marcus by Goldman Sachs. We still see a lot of unmet need in the market, really going back to your first question about financial literacy and to Dustin's point about the education we can help do to help customers understand that there are better ways to manage their debt. Certainly, as we think about the early launch of Marcus by Goldman Sachs, we were really focused around better debt management and helping consumers learn about better ways to manage the debt that they had. I think as we think about the opportunities going forward, we think about a lot of other opportunities for customers to manage their finances better as we think about, for instance, home improvement expenses, or moving expenses, a much better way to finance those expenses, rather than putting them on a credit card. The same thing with opportunities like travel and vacation spend. Really helping customers understand that there's a smarter way to handle those kinds of expenses, rather than carrying them just on their cards.
Frankel: OK. The same kind of question in terms of the high-yield deposit platform. It's fair to say that high-yield deposits in general, not just Marcus, still make up a very small percentage of the overall deposit base when you think of all the traditional brick and mortar banks. You mentioned educating the consumer is a big obstacle to this. But I would think that, especially with the big interest rate increases over the past couple of years, a lot more people would start taking advantage. Why do you think that so many people are not taking advantage yet of high-yield savings?
Cohn: I think it gets back to the point that consumers are in a state of inertia oftentimes. They have a savings account that they've had for decades, sometimes. They opened it up for free checking, and that money sits there, and sometimes is over-funded. When that money just sits there, obviously, it's not earning the interest it could use.
I also think there is, obviously, a shift into digital banks that is happening probably more slowly than it should. Oftentimes consumers just like to know there's a branch for them to physically walk into. Yet, those same consumers really can't stand that experience. Once they learn that they can do all that same banking online, and avoid the overhead, quite frankly, of the branches, then they realize how easy it is to earn more money with a digital bank like Marcus by Goldman Sachs. It really is a lack of awareness, and sometimes just that complacency that comes from having a savings account and checking account that they've had for decades.
Frankel: The Marcus platform has grown a lot faster than most experts have predicted. Last summer, David Solomon, who was at that point your president, he's now your CEO, he gave a presentation talking about a bunch of future growth opportunities, which really caught my eye. There were about a dozen things. Right now, you do pretty much two. He mentioned things like mortgages, insurance products, auto loans, things like that. Where do you see the biggest opportunities in consumer finance for Goldman Sachs, beyond your existing lines? I know you can't really speak to any product development going on, but which of those do you see as big opportunities? Do you still see about a dozen opportunities going forward?
Overbay: Yeah, we still see a lot of opportunities in the market as we think about the pain points that customers have in terms of dealing with their finances. Those pain points exist across a whole host of categories. We think any number of those could be interesting opportunities for us, as we think about our opportunity to impact our customers. As we think about what we see on the horizon, we've talked a little bit about the merger that we're doing internally with our colleagues in the Investment Management Division. We're excited about the opportunity to expand our business alongside some of the infrastructure that they have. Things like consumer wealth management, definitely something that's near and dear to our hearts, that we see as an interesting opportunity going forward. We've got a lot of different ideas in the lab, so to speak, and some of them, as you can imagine, rise to the top.
Frankel: Since I last spoke with you guys, Dustin in particular in October at the Money20/20 conference in Las Vegas, it's been about six months or so. Can you give us an idea of, what are Marcus' big priorities right now? What have you been working on since then? What can consumers expect over the next year or two from Marcus?
Cohn: We're constantly looking at the marketplace and talking to consumers to understand what their pain points are in the industry. Most recently, we talked to consumers about CDs. One of the things that came out of that was a new product offering, no-penalty CDs. We have a number of different offerings. If you take out your money before the term, you can do that and not be charged any sort of fees, which is pretty consistent with our no-fee offering across loans and the lack of fees on our savings account as well. As we think about what's next for Marcus, we're constantly talking to consumers about their experiences in the world of financial services and identifying those pain points that we believe that we can solve. As you know, Goldman Sachs really prides itself on being consumer-centric, customer-centric, and client-centric. We are a technology-based firm. We are very good at risk management. We look for opportunities where we can solve pain points, and there's a big enough market for us to really succeed, and not necessarily have to have a huge market share in that market. We're exploring a lot of opportunities, as usual, and putting the consumer at the center of everything we do is really the secret sauce.
