UPST - An analytical thought piece

Hi Fools,

Firstly, it has been a privilege to be able to learn from everyone on this board. Thankyou Saul and board members. I love how it is run - disciplined, topical and for our collective learning and benefit.

I was introduced to this board from someone who has been following Saul for over 10 years. Since being introduced to the board (only a month or so ago), I have read Sauls’s Knowledgebase end-to-end 3 times. It was literally like plugging myself into the matrix… all of a sudden: “I know Kung Fu!”…

Over the past month or so, I’ve had some time off work – a bit of rest. It has been nice. I have used much of my time researching many of the companies mentioned on this board. I have often spent 10 hours a day undertaking research and due diligence to inform my investment decisions.
As I am relatively new to these companies, I feel I can bring fresh eyes. A non-bias and objective perspective. Throughout my research only two companies have REALLY stood out to me. And of those two, UPST is by far what I consider to have the most opportunity over both the short and long-term.

I will disclose at this point that I am LONG UPST. I have bought in at $116, $125, $133, $136, $163 & $168. I’m likely to buy a little bit more, as I believe it has a long way to go yet.
I note from Saul’s most recent post, that GauchoRico mentioned back in April that he might lose 50% or make 2000% on UPST. I’m inclined to believe that the latter is entirely feasible. In fact, I mentioned to the person that introduced me to this board, when UPST was at $116 (before Q2 2021 earnings report) that from the research I have done, I believed that UPST could be the next AfterPay (ASX: $1.00 [2016] to $99.00 [2021], recently acquired by SQ). Needless to say, I have invested (responsibly) in UPST. I made this decision on my own, but was alerted to Upstart by this board – so thankyou to Saul, GauchoRico, Bear, Ethan (and to the person that intriduced me to this board - you know who you are) and to whomever stuck their neck out suggesting this company may be onto something. You have been both insightful and brave.

UPST – What does the future really hold?

Let me open by saying that I believe that Upstart will transform how banks assess creditworthiness (and credit risk) forever, as the iPhone has forever transformed the way in which we communicate.

Let’s just think about that for a moment… we could be on the edge of something just so ridiculously huge, its unfathomable. The early success of Upstart suggests that they are on their way from being “Good, to Great” to quote Jim Collins. Or maybe even Great, to Incredible (but I don’t want to get too emotional here – lets stay rational and keep our thinking divergent).

This ‘analytical thought-piece’ is mostly focused on Upstarts moat and TAM. I discuss what I believe to be some of their future opportunities, and I also touch on some risks and threats to Upstarts business. Please add to them to build our collective knowledge. I haven’t undertaken any financial modelling or statistical analysis. I will leave that to the experts on this board. If anything I have written changes your modelling assumptions and outputs, please share this with us.

FICO vs AI

The FICO Score® was developed in 1956 (55 years ago) by Fair, Isaac and Company (FICO). They developed an algorithm, which is still used today, and is the current standard to assess someone’s creditworthiness for a loan. Its an old system and it is quite simplistic in modern terms. A FICO was designed to be calculated by a human without a computer, but it always took quite a lot of work to generate an output. Fair, Isaac and Company registered a trademark for the FICO Score® with the U.S. Patent and Trademark Office all the way back in the late 1950’s, and we’ve been using it right up until today.

There is also another system called VantageScore which is a product produced by Equifax, TransUnion and Experian. The criteria is the same as a FICO, but only requires one month of credit history, in comparison to FICO’s requirements for at least 6 months of credit history.

And then along comes Upstart shaking everything….well, up. Upstart have now proved with a high degree of confidence, evidenced by significant volumes of quality data, that that the FICO Score® and the VantageScore are no longer the benchmark for creditworthiness assessment. The new benchmark is Upstarts AI algorithm, the new FICO – possibly, the new industry standard. Its notable attributes include that it is almost fully automated, almost instantaneous, and far more robust than FICO or Vantage.

What is evident to us already is that banks who partner with Upstart by embedding their artificial intelligence (AI) technology into their creditworthiness assessment process, are writing more loans, turning greater volume, suffering lower delinquencies and ultimately becoming more profitable. If those are the facts, then why would a bank not adopt this technology?

Total Addressable Market (TAM)

For now, let’s just talk about the US lending market TAM. These numbers are approximate and are from various sources, some of which are more reliable than others – so lets just treat these numbers as proxy’s to demonstrate market scale and proportionality.

