It is indicative of Goldman’s strategy that the bank has forced its way onto the AltFi (“Alternative Finance”) homepage three times this week. Those incursions were tied to its £100m investment in UK employee benefit lender Neyber, its $300m deal with home solar financing firm Mosaic, and the announcement that it plans to launch an online bank in the UK.
Of these three moves, the third may be the most significant. The online deposit business will aim to offer savers higher returns than those on offer at incumbent retail banks. The bank may add a UK-based consumer lending arm subsequently, according to an interview with its head of strategy Stephen Scherr, published in The Financial Times. Based on the interview, this business will operate under the Marcus brand, and will be a direct competitor to the likes of Zopa and RateSetter.
Marcus is already a thorn in the sides of Lending Club,Prosper Marketplace and SoFi in the US. The online lending platform, which is named after Goldman’s founder, officially went live in October 2016 – and had hit the $1bn mark in cumulative lending by June this year. Goldman’s CEO Lloyd Blankfein (pictured) recently told CNBC’s Jim Cramer that he expects to cross the $2bn mark by the end of the year. For context, the UK’s largest online consumer lender Zopa has lent a little over £2.6bn during the course of its 12 year history, according to AltFi Data. That may seem a clumsy comparison at first glance, but remember that Zopa, like Goldman, is well on its way to becoming an online bank – with a consumer lending platform strapped on.
Marcus makes loans to consumers of between $3,500 and $30,000 in size, with applications fielded online. In terms of underwriting, the bank’s platform employs many of the same tricks that have served the likes of Lending Club and Prosper so well over the past decade. Indeed, the bank has poached a number of Lending Club and Prosper employees over the years, as reported by Bloomberg back in 2015.
So its latest decision, to nab 20 workers from the dormant Bond Street, is not without precedent. But Bond Street is not a consumer lender. It offers term loans of up to $1m to small businesses. Could Goldman, then, be sizing up an expansion into small business lending for Marcus?
Certainly Goldman is not shy about upsetting the fintech apple cart. In July, it announced that it would launch a new online lending solution for the mass affluent, offering loans between $75,000 and $25m, using borrowers' investment portfolios as collateral. The investment bank also has its eye on the nascent robo-advice sector, as reported back in March.
In February, Bond Street extended its financing agreement with global investment bank Jefferies to allow for up to $300m of loan purchases. Now, the firm has chosen to pause lending and run off its existing loan portfolio, according to The Wall Street Journal piece. Meanwhile its employees – reportedly a mixture of “engineers, product developers, and risk and marketing specialists” – are headed to Goldman Sachs.
If it isn’t a dangerous portent for the fintech sector, it’s at the very least a reminder of how rapidly a fintech firm’s fortunes can flip.