Goldman Sachs is entering P2P lending. This is a major milestone for our industry since it marks the 1st bank to enter. The New York Times posted a lengthy article about Goldman’s plans to launch its online lending platform and compete with top platforms like Lending Club and Prosper. There are many details yet to be known but, according to the New York Times article, they plan to launch their own platform early next year. They are still in the early planning stages and it still isn’t clear how this new offering will be branded.
Goldman Sachs will offer unsecured personal loans and will also venture into lending to small businesses according to several articles about the new business unit. Joining the team at Goldman to run the new operation is Harit Talwar, a former executive at Discover, who they have brought on as a partner. From the Times article:
In a sign of how seriously Goldman is treating the new venture, the company approached several top consumer finance executives about the job, which comes with the title of partner, a highly coveted position at Goldman, people briefed on the matter said. The operation could have a staff of as many as 100 by the end of the year, the people said.
The most interesting piece of this is that they will be the first big bank to move into online lending themselves as opposed to partnering with platforms as we’ve seen in the past. It’s clear that they see this as a great opportunity and plan to compete directly with current online platforms. In a recent report from Goldman, they focused extensively on profits shifting from banks to marketplace lenders. The report estimated that around $11 billion out of a total $150 billion in profits is at risk of leaving the banking system in the next 5+ years from marketplace lenders. Goldman has built its reputation by staying one step ahead of the competitors and it looks like they are doing it again by being the first bank to recognize and react to the disruptive threat of marketplace lending.
It will be fascinating to see how this all develops as Goldman builds an online lending unit from scratch. Agile and innovative are words that are not often used to describe big banks and startups have used this to their advantage as they have disrupted traditional lending in recent years. If Goldman isn’t able to execute fast and build the technology infrastructure needed, they could face headwinds that will prevent them from reaching scale as fast as some of the platforms we’ve seen in recent times. Despite this, they also have some advantages with a wealth of background in banking and lending that could be beneficial in scaling their operation. The Goldman CEO, Lloyd Blankfein, recently hosted a fascinating podcast (Exchanges at Goldman) where he described Goldman as a tech company with 9,000 developers and he talked about his company’s heavy regulation as a strategic competitive advantage because it will be so hard to disrupt them.
We have openly wondered why US banks have not entered P2P lending. Back in March, we wrote this case study: Lufax: the World’s Fastest Growing P2P Firm. A Case Study on How a Major Financial Institution Can Build a Fully Integrated P2P Firm. And in April we heard the warning from JP Morgan’s CEO, Jamie Dimon, who famously wrote that “Silicon Valley is Coming”.
We must admit, we had never considered Goldman as the first entrant, we were really thinking about traditional consumer banks like BoA, Citi, Wells Fargo, and Chase. But as we think more deeply about it, this makes sense. We learned from Frank Rotman from QED in his white paper entitled The Hourglass Effect that many traditional commercial banks have long institutional memories and are slow to re-enter the consumer installment loan business after 2008. With no historical baggage, a 9,000 person tech team, and a history of leading, Goldman’s move actually makes sense.
If there is one thing we can take away from this, it is that the banks are paying close attention and are getting ready to react. Perhaps we will see a far different presence from the banks at next year’s LendIt USA.