Silver Linings & UPST

Hey, Hyper Faithfuls,

If you subscribe to Stock Advisor you know that TMF emailed a link today to an article entitled “Down But Not Out.” The UPST article brought up many great points regarding UPST’s future potential, but one small factor not considered (or that I missed) is this: If, as many pundits have opined, our economy will soon turn to cra …, er, I mean, recession or completely implodes, while interest rates are rising (can’t be zero forever, Fools!) then let’s consider that we own several small-to-mid-sized banks or other types of lenders.

The Scenario: Interest rates are rising, times are tough, auto and home sales are dropping like rocks, consumer confidence is falling along with loan production. There will be fewer loans made.

The Catch-22: We want/need more loans on the books, but especially in this tough environment, we don’t want to take on a bunch of debt that is less-likely-than-normal to be repaid completely and on time. There will be fewer loans made overall, so we need to differentiate our product to take market share from our competitors, all without undue risk. How can we accomplish all this?

“Hey Boss, I’ve been meeting with someone who might be able to help. Let’s look at this proposal from Upstart…”

As I said, it’s probably a small factor and the outcome probably wouldn’t be visible for at least 2 or more quarters. Still, if we believe in the UPST program, it’s another piece of the puzzle that fits for future progress. While fewer loans are made nationwide, UPST may be able to gain customers because of the tougher financial outlook.

Many paradigm shifts occur not when times are good (why change?) but when times are difficult*. Not that we’re hoping for any financial downturn … but we can’t do anything to change it either. Like the banks above, we would like to maximize gains in any type of market, right?

If I were UPST, I’d be planning a sales and marketing full court press to implement during any downturn. I doubt they need the suggestion, I think they’re a pretty smart bunch.

disclosure: long UPST, and longer today

  • Examples: see
    “cellular telephony”