Frankel: Speaking of pain points, just to give our listeners some ideas of what you're talking about, when you guys developed the personal lending platform, that was a big thing to solve a bunch of consumer pain points. Can you give us a rundown of the pain points that your existing products specifically solve for the public?
Cohn: Sure. Talking more about no fees in our personal loans, a lot of consumers are very surprised that they are charged origination fees. You get approved for $10,000, and you only get $9,500 because the lender takes out that $500 as an origination fee. People are frustrated when they pay down their loan early and are charged fees. And of course, late fees. We actually launched our product, and continue to maintain our product with absolutely no fees. No origination fees, no late fees, no fees for paying down early. That was a major pain point. Not to mention, consumers are typically surprised about that origination fee. That was another pain point, in terms of being transparent and being very simple. You'll note that, even on our website, we're really clear in terms of how we make money. That's a question we get pretty frequently. "If you don't charge fees, how do you make money?" Well, very front and center on our website, we describe that we make money on interest, and we don't need to charge fees. We also use language that is very straightforward and transparent. In fact, as we talk about origination fees, we don't even call them origination fees, we call them signup fees because we want to use very basic, straightforward, simple language. That was another big pain point consumers have -- all this jargon that a lot of financial services speak. We want to make sure that everything in terms of our communications is very straightforward, very simple, no jargon.
Another pain point was being able to talk to a customer representative. When we launched lending, while it certainly cost us more money in terms of being able to staff our call centers appropriately, we don't have any machines, that you need to be put on hold and press two for this and three for this. We actually pick up the phone. Oftentimes consumers are really surprised by that. One of my favorite stories from a consumer, we were doing some call listening, and we picked up the phone, and the woman on the other line started laughing. The agent asked her, "What's so funny? Are you OK?" And she said, "I shouldn't tell you this, but I'm actually in the bathroom." She said, "I called you, thinking I would be put on hold, and I'd have to press a bunch of numbers to get to who I needed to get ahold of, and I'd have some time to finish my business." And, of course, she asked us if it was OK if she called us back. But that's another example of a pain point -- consumers are just so used to being put on hold and having to deal with machines before they actually talk to a person. We solve that pain point. We're able to create a situation where we surprise and delight consumers every day by being able to talk to an individual.
You may have heard very recently, we were ranked No. 1 by J.D. Power in their personal loan category. It goes to show you, with things like no fees, a call center that picks up the phone, a great digital and mobile experience, all of those things were intended to solve pain points. And our customers are voting by putting us in the No. 1 slot for the J.D. Power rankings for personal loans.
Frankel: If you can actually call Marcus and talk to a person at any point you want to, then I can see why they're voting that much higher. With my bank, I know that's my biggest pain point. If there's something wrong, trying to get a charge reversed, trying to reach a person can be maddening, especially with the automated systems that don't quite understand what I'm saying.
Cohn: That's exactly right. One other pain point that I think is worth referencing, as well, is most lenders will tell you the day of the month that you need to pay them. We actually give our consumers the option to pick their date that they pay us. They know when they're paid from their employer, they know when their other bills are owed. It's a great feature for consumers to be able to manage their cash flow better. They pick the date, and they can also pick a monthly payment option. For example, if you are looking to borrow $10,000 and you want to pay around $400 or $500 a month, we actually can issue you a loan with a tenor that could be 33 months, it could be 53 months, it could be any combination to get you as close to that monthly payment option as possible. Other lenders fit you into a three-year, four-year, or five-year. It's cookie cutter. We have a personalized feature that allows you to pick your monthly payment option and the date that you pay us. Another pain point that we identified and solved through our offering. We obviously have the benefit of being a balance sheet lender, which allows us that sort of flexibility.