  1. Personal Loans Market: $84 billion pa
  2. Student Loan Market: $ $446.2 billion pa (only $86 billion is private lending)
  3. Credit Card Market: $XXXX pa [no reliable data sourced]
  4. Auto Loan Market: $635 billion pa
  5. Mortgage Market: $2.35 trillion pa (2019 – new loans and refinancing [68% of consumer debt])
  6. Total US Credit Market: $4.2 trillion pa (new debt drawn pa)
  7. Outstanding Credit Card Debt: $756 billion (Q3 2020)
  8. Outstanding Auto Debt: $1.3 trillion (2019)
  9. Outstanding Mortgage Debt: $16.01 trillion (2019)
    NOTE: Overall consumer debt is growing at 4% pa since 2015

For items 7, 8 and 9: I will discuss why outstanding debt is an important figure in the opportunities section. You’ll see why I believe these numbers are relevant… but they have NEVER been addressed in any Upstart earnings report because I don’t think they have considered how this market can be tapped. I will explain why I believe outstanding loans figures are highly relevant and could be monetized by Upstart (very exciting….).

Personal Loans and Auto Lending. The $719 Billion personal and auto loan market has only just been tapped by Upstart. Upstart only has five lenders using their software, of which only a couple of them would have made any sizable contributions to Q2 2021 revenue figures. The upside of this is that the new banking partners will be currently writing loans that are yet to be realized in the next quarter. It is evident that Upstart are very successfully moving toward the ‘enablement business model’ as a fintech. The most amazing part is that Upstart are already highly profitable, and this is with only five lenders active (of which only 2 would have made a meaningful contribution to Q2 2021 revenue) whilst only having only processed 0.9% of the personal and auto loan TAM volume. Incredible.

Mortgage Market. As we all know, personal loans and auto loans are small-fry in comparison to the mortgage market. Mortgages account for $2.35 trillion pa (2019 – both new loans and refinancing). Upstart processed a very impressive $6.682 billion of loans over the past 12 months, however none of this volume is from the mortgage market. If they can crack the egg with say, Bank of America, then this horse is going to bolt….faster than it is already. A very, very long runway ahead indeed.

OPPORTUNITIES

Almost instant access to a banks full lending volume and therefore instantaneous 100% revenue stream. The data just released by Upstart in the Q2 2021 earnings report was off the charts. The data have now demonstrated that Upstart can almost monetize a banks entire lending volume almost instantaneously. This is almost unparalleled in any other business – no ramp up (just initial system customization and integration), with no further infrastructure or logistics investment. Upstart generates instantaneous revenue which is reproduced by others (YoY) who are incentivized to maximize their lending volumes. Its almost too good to be true.

Whilst not the same industry, Amazon grew at 300%pa over their first few years. Google doubled revenues year on year in 2004 and 2005. But never have we seen the likes of this until SaaS and the Cloud. Coinbase went 12-fold revenue increase YoY a couple of days ago.

Revenue generation model. The revenue generation model is almost flawless, mainly because the volumes are continuous year over year, the product is so sticky, Upstart clients don’t pay for it (the loan applicant pays for it as part of their loan costs), banks make more money when they use Upstarts product and the volumes are simply MASSIVE.

Volumes from current partners are only the tip of the iceberg. At present only 5 banks have partnered with Upstart (as at Q2 2021). However this has only been very recently and it is unlikely that all their new banking partners have contributed a Q2’s reported lending volume. Telhio Credit Union only announced the partnership with Upstart in July 2021. NAFCU provided public endorsement in June 2021. KEMBA in March 2021. Oriental Bank in January 2021. So there is plenty of volume that has not been realized yet from these existing clients, and new clients will also come on board through Q3. Further, and more importantly NAFCU’s endorsement is big. Very big. They represent over 180 Credit Unions across the US (Upstarts Q2 numbers only represent partial revenue generated from maybe 2 or 3 of the 5 credit unions they have signed). Even better is that NAFCU now also advertise Upstart on their website which is VERY exciting. Link here: Upstart | NSC | NAFCU

Focussing on a fintech pureplay – not being a lender. The sooner Upstart remove themselves as a competitor in the personal and auto loan market, the better. Now that Upstart have proven that their AI tool is superior to all existing credit assessment methods, they can simply focus on being the enabler for the entire lending market. Their moat is the AI tool itself, which will be very difficult for anyone else to replicate. Therefore, for at least 2-3 years, they should have a monopoly, and an ability to monopolize the entire market.

Imagine the simple pitch to the banks or credit union…. “lending origination conversion rates will rise from typically 11% to 24.4%, delinquency should decrease by 75%, data shows that 71% of loan originations can be fully automated, you can reduce your loan origination staffing costs, provide a better product to customers, and become more competitive and profiitable.” Almost a no brainer.

