Seeking $100 million in an initial public offering, point-of-sale fintech provider GreenSky wants to expand beyond arranging financing for home improvement projects and into more other niches, including helping customers arrange payment for car repairs and even luxury items.
Facilitating healthcare lending is central to its growth plans, but regulatory uncertainty at the state and federal levels poses a threat to those plans, GreenSky said in its recent IPO filing.
GreenSky’s increased focus on elective healthcare customers – it already provides a platform for banks to lend for cosmetic, dental and vision procedures – coincides with rising healthcare costs and aging society. American population, said Mark Schwanhausser, director of omnichannel financial services at Javelin Strategy & Research. Healthcare companies are invest in the aging baby boomer population as the share of federal health care spending attributed to aging mounted at 40%.
“Here is an opportunity in healthcare, which in my mind is one of the messiest industries known to man,” Schwanhausser said.
GreenSky expects elective healthcare loans to be more stable quarter-over-quarter than its core business of facilitating home improvement loans, which make up the majority of the company’s current business. . Home Depot is its largest sole merchant partner, accounting for approximately 6% of GreenSky’s total revenue in 2017.
The Atlanta company is going public at a time when point-of-sale loans are gaining popularity. Personal loans issued by banks hit a record $807 billion as of Sept. 30, according to data from the Federal Deposit Insurance Corp.
Goldman Sachs, JPMorgan Chase and Morgan Stanley will be the primary underwriters for the IPO. GreenSky’s latest external fundraiser has been $50 million from Fifth Third Bancorp, an investment that resulted in a $3.6 billion valuation of the company.
Fifth Third, Regions Financial and Synovus Financial have all seen gains in their point-of-sale loan portfolios since partnering with the fintech.
With 16,000 merchant partnerships at the end of last year, GreenSky’s total revenue was $325.9 million in 2017, $263.9 million in 2016 and $173.5 million in 2015 His net income was $138.7 million in 2017, $124.5 million in 2016, and $93.8 million in 2015.
“We are excited about the possibility of an IPO for GreenSky,” said Nigel Morris, former chairman of Capital One Financial and managing partner of QED Investors, who in 2014 became GreenSky’s first institutional investor.
“GreenSky is one of those truly magical win-win-win businesses,” Morris wrote in an email. “Merchants, consumers and banks all benefit immensely from this single platform.”
GreenSky is also looking at other important categories to facilitate lending: online retail, motorsports, auto repair, and jewelry.
One risk, analysts note, is that in recent years federal and state regulators have imposed new rules on the financial services industry and become more aggressive in enforcing current rules.
The company said in its IPO filing that regulators have recently tightened oversight of third-party financiers of medical procedures; the Consumer Financial Protection Bureau and the attorneys general of New York and Minnesota recently conducted investigations into alleged abusive lending practices or exploitation by these financiers.
In its filing, GreenSky noted that it has been named as a defendant in various lawsuits, including allegations of discrimination, credit reports and collection practices. The company did not specify what those legal actions were.
“We have in the past chosen to settle … certain matters in order to avoid the time and expense of challenging them,” the company wrote. “[N]one of the settlements was important to our business.
GreenSky is a risky investment, said David O’Connell, principal analyst with Aite Group’s wholesale banking team, because borrowers of the loans it wants to facilitate may not realize what they are getting into and loans could be more prone to default if the economy deteriorates.
“You can repossess a car and a business would generate revenue,” O’Connell said. “But with these loans, there’s no collateral, no cash flow here, and it’s the last debt to get into a cycle. I find it hard to get excited about that. … I don’t can’t imagine that being rosy in an economic downturn with rising interest rates.