Frankel: Definitely. Speaking of other lenders, just based on what you said, it's easy to make the case that you're doing a lot of things better than the competition. But do you see this as a market that has a lot of room for everybody to grow? Or do you really see personal lending as having evolved into a real competitive environment?
Overbay: Overall, if we look at the consumer credit landscape, it is obviously a huge industry overall, as we think about what's out there. One of the criteria that we had when we entered the space overall, and this goes back a little bit to Dustin's point, a place where there's a big market, and even having relatively small market share can still be pretty meaningful for us, and therefore similarly for others. So we do view it as a place where we can carve out a really interesting place for ourselves, where we can focus on delivering value to our customers, and have flexibility around the size of the business. At the end of the day, 77% of consumers don't even know you can use a loan for a credit card balance. That's, to us, a really good indicator that there's still plenty of room to grow.
Frankel: Excellent. We touched on the dozen or so potential future opportunities. I know you can't speak to those individually, but do you see the no-fee nature, the customer service, as carrying over to future Marcus products?
Cohn: We'd like to maintain that consistency across everything we offer, but, obviously, new products may require different evaluation and different execution. But, regardless of what we do, we are going to try to identify those consumer pain points. Because we have the benefit of really building this business from scratch without any legacy technology, without any legacy products, we are able to really create what we think will be the very best-in-class products across all categories.
Overbay: I think as we think about new product development, the most important thing to us is how can we position ourselves to be on the side of the customer? So, at the end of the day, that's what it's all going to come back to.
Frankel: Excellent! I think I speak for all of our listeners when I say we cannot wait to see what Marcus has in store next.
Cohn: Well, thank you! We're really appreciative to have the time with you today! Thank you for the opportunity!
Overbay: Thank you very much!
Frankel: Thanks so much for joining me!
Moser: And now, joining me in the studio via Skype is certified financial planner, Matt Frankel. Matt, another nice interview there with the folks at Goldman. Good job!
Frankel: Thanks! I always like talking to them. They always have really interesting points to make and they're just fun to chat with.
Moser: Yeah, they seem to be very up on financial literacy as well. That seems to be a cause that really matters to them. And clearly, Goldman is steering their business in that direction, trying to utilize some of their vast resources to tackle some of those big problems. It's good to see.
Frankel: Definitely. I wish them all the best in their super-banking endeavors!
Moser: Maybe we'll get them back here soon. Earnings season is going on, as our listeners know. We have some earnings that are getting ready to hit this week. But we had some earnings that hit late last week we wanted to get to here. We're going to start with Visa. Matt, you took a look at Visa's quarter. What stood out to you?
Frankel: Well, Visa's a huge company that's still growing pretty fast. I mean, revenue was up 8% year over year. Earnings were up 17%. When earnings are growing faster than revenue, that tells you that a company's generally doing a really good job with expenses. Visa spent less on marketing, less on professional services than it did last year, despite the revenue increase, which is why you saw earnings really jump. Visa did so well in the first quarter that they actually increased their guidance for the entire year. An earnings beat, a stock could go up or down depending on the context of the report. Same with revenue beat. But when a company increases its guidance for the year, it's generally a really good surprise for investors. That's one of the only universal things that you're generally going to see the stock reacting positively to. Visa's at an all-time high right now. It looked pretty good. They're expecting double-digit growth this year. They said high to mid-double-digits for earnings per share, double-digit revenue growth they're expecting now. Payment volume keeps going up. Payment volume was up 8% year over year. The number of transactions Visa processed was up 9% year over year. These are some impressive numbers, considering the size of Visa and the growth they've had over the past five to 10 years. If you think Visa's already gotten as big as it can get, this report tells you to think again.
Moser: I think that's a good point. We talk about it all the time, this move away from cash and toward mobile payments, contactless payments, whatever it may be. Visa is a big company, $356 billion market cap. But we're watching some of these big tech companies today that are touching on $1 trillion market caps. Obviously, those tech companies are in very big market opportunities as well. But when we talk about how money flows around the world, that's clearly a huge market opportunity. We're talking about basically the entire world. We're talking about these networks that have this money going all sorts of different directions. That's something that is only going want to continue to grow. I don't think it's unreasonable at all to see Visa, at some point in our lifetime, knocking on that $1 trillion market cap. Am I way off base here? What do you think?
