Date
6 December 2016
Goldman Sachs has moved into online personal loans as it seeks a new growth engine amid an increasingly stringent regulatory environment on investment banking. Photo: Goldman Sachs
Goldman Sachs has moved into online personal loans as it seeks a new growth engine amid an increasingly stringent regulatory environment on investment banking. Photo: Goldman Sachs

Why Goldman Sachs has an edge in online lending

Goldman Sachs recently launched a new online personal loan platform called Marcus, taking aim at the mass market.

With minimum loan amount starting at US$3,500, Marcus is obviously positioned to compete with FinTech startups.

The online lending service is named after one of the firm’s founders, Marcus Goldman, an indication that the 147-year-old investment bank has high hopes for it.

In April, Goldman began offering online savings accounts under the brand GS Bank, which allows customers to open an account with as little as US$1.

Marcus will be the natural extension of the GS Bank move, as the latter can pull in deposits and the former can then lend the funds out.

At the moment, Marcus is only accessible to pre-selected US customers, who can borrow up to US$30,000, at an annual rate ranging from 5.99 percent to 22.99 percent. The repayment period is between two to six years.

US personal loan borrowers typically have to go through tedious procedures. And they are often charged extra fees on top of the interest, which tends to fluctuate as well.

Goldman said Marcus customers won’t have those problems, and they can also flexibly arrange their repayment schedule.

The rates Marcus charges is a lot lower than those at most other offline financial institutions, thanks to its ability to harness big data for a more precise credit assessment and better pricing of the loans.

Savings from having no physical branches also help cut costs.

Compared with online rivals like Lending Club, Marcus has a few unique edges.

With Goldman’s backing, Marcus may be able to do better in risk control.

Leveraging on Goldman’s strong name, Marcus should also be able to get cheaper funding, which allows it to charge lower interest rates and be more selective when approving loans, thus achieving better loan quality.

Lending Club has suffered a 70 percent share price decline largely due to rumors about a surge in loan defaults by its customers.

Though rarely seen as a tech firm, Goldman employs 9,000 IT staff, out of a total of 33,000 employees, covering fields including big data, blockchain, high-frequency trading, cyber security and artificial intelligence.

Its IT staff number is close to that of Facebook, and exceeds that of LinkedIn or Twitter.

Combing risk pricing capability and cutting edge financial technology, Goldman could be a big winner in the Fintech era.

This article appeared in the Hong Kong Economic Journal on Nov. 1

Translation by Julie Zhu

[Chinese version 中文版]

– Contact us at [email protected]

RC

Hong Kong Economic Journal columnist

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