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Soon, ordinary Americans will be able to apply for personal loans with Goldman Sachs. While the 146-year-old investment banking firm has traditionally served big-money clients, the company’s new online-lending offer will compete with startups like Lending Club and Prosper, which offer small loans to businesses and individuals.

Here’s how the new offering will work, according to the New York Times:

The new unit will offer the loans through a website or an app — functioning like a virtual bank in one of the oldest companies on Wall Street. Without the costs of bank branches and tellers, Goldman can lend the money at lower interest rates while still making a profit. The company hopes to be ready to make its first loans next year, according to people briefed on its plans, who spoke on the condition of anonymity.

There’s a good reason the company is pursuing this new territory: a potentially vast pool of money. The company’s own research released in March 2015 identified a $1.7 trillion opportunity to serve customers and small businesses through online lending.

“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," said a memo to staff sent by Goldman CEO Lloyd Blankfein and President Gary D. Cohn.

Despite Goldman Sachs’ scale, however, its new venture could fail spectacularly. Here are three challenges the company needs to address in order to win.

  1. Catching up with very hungry upstarts

Goldman Sachs is entering a space that is quickly becoming crowded. Lending Club, the leader in the space, recently reported a $81 million operating revenue in its first quarterly earning report in Q1 2015—a 109 percent increase year-over-year. Lending Club’s growth has been driven by its extremely attractive offers, which are about 30 percent cheaper than loans taken from traditional financial institutions.

In addition to Lending Club, newcomers Prosper, OnDeck Capital and LendingTree are seeing double-digit growth. At the same time, established firms like Discover and PayPal also want a piece of the pie. In order to succeed, Goldman Sachs will have to offer something unique and compelling for customers.

  1. Lack of understanding of the ordinary American customer

In its long history, Goldman has built its reputation by working with affluent clients on mega-mergers, IPOs and financial trades. Going after the middle class customer will be a big departure for the company. Winning the business of the ordinary American customer calls for different tactics than what Goldman has been used to. The company’s new venture cannot succeed without a solid understanding of the middle class American customer base.

At the same time, the company will need to make sure that its approach to marketing its online lending services doesn’t alienate current customers. To find the right balance, Goldman will need to engage its current customers as well as its new target market.

  1. A fragile reputation among the American public

Just like much of the financial industry, Goldman is still learning from last decade’s financial crisis. As the New York Times observes, the public vilified Goldman after the financial crisis, accusing it of profiting from foreclosures. For its new lending program to work, Goldman needs to continue building its reputation with the public, making sure that its policies aren’t perceived as deceptive or too harsh.

After the death of a Bank of America intern in 2014, large investment banks are also developing a reputation for overworking their junior employees—something that might turn off the general public. In contrast, upstarts like Lending Club and Prosper have built peer-to-peer platforms that are perceived to be benefiting both lenders and borrowers.


The success of Goldman’s foray into online lending depends heavily on its ability to connect with the mass market, something that is completely new to the company. To compete with startups, it needs to build trust with the public, bring compelling offerings to the market and deliver exceptional customer experience. These are no easy tasks. More than ever, Goldman needs to prioritize two-way, ongoing conversations with customers as it enters the unchartered—but highly profitable—territory of consumer loans.
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Kelvin Claveria

Kelvin Claveria was the former Content Marketing Manager and was responsible for Vision Critical's blog and social media marketing program. Before joining Vision Critical's global marketing team, Kelvin worked at Dunn PR, a Vancouver-based public relations firm. His experience includes working with lifestyle, real estate, and non-profit clients to develop social media marketing and PR strategies. Kelvin has a Bachelor of Business Administration from SFU's Beedie School of Business.
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