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Goldman Sachs takes on lending startups

Goldman SachsGroup Inc. is moving into digital lending in a big way.

At a recent marketplace lending conference in New York,Stephen Scherr, CEO of GS Bank, the retail bank within Goldman Sachs, spokeabout the coming launch of the firm's digital lending platform. GS Bank willoffer unsecured retail loans to customers through a platform called Marcus byGoldman Sachs. The name is a nod to Goldman founder Marcus Goldman.

While many firms in the industry look to move away from puremarketplace lending to a hybrid model that will hold loans on the balance sheetwhile offering others for sale, Goldman has no doubts about its path. Scherrsaid they have "always viewed this as a balance sheet activity" whencreating the product.

This is in contrast to the plans of industry titanLendingClub Corp.,whose president and CEO, Scott Sanborn, stated at the same conference that thefirm has no plans to move away from the pure marketplace model, though he conceded that LendingClubwill continue to use balance sheet cash to provide bridge funding if it isconfident capital is coming in the near term.

Goldman has an advantage over many startups in the lendingspace. With more than $100 billion of cash and cash equivalents on thecorporate balance sheet and a retail deposit base that has been growing sincethe GE Capital Bank deal, Goldman certainly has the capacity to fund newloans. Scherr emphasized that while the firm considered acquiring or partneringwith an existing platform, it made sense to create "something in our ownmaking." Goldman also has the advantage of name recognition. Scherr clarifiedthat customers will know they are getting a loan from Goldman, emphasizing thefull name "Marcus by Goldman Sachs."

With big banks such as Citigroup Inc. and JPMorgan Chase & Co. opting to partner with existingonline lenders, the success or failure of a proprietary product at Goldmancould have a ripple effect across the industry. If deep pocketed banks see thatbuilding and launching a proprietary platform is feasible, many of the digitallenders could see pressure from the launch of competing products.