Goldman Sachs’ plans to get into the online lending industry were largely dismissed by a panel of US fintech insiders at the LendIt Europe conference in London on Tuesday.
The panel were asked what they made of the investment bank’s yet-to-launch service Marcus, an online platform that will make small consumer loans – a big departure for the bulge-bracket investment bank.
Goldman has reportedly had 100 people working on the project, according to the New York Times, a huge staff compared with a fintech startup.
But three out of the four panelists dismissed the investment bank’s chances in the market.
Phin Upham, a Principal at San Francisco-based Thiel Capital, a fund set up by PayPal billionaire Peter Thiel, said: “The lending side, I don’t see why Goldman would do well, I don’t see why it would be interesting or frankly why they would do it at all.”
Goldman Sachs’ head of banking operations Stephen Scherr told Bloomberg last month that the bank believes it can make loans on more attractive terms than Silicon Valley rivals because it will make loans off its own balance sheet.
But Upham told the audience: “I don’t see any reason why they would do any better than anyone else. Cost of capital, they’re not that much cheaper than securitisation. There are hungrier, more aggressive, and more technologically sophisticated guys in this room who I think would do better.”
Goldman Sachs declined to comment.
Matt Burton, the cofounder and CEO of Orchard, which provides infrastructure technology for the marketplace lending industry, was also dismissive at LendIt.
He told the audience: “The issue that Goldman has is it can’t recruit the talent that it needs for an industry that is changing all the time. We talk about the current environment, products that are currently scaling. I wonder if Goldman will actually be able to keep up, because this is not a mature industry, everything changes sometimes within months.”
Bloomberg reported last November that Goldman was approaching staff at marketplace lenders such as Lending Club to try and lure them away to work on the Marcus platform (then known as Mosaic.)
Burton said: “My fear, if I was working on this group [the Goldman team working on Marcus], is that you’re irrelevant and you’re such a small piece of the revenue pie that eventually you end up being sidelined.
“From my previous career in online media, there were plenty of similar efforts by [companies like] Viacom, they had all the resources and in theory, they should have been able to dominate digital media but they couldn’t do it.”
(Burton’s background is in the advertising exchange industry. He worked at AdMeld, which was acquired by Google, and LiveRail, which was acquired by Facebook, before setting up Orchard.)
There’s not the pressure. In a startup, you don’t ship things on time and you go out of business.
Kathryn Petralia, cofounder and head of operations at online lender Kabbage, also piled on. She said: “There have been delays. They were originally supposed to launch the product in April, it’s now October. They’re talking about the next products they’re going to launch, they haven’t launched the first one yet.”
Burton added: “There’s not the pressure. In a startup, you don’t ship things on time and you go out of business. The incentives are a lot more aligned.”
Only Ram Ahluwalia, the CEO of New York-based PeerIQ, which provides risk analysis for the peer-to-peer loans industry, sounded a note of caution.
Ahluwalia said: “Don’t underestimate a large, well-capitalised bank that understands consumer credit risk.
“There are three things you need to do if you want to compete in this category. One is you’ve got to have a data edge. Goldman will have that because they provide financing to all sorts of players. Number two, a customer service advantage. That’s a question mark. Banks generally don’t deliver a good customer experience. The third is you need a cost of capital advantage. They’ve got two out of the three things.”
The online lending industry has exploded around the world since the financial crisis, coming from nowhere to reach $36.49 billion in 2015, according to KPMG. Online lenders either lend from their own balance sheets, as Marcus will do, or act as a marketplace to connect institutions and retail investors with those who want to borrow (a model often called peer-to-peer.)
Marcus is one of several initiatives by Goldman Sachs to tap into the growing online consumer finance market, part of the booming global fintech industry. Earlier this year the investment bank also launched GSbank.com, an online retail bank that lets people open an account for as little as $1. A third of the Goldman Sach’s staff are engineers.