Undervalued stock, as most do not understand the potential. For some reason, unknown to me, this stock seems seriously undervalued. Given that the business model simply relies on software to make some calculations, and then takes a clip of the ticket, with little to no risk implication, and having an enormous TAM – why is the company not valued like a SaaS company would be? It would seem as though valuations by analysts consider Upstart as a bank, not a FinTech. When the cat is out of the bag, analysts may very seriously upgrade their valuations where the forward P/S looks far more aggressive. It would be good to have some further discussion about this on the board.
Partnering with mortgage lenders. The untapped $2.3 trillion + market is awaiting. Whilst Upstart may not be able to charge the same percentage fee that they do for personal and auto loans (or maybe they will), the volumes that can be instantly enabled with each new banking partner is enormous. If Upstart was able to monetize only 5% of that market, their turnover volume would increase by $100 billion pa (vs. current volume of $2.8 billion this past year).

A risk mitigation tool, and a fee for service. Whilst not yet considered by Upstart (as far as I am aware), the AI tool will not only also facilitate a bank to assess credit worthiness for new loans, but will also, just as importantly, be able to fully automate a credit worthiness checks on every single one of their existing customers who have outstanding loans. This will allow banks to assess where they have sub-prime exposure, and therefore give banks an opportunity to forward adjust their risk profile and mitigate extant risk – before the next market meltdown. Upstart may be able to monetize the entire outstanding loans volume when banks run credit checks on their existing borrowers. If every single outstanding loan had a credit worthiness check (which triggered the usual fee on the value of the outstanding loan) and each bank conducted a credit check on every single borrower every quarter as part of their risk governance processes – then Upstarts revenues would not only be pegged to new loan volume, but to outstanding loan volume as well! Given that outstanding auto loan debt is estimated to be $1.36 trillion (2020), this presents a huge (and at present, unconsidered) opportunity. Whilst this may trigger some minor additional costs for banks, in all likelihood, banks would see a huge return on this investment as they would further reduce their delinquency rates by identifying at risk loans before borrowers actually default. What a brilliant value-add. It could be marketed by Upstart as a completely new offering, and could monetize a revenue stream that is not currently valued.

Potential partnership with Visa & Mastercard? Even though credit card debt is issued by a bank, by ‘swimming upstream’ to the card issuers themselves, it may be possible for Upstart to embed their software with the card issuers for banks and customers to use when applying for a new credit card. So instead of Upstart having to approach each bank to establish a credit card lending credit assessment agreement, the banks and their customers could automatically utilise Upstart as it would be embedded into VISA or Masatercards application suite. This approach is complex, and ‘has hairs on it’, but it may present an new moat and subsequent new enormous global TAM.

Becoming the industry standard for creditworthiness and credit risk assessment. In the longer term Upstarts’ AI may become the accepted industry standard (the benchmark) upon which all credit worthiness is measured. All lenders, all banks, all credit unions (even loan sharks) would need Upstart to be not only competitive on the market, but to give assurance to their investors and debt financers that they are effectively managing their lending risk profile. As such, all banks would almost ‘have to’ adopt Upstarts technology to satisfy their risk committees, lenders and investors.

A better S&P / Moodys credit rating for banks? Banks may also get better credit ratings if they use Upstart due to decreased delinquency rates and use of AI is their credit worthiness and subsequent sub-prime exposure risk.

For lenders, it lowers their risk profiles, improves their volume of lending, reduces their staffing requirements (and therefore costs), improves their access to capital, reduced their cost of debt and subsequently improves margins and overall profit.
For the customer, this means better lending rates, an increased likelihood of securing finance, and an improved customer experience.

Overall a win-win-win outcome (customer, bank, Upstart).

RISKS / THREATS

I can’t see that many risks that pose any game-changing threats to the business (war-stoppers if you like), but here are some I have considered. Feel free to highlight any more to ensure we have considered our exposure risk. Given I’m sure most of us are fairly loaded up on UPST, the better we understand the risks, the better we can determine what level of exposure we are prepared to accept as the value of our stock holdings climb.

