Back in June, Goldman Sachs became the first big bank to announce its plans to start its own online lending business. Since then, we have seen other banks, most notably JP Morgan, also announce plans to get into marketplace lending. However, JP Morgan is taking the partnership route, by partnering with small business lender OnDeck Capital. Goldman remains the only large bank to announce plans to start its own platform.
Goldman has been keeping its plans under wraps, but some details have been leaked. The new lending unit, which has been dubbed “Mosaic,” will lend its own money via its wholly-owned banking subsidiary Goldman Sachs Bank USA (“GS Bank”). In August, GS Bank announced the acquisition of GE Capital Bank’s online deposit platform, acquiring approximately $16 billion of deposits. Although people familiar with the transaction said that it was unrelated to Mosaic, it would seem that the platform could serve as a cheap source of lending capital for the new online lending unit. A strong online deposit platform could have synergies with a strong online lending platform. However, GS Bank already had a large deposit base of its own, with over $89 billion of deposits at the end of June. With the lending capital available via GS Bank, this new unit could easily dwarf the better-known businesses of Lending Club and Prosper.
Although the unit is currently referred to as “Mosaic,” it remains unclear if that will be the actual name of the business when it becomes operational. It also remains unclear if the business will be marketed as a division of Goldman Sachs.
Goldman’s announcement in June was made in conjunction with its hiring of Harit Talwar, a consumer credit executive from Discover Financial Services, who joined Goldman as a partner to lead the new platform. Since then, Goldman has made several other hires as it continues to recruit marketing professionals, customer service agents, engineers, data scientists, and operations staff. In addition to recruiting from major credit card firms such as Discover, Citi and American Express, Goldman is also reaching out to employees from other online marketplace lenders, recently reported by several news outlets. Noah Breslow, the CEO of OnDeck, was quoted in the Financial Times as saying “Goldman has been calling [on our] people for some time…they’ve been calling everyone [in the sector].”
In addition to Mr. Talwar, the following executives have recently joined Goldman’s consumer lending division (according to their LinkedIn profiles):
Will this lead to more large banks building their own online lending platforms? Up until now, the involvement of many banks in the space has been limited to buying loans originated on other platforms, such as Lending Club, Prosper or OnDeck. However, a recent directive from the FDIC will likely make it difficult for banks to continue to acquire loans originated by marketplace lenders. Specifically, the FDIC issued a letter in November reminding FDIC-supervised institutions of the importance of underwriting and administering purchased credits as if they originated these loans themselves. This means that banks must perform a complete analysis of collateral and credit risk of each loan or participation and must have a complete understanding of the borrower’s market and industry. Additionally, the letter states, “This assessment and determination should not be contracted out to a third party.” Clearly, the FDIC is worried about banks acquiring loans from other originators. It seems that partnering with existing platforms, like JP Morgan and OnDeck, or building a proprietary platform, like Goldman, will be the clearest path to take should other banks want to enter the space in a meaningful way.