UPST - 10Q, new podcast, Relman Colfax.

I rebuilt a position in UPST the morning after their Q3 report - like I said in my previous post, I don’t think UPST is worthy of an overweight allocation in my portfolio, but a regular weight instead. If we’re all sick of hearing about UPST - let me know in an email reply and I’ll keep these kinds of posts less frequent.

1.) UPST 10Q filing today:
Concentration risk slightly decreased for CRB, but still significant overall, as it increased with their second largest bank partner (Finwise).

2Q 2021: Cross River Bank accounted for 63% of total revenue.
3Q 2021: CRB accounted for 56%

2Q 2021: Finwise accounted for 22%
3Q 2021: Finwise accounted for 28% of total revenue

Concentration risk for credit karma slightly decreased this year. “For the nine months ended September 30, 2020 and 2021, 52% and 44%, respectively, of loan originations were derived from traffic from Credit Karma.”

New statement popped up in this 10Q, regarding regulation:
“Further, the recently appointed CFPB Director indicated in remarks in October 2021 that safeguarding against algorithmic bias is a priority for the CFPB under the new leadership.”
Regulatory risk will always be a thing for UPST, but it can impede other competitors wanting to utilize AI if they set more stringent requirements (because UPST already has a NAL from CFPB for AI lending, which was renewed last year).

2.) The second report from Relman Colfax was finally released.…

[past post:…
I read through this entire report.
To be honest, I don’t have the smarts or math/stats background to understand the technical terms, but from what I can gather, the only concern they found was:
we found adverse approval/denial AIR disparities at the final stage of the loan process for both Black applicants and female applicants, but only the disparities for Black applicants were below 90% and therefore practically significant by the metrics used for this Report.

Asian/Pacific Islander applicants, Hispanic applicants, and applicants 62 years old or older all experienced favorable AIR rates.

These results are generally consistent in important ways with certain internal Upstart analyses for the first quarter of 2021. Although conducted under different constraints, by the metrics used in our Report, those results also show practically significant adverse disparities for Black applicants, but not for other groups.

Upstart represents that it is actively researching less discriminatory alternatives, including via this Monitorship. We offer a few observations on these results: First, this finding does not, standing alone, demonstrate a fair lending violation, but it does trigger an investigation into whether less discriminatory alternatives exist…

3.) New podcast this week with CEO Dave Girouard:

Some highlights:

[Host]: Is BNPL disruptive to you?
[Girouard]: BNPL has the potential to be very disruptive to the VISA/Mastercard rails…BNPL is about payments more so than about lending. It’s just like credit cards have 30 day grace period that’s one of the enticements that got people to use credit cards…and BNPL may have pay in 4 or what have you…but ultimately it’s breaking that duoply of Visa/Mastercard in my view.
With respect to UPST, a lot of our loans are used to pay back credit cards. But one thing is very clear about BNPL is that they increase the amount of consumer spend. And in any world that I live in, if you increase the amount of consumer spend, you’re not going to result in the net reduction of consumer debt, it just doesn’t seem to add up.

[Host]: So you love it. God bless BNPL.
[Girouard]: I don’t know if I love it or not, we tend to be pro consumer, if it’s convenient it works great, but if it gets people in over their skis, buying things they don’t really need or want, I’m probably a little less excited about it.

[Host]: Is there a flashing ten year rate you’re watching?
[Girouard]: We’re not terribly rate sensitive, in the sense that if you’re a mortgage business you’re very rate sensitive for example in mortgage refi, but generally speaking, most of our loans are used to refinance more expensive flavors of debt, where the spread there is very significant, so fortunately for us, it’s just not a day to day sort of concern.