{"id":16872,"date":"2016-11-18T00:14:22","date_gmt":"2016-11-18T05:14:22","guid":{"rendered":"https:\/\/digital.hbs.edu\/platform-rctom\/submission\/lending-in-the-digital-era-goldman-sachs-embraces-the-challenge\/"},"modified":"2016-11-18T00:14:22","modified_gmt":"2016-11-18T05:14:22","slug":"lending-in-the-digital-era-goldman-sachs-embraces-the-challenge","status":"publish","type":"hck-submission","link":"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/lending-in-the-digital-era-goldman-sachs-embraces-the-challenge\/","title":{"rendered":"Lending in the digital era: Goldman Sachs embraces the challenge"},"content":{"rendered":"

New digital technologies are disrupting the business of companies in many sectors and with no surprise also banks are facing the rising challenge represented by the so called \u201cfintechs\u201d, start-ups that use technology to provide financial services. One of the most adopted innovations in this space is the so called Marketplace Lending (MPL)<\/strong>, a service that matches lenders directly with borrowers through an online platform, without the intermediation of a bank. The first of such platforms to be launched worldwide are Zopa (UK, 2005), Prosper (US, 2006) and Paipaidai (China, 2007) [1].<\/p>\n

Let\u2019s give a closer look at the differences in the MPLs business and operating model compared to the traditional lending system.
\nIn the traditional lending model, banks take risk onto their balance sheets and generate income managing spreads between the interest charged on loans and the one paid on savings. MPLs, instead, do not take deposits or lend themselves, they act as intermediary between the lender and the borrower and therefore take no risk onto their balance sheets. They do not earn an interest income, but rather generate income from fees and commissions received from borrowers and lenders for services provided to both parties. Those services include providing the online platform to enable borrowers and lenders to match, developing credit scoring and pricing models, performing borrower credit checks, processing loan payments, providing customer service and ensuring legal compliance.<\/p>\n

\"Source:<\/a>
Source: [1]<\/figcaption><\/figure>Since the MPLs companies offering these services operate entirely online, they benefit of a fundamentally lower-cost operating model, especially lower overhead costs related to loan acquisition, loan processing and servicing, loan collection and recovery costs.<\/p>\n
\"figure-2\"<\/a>
Operating expenses of an unsecured personal loan<\/figcaption><\/figure>\n

The main elements of the customer value proposition \u2013 where customers are both lenders and borrowers – are hence:<\/p>\n