Upstart - the one that we can’t talk enough about. Here are my thoughts on the demand trajectory.
What I think we are seeing right now is a huge shift in the way people access credit. A few years ago, you could probably get a personal loan online, but in the minds of most people, getting a personal loan was something that involved going to a bank, talking to someone, filling out paperwork, and possibly getting rejected.
Things have changed. I get advertisements for personal loans in my inbox all the time, and it really doesn’t seem to hard to open one up to get access to cash.
So why would I want to use a credit card? Why would I want to pay 15-25% interest on my credit when I could be paying 4-6%? The only thing that makes sense is to use a credit card for expenses that I could pay off at the end of the month, accumulating cash back points and not paying interest.
If I needed credit to finance my lifestyle, there is no way I would pay 15-25% when I had an accessible alternative. I recently moved into a new house and had to buy a refrigerator, washer/dryer, and AC units among other things. I ended up spending about $6000 out of pocket. I had savings and was able to pay for everything upfront, but if I didn’t and I had to finance these purchases, I wouldn’t be looking at using a credit card. I would be looking at buy now / pay later options and look to using a personal loan to finance the payments. This is how any rational actor would behave
So many Americans get into trouble with credit card debt. We might be seeing the end of this phenomena. Upstart has said that they see the payday loan market as an opportunity. I think this is tied in to the dramatic shift in credit demand that I am talking about.
To sum up, so many Americans use credit to finance their lives. This system is awful for the consumer due to high interest rates. The shift to buy now / pay later represents a sea change in how people pay for things and there will be companies that rise to prominence in the new paradigm. It looks like Upstart is a winner here and I believe the size of their addressable market is still being underestimated.