To get a loan from Goldman Sachs, you have to be a big trader, investor, company, or very wealthy individual. But that could change: The investment bank said in a memo today it has hired Harit Talwar, a former Discover executive, to head up a small-business and consumer lending unit.
Goldman has an FDIC-insured bank, Goldman Sachs Bank USA, with $73 billion in deposits across the company, and no branches. The bank largely works with corporate and private wealth management clients.
"The firm has identified digitally led banking services to consumers and small businesses as an area of opportunity for GS Bank," the memo from CEO Lloyd Blankfein and the firm's president, Gary Cohn, said. "The traditional means by which financial services are delivered to consumers and small businesses is being fundamentally re-shaped by advances in technology, maturity of digital channels, use of data and analytics, and a focus on customer experience."
Startups that lend to small businesses and individuals like Prosper, OnDeck, and Lending Club have raised hundreds of millions of dollars from private and public investors. While many of these companies originate the loans through another bank and then sell them off to investors, Goldman would do the loans from their bank's balance sheet.
Talwar's hiring and the new business was first reported by Bloomberg News.
A report published by the bank's equity research staff in March said that $1.6 billion in banking industry profits was at risk of being taken away by upstart nonbank lenders like Kabbage and OnDeck. The researchers said $178 billion in loans were "at risk" of leaving the banking system due to competition from these new lenders.
For personal lending, Goldman estimated that $209 billion of loans could leave the bank system along with $4.6 billion in profits.
Goldman's potential new line of business is only just getting started with the hiring of Talwar, and likely will not be getting started soon, a person with knowledge of the program said. And while Goldman has a bank, it does not have many of the legacy costs — like the real estate and staffing associated with branches — that many traditional banks do.
"We see an opportunity to leverage our competencies in technology and risk management to capture this opportunity at accretive returns and without the burdens of legacy costs and fixed infrastructure," Cohn and Blankfein said in the memo.
The move comes as Goldman has shrunk the size of its balance sheet and sold off some businesses and investments, including its metal warehousing business and a majority stake of its reinsurance business.