Frankel: No. Actually, you mentioned that this is a trend all around the world. It's worth mentioning that Visa's international revenue actually slowed, the growth slowed down this quarter. Visa had such a great quarter, despite bad international revenue. International remains a huge opportunity for Visa. It's a little more than I think half of their total payment volume. But that's just a small drop in the bucket compared to their potential. Visa's barely in China yet, for example. A lot of the most populated places in the world, Visa's barely scratched the surface. There's a ton of opportunity here. I would not at all be surprised in the next decade or so even if Visa starts knocking on that $1 trillion market cap.
Moser: Yeah, that's not out of the realm of possibility, for sure. Well, sticking on the payments theme, we'll take a look at PayPal here really quick. There's not a whole heck of a lot to nitpick. They turned in strong numbers. Revenue grew 12% for the quarter. They did a very good job of bringing that down to the bottom line. GAAP earnings up 34%. Non-GAAP earnings were up 37%. Any which way you look at it, PayPal continues to be a network that people are utilizing. I think when you look at some of these numbers, it is really impressive. Total payment volume of $161 billion for the quarter, was up 25%. Total transactions of 2.8 billion, was up 28% from a year ago. They added 9.3 million new accounts for the quarter, that was up 15%. They now have 277 million total active accounts, which is really impressive, and again, going back to that same theme with Visa, it's still such a huge market opportunity left out there.
I think it was really interesting. They noted they have 40 million active users now with Venmo. We know they're working on monetizing Venmo. I think they're not going to rush to do that. I think they're taking their time and making sure they do that the right way. That's encouraging as well. They talked, about last quarter, they were reporting that Venmo was operating on a $200 million revenue run rate. That now stands at $300 million. More people sending more money through those networks. It really just gets you back to that idea that, PayPal to me is one of those companies that every Foolish investor really should have in their portfolio, because it has so many of those great qualities that we look for, from strong management to massive market opportunities to constantly innovating. It's one you can own for many, many years to come. I would put Visa in that same category. I think you probably would, too.
Frankel: Yeah. PayPal actually makes Visa's growth rate look kind of slow. They're doing that well. One thing to point out with that, everyone who's listened to the show before knows that I think the world of person-to-person payments is a long-term opportunity. Not only do companies like PayPal and Square, like I talk about all the time, have the same international growth opportunity Visa does; they have a big domestic opportunity as well. While the majority of big transactions and merchants these days are done with cards, the majority of person-to-person transactions and smaller transactions are still done in cash. Although things like Venmo have gotten very popular, especially among the younger generations, it's still not the majority of its addressable market. I've seen statistics where, most transactions under, say, $20 happen in cash. So this is a big market. If I have to split the check with my friends at dinner, I still use cash, I'll admit. I'm an old school guy in that way. But eventually, that might not be the case. Eventually, my friends might insist that I pay them electronically, because they don't want cash.
But the point is, this is a huge addressable opportunity domestically, in addition to internationally, which is why you're seeing such a breathtaking growth rate for these companies that have person-to-person payment platforms.
Moser: Yeah. I think you're right. I know we always talk about investing for the long term, thinking in years and sometimes decades. The older you get, I think sometimes it can be a little bit difficult, because you wonder how many decades perhaps you have left. [laughs] But one of the things I always like to do is, I look at my daughters, and they are 14 and going on 13. And I basically try to envision what the world looks like when they're 30. 15 years down the line or whatever, they're around 30 years old, what's the world going to look like? I just feel like these are companies that are still going to be very relevant in what they're doing, and probably a bigger part of their generations' lives then even today. I think that really bodes well for investors.
