Goldman Sachs Will Beat Out Fintechs To Champion The Consumer Lending Boom

Aug. 09, 2018 11:56 AM ETThe Goldman Sachs Group, Inc. (GS)BAC, C, DB, JPM, MS, SOFI, WFC, LC6 Comments
Ezra Weener profile picture
Ezra Weener
363 Followers

Summary

  • Fintechs have created a peer-to-peer consumer lending boom that is highly lucrative but highly risky.
  • Goldman Sachs created a rivaling business called Marcus that has been growing fast.
  • Due to the size and strength of their business and the fact that they are direct lenders, Marcus will be able to handle a recession much better than any Fintech.
  • As debt grows and delinquencies rise in turn, Goldman Sachs will be able to take this changing of the credit cycle and use it to grab the lion's share of the personal loan industry.
  • Goldman Sachs is already cheap in comparison to its peers and has huge growth potential.

Consumer Lending Overview:

Fintechs and Goldman Sachs’ Marcus

Since the collapse of our economy under a decade ago, banks have gotten tighter with their lending. They no longer give out significant amounts of unsecured personal loans, many of which were considered subprime. While the banks became less likely to make these loans, this opened the door for other lenders to step in. Taking this role of providing highly lucrative, but highly risky loans, is the burgeoning fintech industry. These lenders tend to be peer-to-peer lending platforms which aren’t public. Because they are private, this industry is hard to get a pure play in, in the equity space. However, while this is a growth opportunity that most banks are missing out on, Goldman Sachs (NYSE:GS) has created their own platform to take advantage of this growing industry. Although it isn’t exactly the same system in terms of peer-to-peer lending, there are reasons to believe they will be the eventual leader in the space. At the same time, while this may be a growth driver for them, the debt load in our country and the lack of security for the loans means that this industry must be closely watched for signs of over-stress.

This industry, lead by pioneers such as SoFi, have created a large market for the equivalent of peer to peer lending. This poses interesting opportunities and threats for the banking industry and standard lenders. While the number below includes insurance and payment systems, the growth of fintech lending has also been huge.

The Rise of Consumer Loans:

The first graph I’d like to look at will help understand the increased unsecured indebtedness of U.S. residents as well as the huge increase in the proportion of these loans that came from fintech startups. According to a QZ article in reference

This article was written by

Ezra Weener profile picture
363 Followers
I am a Senior Finance major at the University of Maryland Smith School of Business. The capital markets are a big passion of mine and working in them is my future career goal. I usually focus on short-term long ideas unless I notice something else that I feel compelled to post.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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