Could Goldman Sachs Become the Big Kid on the Block in Online Lending?

By aiwpadminAugust 1, 2016

By John Egan.


For several years, upstarts such as Avant, Lending Club and Prosper have dominated chatter about the online lending sector. That chatter now is growing to include one of the mammoths of Wall Street — Goldman Sachs.


Goldman Sachs, through its Goldman Sachs Bank business, is gearing up to offer online loans to consumers. The consumer platform, known as Mosaic, is set to roll out this fall, Harvey Schwartz, chief financial officer of Goldman Sachs, recently told Wall Street analysts.


A session at LeadsCon New York 2016, “Lending in the Digital Era: The Importance of Balance Between Technology and Humanity in Analytics,” will focus on the tech side of online lending.


Mosaic represents a departure from the tried-and-true business model of Goldman Sachs. For decades, Goldman Sachs has catered primarily to big corporations and wealthy individuals. Schwartz says Mosaic allows Goldman Sachs to capitalize on its technology and risk management skills, as well as its experience as a large-scale lender and its emergence as an online lender for consumers.


Goldman Sachs is “taking a very deliberate and methodical approach” to building the online lending platform, Schwartz says.


“We are looking to build a durable business, so it will take time. Similar to our other businesses, creating a valuable and differentiated service for our clients is core to our strategy,” he says.


In setting up its online lending platform, Goldman Sachs has reached out to thousands of consumers to find out what they want in an online lender, Schwartz says.


Through that consumer research, “we learned some things that probably aren’t so surprising — they want a product that’s simple, it’s straightforward, it provides a lot of value, and they also want what they refer to as really a high-quality user experience,” he says.


Goldman Sachs is taking that feedback into account as it develops the Mosaic product. Last year, Goldman Sachs hired Harit Talwar to lead the Mosaic initiative. Most recently, Talwar had been president of the U.S. credit card division at Discover.


Rather than building Mosaic from the ground up, Goldman Sachs is relying on its recent purchase of the online deposit platform of GE Capital Bank to help form the foundation of its online lending venture. In the GE Capital deal, Goldman Sachs took control of about $16 billion in deposits from savings accounts and certificates of deposit (CDs) — money that will fuel the online lending effort.


Schwartz says Mosaic will extend unsecured consumer loans but declines to reveal the type of terms that will be involved, such as the length and dollar amounts of the loans. Observers expect Goldman Sachs to offer consumer loans only online and not to open any brick-and-mortar branches.


Writing on the SeekingAlpha investment research website, private investor Heath White predicts Goldman Sachs won’t stop with personal loans online, eventually expanding into online loans for small business owners, college students, homebuyers and commercial real estate developers. And while Goldman Sachs hasn’t confirmed these other loan types, it has signaled that it’s interested in going beyond personal loans.


In announcing last year’s hiring of Talwar as the head of Mosaic, Lloyd Blankfein, CEO of Goldman Sachs, and Gary Cohn, chief operating officer, declared: “The traditional means by which financial services are delivered to consumers and small businesses is being fundamentally reshaped by advances in technology, maturity of digital channels, use of data and analytics, and a focus on customer experience.”

Click here to register for LeadsCon New York 2016.

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