Goldman Sachs Ventures Into Peer-To-Peer Lending

Goldman Sachs has focused on big companies and large investors for 146 years. Now, the company is looking forward to attract consumers and small business by grabbing the opportunity in the fast growing small-business loans market.

Goldman Sachs is about to launch an online banking division that will focus on direct lending to small businesses and consumers. Loans can be offered through a website or an app. Goldman Sachs will function like a virtual bank, so no cost will be incurred for bank branches and tellers. As a result, the company can make profits by lending at lower rates. According to people briefed on its plans (who spoke on the condition of anonymity), the company is working towards launching its first loans probably by next year. With the new business line, it can broaden its clientele from its blue chip base.

According to a media report, Goldman Chief Executive Lloyd Blankfein’s recently spoke at the company’s annual meeting about the need for the corporation to develop new muscles.

Startups like Lending Club (LC), OnDeck Capital (ONDK) and Funding Circle have created online lending marketplaces, or in other words, peer-to-peer lending platforms which are disrupting the traditional banking business by using technology. Goldman Sachs is trying to follow the same business model by adding technology to its new business line.

The new venture carries an ample amount of risk. Goldman Sachs will be exposed to relatively risky business since it has little experience dealing with ordinary borrowers with limited finances.

Everything Goldman has done in the last 30 to 40 years has all been focused on the commercial side, or things that abut it very closely, said Chris Kotowski, a bank analyst with Oppenheimer & Company. I refuse to believe that hiring a couple of programmers and offering to make $15,000 loans online is a highly value-added banking strategy.

Still, this type of a business unit can help Goldman Sachs to seize a big slice of the online lending market compared to online FinTech startups.

Online lending has the potential to be quite disruptive to the way credit is extended, said Jeffery Harte, a bank analyst at Sandler O’Neill & Partners.

Goldman Sachs' push into lending is being led by Harit Talwar, a former top executive at the credit card giant Discover, who joined Goldman last month. The company needs to overcome powerful forces that are in favor of Main Street banks to offer consumer loans.

The biggest thing the banks have in their favor is inertia, said Mr. Clements, a former consumer banking executive.