Goldman Sachs Is Entering P2P Lending Becoming the 1st Bank to Launch a Platform

Goldman Entering Online Lending

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.

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Rob L
Rob L
Jun. 16, 2015 3:42 pm

WOW! P2P (or whatever it’s called today) is in the major leagues now.
I’d call this news truly “disruptive”.

jason h
jason h
Jun. 16, 2015 7:07 pm

Vampire squid joins the party. Great.

thezfunk
thezfunk
Jun. 18, 2015 12:50 pm

So, why not just buy a platform out instead of starting your own? It is not like they don’t have the money or access to cheap, cheap Fed money.

I can just see it now…Goldman’s whole desire to do this is to be able to take loans and slice them up, package them together, get the product certified as AAA and then sell to suckers. What should we call a product like that? Hmmm…well, I am sure they will come up with something. I mean, what could go wrong in that scenario?

Prescott
Jun. 20, 2015 12:34 pm
Reply to  thezfunk

Starting your own is pretty easy if you know what you’re doing and have some money to throw into it. And you get it purpose built for your needs. They have the money to poach the talent if they so needed it.

Prescott
Jun. 20, 2015 12:37 pm

I wasn’t expecting someone like Goldman to enter the game, but they are usually out front in technology compared to the traditional banks. I’d still like to see how it goes if BofA or Chase decide to give their current client base an easy online process for getting a loan. Gotta imagine that built in client base would propel their “online lending product” beyond LC or Prosper in no time. I know there are some regulatory issues that they would need to paper over, but they’re good at that.

Peter Renton
Admin
Peter Renton
Jun. 23, 2015 4:42 pm
Reply to  Prescott

Yep. That would be very interesting. But will one of the large credit card issuers risk cannibalizing their high margin card business? Not any time soon in my opinion.

VAC
VAC
Jun. 23, 2015 3:52 pm

How is this P2P lending if GS is using its own GS Bank to fund the loans? Please explain. Thank you.

Source: https://www.foxbusiness.com/markets/2015/06/17/goldman-sachs-prepares-to-loan-money-to-consumers-aiming-to-catch-boom-in/

Peter Renton
Admin
Peter Renton
Jun. 23, 2015 4:44 pm
Reply to  VAC

Well obviously it is not P2P lending in the strict definition, it is probably more accurate to call it online lending because they will likely not have a marketplace if they are funding all the loans themselves. But they will be competing for borrowers just like Lending Club, Prosper and everyone else. That is what makes this very interesting I think. How exactly will they do that?

meslionceaux
meslionceaux
Jun. 23, 2015 7:20 pm
Reply to  Peter Renton

Good question. Other banks are partnering with P2P online lenders to offer personal loans to their customers so that they can stay ¨relevant¨ (as described by the community bank BankNewport’s CEO Sandra Pattie in today’s WSJ article). Does GS have the infrastructure to be profitable doing this? If not, are they planning to build it from scratch? Is the former head of card services at Discover qualified to head up this project at GS? This is probably an experiment on GS’s part. If anything, it makes great press for online lending.