Traditional banks and marketplace lenders may soon find themselves united in competition against a common threat: Goldman Sachs.
The launch of Goldman's consumer lending platform pits the Wall Street giant squarely against otherwise disparate players in the retail banking industry.
The platform — given the tony-but-friendly name "Marcus by Goldman Sachs" — marks the first foray by Goldman into consumer lending. The company developed the online loan platform from scratch and has spent the past year working with thousands of customers to design it.
The launch Thursday allows Goldman to cast a wide net for a new — and profitable — customer base. The Marcus platform promises loans with no fees, putting it in direct competition with marketplace lenders, including Lending Club and Prosper Marketplace. It also offers lower rates than many credit cards.
Still, while Goldman has found a niche in the market, its success is far from certain. The recent woes facing marketplace lenders have tempered expectations for growth of the highly anticipated platform, according to industry analysts.
And though consumers associate Goldman with high finance, the company is not yet known as a go-to brand among the general public.
"It remains to be seen how quickly customers will adopt it," said Brian Kleinhanzl, an analyst with Keefe, Bruyette & Woods.
Kleinhanzl added that, as a new player in the market, Goldman is not yet known for its ability to manage consumer credit risk.
Others put a more positive spin on the highly anticipated announcement.
"Goldman is trying to have the best of both worlds," said Jeff Harte, an analyst with Sandler O'Neill, describing the Marcus platform as a "novel" way to compete for customers from both marketplace lenders and big banks.
Goldman doesn't have to worry about "cannibalizing" an existing portfolio of higher-rate credit cards, given that most of its business comes from trading, Harte said.
The launch comes as the market for online personal loans has come under scrutiny amid a series of stumbles at marketplace lenders.
For instance, Lending Club — once a fintech darling — earlier this year ousted its founder and is currently under investigation by the Justice Department. Additionally, Avant and Prosper, which have grown rapidly in recent years, have recently announced job cuts.
It is unclear whether the problems facing upstart lenders will affect the growth of the Marcus platform, at least in the short term.
But Goldman — which has a broad base of retail deposits at its disposal — has clearly positioned itself to exploit its fintech rivals.
Through the Marcus platform, the company now offers personal loans of up to $30,000, with terms of up to six years.
During a press briefing at Goldman Sachs headquarters Thursday, the company said its no-fee pitch, in particular, is designed to lure customers who have grown frustrated with a host of unexpected charges — including late fees — at marketplace lenders.
The platform includes a number of other high-tech options. While applying for a loan, prospective borrowers can choose a payment size and monthly payment date that works best for them.
Additionally, borrowers who have made 12 consistent on-time payments have the option of deferring a loan payment for one month, at no charge.
Borrowers who make late payments, however, accumulate additional interest that's charged at the end of the loan.
Customers can get assistance from a call center in Salt Lake City; the center's agents are available to chat with prospective borrowers, too.
"It's a little more user-friendly than I was expecting," Harte said.
Still, for all of the company's emphasis on transparency, several key aspects of Goldman's new consumer lending business remain unclear.
For instance, the Marcus platform uses a proprietary algorithm to assess credit risk. During the press event Thursday, however, the company shared few details on which metrics it includes in its underwriting model.
Also unclear is the credit profile of its target market. The company has said it will focus on attracting customers with strong FICO scores and solid incomes. Yet during the event it suggested that the mid-range of borrowers could have FICO scores of between 700 and 740, which many consider shy of prime status.
In the coming year, analysts said they will be looking for commentary on the new unit's loan growth, credit quality and profitability. Goldman does not break out the results of its retail banking unit in its quarterly results.
In the meantime, Goldman has made clear that it intends to take a big swing at fintech, as well as the consumer businesses at its rival banks.
Goldman "has the potential to gain market share pretty quickly," Harte said.
For that reason, established lenders may need to buckle in for more change.
"I don't think large banks or even those with credit card portfolios are saying we're in trouble," Harte said. "They don't need to say our business model is obsolete. They do need to see what Goldman is doing here and how they can adapt."