It's not to say you hold these things blindly. Obviously, you have to keep tabs on them and make sure management is doing the right thing. But, yeah, we're looking for big market opportunities, and it's hard to disrupt the fact that you have to pay for stuff. I mean, it's just going to be a matter of how you do it. I think that companies like Visa and PayPal and MasterCard and Square and Stripe -- and Stripe works with Shopify, and Shopify is getting into some hardware stuff, I saw -- those are all businesses that I think are really worth a look for investors. Even today, when we feel like valuations are a little bit out there. I think that's when you really we have to focus on getting those high-quality businesses, and those are some of them, for sure.
Let's tap into Twitter here really quick, Matt. I wanted to read this off for our listeners just because, man, anytime you see these tweets, where people have nice things to say, it gives you a little warm and fuzzy. You feel good. It makes you feel like we're doing this thing for a reason. We have a listener, Kurt Adams, who chimed in on Twitter last week. Kurt said, "I just want to thank you Industry Focus, Motley Fool Money, Market Foolery, and everyone in The Motley Fool for making my one-hour drive to work and back Fun. I started listening to you guys last year and I'm learning a great deal about investing." Kurt, thank you for the kind words! Thank you for listening! Thank you for trusting us! I promise you, we take that very seriously. We aim to entertain, but also more so educate and enrich, and hopefully help you become smarter, happier, richer. That's in line with what we stand for here at The Motley Fool. Matt, I don't know, that made me feel good. How'd it make you feel?
Frankel: Definitely. I mean, I don't have a commute right now. People who are watching this video can see I'm in my living room at the moment. With a nice desk behind me. But, at times in my life, I've had pretty long commutes, so I definitely feel for people who do that. If I can do anything to make a one-hour commute bearable, then we're doing a pretty decent job over here.
Moser: That's right! That's right! All right, let's wrap this thing up here, Matt. It's time for One to Watch. Let's give our listeners a stock on our radar here for the coming week. What is your One to Watch this week?
Frankel: I'm watching my favorite person-to-person payments stock, Square.
Moser: I've heard of them.
Frankel: They're a payment processor. The Cash app is, in my opinion, by far their biggest long-term opportunity. People like Jason's daughters are going to make Square rich over the years. Square is reporting earnings in this coming week, so I'm curious to see how their first quarter went and how their Cash app's doing. If you remember, last year, the number of active users more than doubled. I want to see if this trend is continuing. I don't expect to get any hard numbers on the Cash users until the end of 2019, but Square's always an exciting report. A bad quarter, they grow 30%. [laughs] It's always interesting to see what they're going to report.
Moser: Yeah, I agree. I am going to be watching Amalgamated Bank. Earnings come out on Tuesday. Listeners will remember, we had CEO Keith Mestrich on the show here a few weeks back. Really fun interview, a good interview. Remember, they're the ones that are building America's socially responsible bank. I think Keith gave us a lot of great insight as to how they're doing that and why they're doing it. For me, really, I'm just looking forward to checking in, seeing how the bank is growing, building up their assets and deposits, see if there's any perspective on the current interest rate environment, any new lines of business or customers that are really buying into that vision of a socially responsible bank. I have a feeling that'll be a message that resonates with a lot of folks here in the coming years and decades. So, yeah, Amalgamated Bank, definitely one I've got on my personal watch list, and one I'm looking forward to checking out tomorrow when those earnings come out.
Matt, hey, I think that's going to wrap it up for us for this week! Again, great interview there with Goldman Sachs! Really appreciate you doing that! I think we'll have some more interviews lined up here soon. Any parting words?
Frankel: I'm looking forward to a big interview we have coming up in a couple of weeks! We'll just have to wait and see who it is.
Moser: That's right! We'll keep our listeners hanging on every word. Thanks, buddy! As always, people on the program may have interest in the stocks they talk about, and The Motley Fool may have formal recommendations for or against, so don't buy or sell stocks based solely on what you hear. Today's show was produced by Austin Morgan. For Matt Frankel, I'm Jason Moser. Thanks for listening! And we'll see you next week!
