Non-bank lenders nab 7% of US banking profits

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The rise of alternative financial providers has hit traditional US lenders hard, and could cause them to lose up to 7% of their annual profits.

US banks could lose $11 billion in annual profits to non-bank financial providers over the next five years, a report from Goldman Sachs said.

“We expect the competitive landscape to shift over the next five to 10 years, with new entrants emerging and some activities moving out of the banking system,” the Goldman Sachs analysts said. “Banks earned about $150 billion in 2014, and we estimate $11 billion plus,” could be lost to new players in the near future, the report added.

The new alternative banking sector is dominated by online lenders, who are able to provide cheaper loans because of lower operating costs and reduce risk by gathering richer data on potential borrowers to predict loan defaults.

While new technologies are benefiting newer companies like peer-to-peer loan provider LendingClub, tougher regulations are troubling banks, the report added.

“Emerging players will force the incumbents to change competitive behavior,” Goldman analysts Ryan Nash and Eric Beardsley wrote . “We would expect pricing of products to adjust, driving potentially lower returns.”