Time it takes to onboard each bank. Product customization is a great opportunity that is already being offered by Upstart, however what this demonstrates is that Upstart is not a simple plug-and-play software patch. Upstart have stated that clients can tweak the algorithms to adjust for their own business’s risk appetite. The onboarding time for a banks may be significant due to banks strict risk assessment processes, governance, fiduciary obligations, complex software integration, and updating process and procedures, etc. I would expect that this would take between 3-18 months to integrate Upstart, depending on the scale and sophistication of the lender. Further, it is likely that sophisticated lenders will implement an initial pilot program to assure their risk committees that Upstart brings the benefits as claimed. Therefore, full lending volumes may take 3 to 12 months (or more) to materialize into earnings reporting. If this assumption is true, then Q3 2021 may be another bumper quarter.

Is competing in the loan market detrimental to growth? If you go onto www.bankrate.com, you can still get an UPSTART branded loan, which directly competes with Lightstream, Upgrade, Best Egg, SoFi, PenFed, Payoff, Marcus by GS, Prosper, Avant, and Lending Club. Upstart now have an opportunity to remove themselves from the retail lending market and focus on the fintech pureplay to enable ALL of their current competitors with their AI tech smarts. Whilst they are competing, it may be more difficult for them to grow their market share within the $84 billion personal loan market. At present they may be viewed as a ‘frenemy’, therefore onboarding new lenders may be more challenging. In saying that, the data that Upstart are able to gather through their own lending, may still be beneficial, as it would allow them to continue to assess data, and continually improve the AI tool. A careful balance is no doubt being carefully considered by the executive team at Upstart. Hopefully Upstart are able to confidentially access and assess the data they gain from their banking partners to facilitate continuous improvement of their technology.

Finally, if Upstart can make this shift to becoming a pure fintech company (which their Q2 2021 earning call report suggested they may be working towards) this could drastically improve their market valuation. Historically (seemingly to me) Upstarts valuations has been based upon Upstart being a loan provider with a fintech edge. Now Upstart can look towards a valuation as a pure fintech with a banking moat, which may see a significant value upgrade and analysts setting a new target share price.

Market cycles. Revenue will be pegged directly to lending volumes. As such, the cyclical nature of lending volumes will be directly reflected in earnings. This could result in revenue volatility. The upside to this is that in times of stress, those banks that are using Upstart may seeing improved lending resilience and lower delinquency than their non-Upstart banking peers. Hence, new banking clients would soon want to enable their business with Upstarts technology.

Out-sourcing. There may be resistance from the big banks to outsource to Upstart. Banks may not want to become reliant on a single third-party for all of their lending. What happens if the two parties fall-out of favour with each other? What is the mitigation to such an event that Upstart simply ‘turn-off’ their AI software during a dispute? The fintech ecosystem is highly dynamic, where competitors are ironically reliant on each other for survival. The frenemy is becoming the norm in this complex environment. Sophisticated contracts will need to be developed to overcome these unique risks. I don’t know what the mitigation to this risk actually is, however what I do know is that the big banks that sign with Upstart, set to benefit from first mover advantage, which will improve their market share through the ability to write more loans.

Competition. I have not deep dived into this too much, but the only company I can find out there that has a similar tool is Zest AI, who are working with VyStar Credit union (one of the largest CU’s in the US). It seems Upstart have the jump on them, and their technology is far more mature. But what is does show, is that Upstart needs to make the absolute most of being the first mover in this new market. To date, Upstart are certainly succeeding on this front.

Ability to grow into overseas markets. Upstart relies on open data sources. The US is well known for its minimal levels of regulation, and therefore very good access to large swathes of individuals data. If Upstart try and replicate this in other countries, the ability to source the 1600+ data points to satisfy their AI algorithms will prove very difficult. In fact, the red tape in some countries will make it almost impossible for their AI model to even work. For now, the US is the perfect market to grow and establish their AI capability. Upstart may become so successful, that large banks actually reach out from all over the world requesting Upstart to come and help them build an AI product suitable for their country, laws, market and business model.

CONCLUSION

Given the extensive opportunities that still await the Upstart business, I have a very high level of confidence that Upstart will continue to succeed, and that they will very quickly capture and dominate their new market. Their short track record has been impressive, which improves the level of confidence I have in making this statement.

Their AI product seems to be performing to a very high standard and Upstart have statistical evidence to prove that this is the case. The product has now made the breakthrough into mainstream credit unions (having recently being endorsed by the National Association of Federally Insured Credit Unions - NAFCU) which will provide instantaneous momentum as credit unions and banks hustle for first mover advantage. It is worth noting that NAFCU have over 180 credit unions within their membership!

There is a long runway ahead given Upstarts enormous TAM. The personal loans, auto loans and mortgage markets are in the trillions, of which Upstart only captured a volume of approximately c$3 billion to date.

Finally, the opportunity for Upstart to tap into volume for existing outstanding loans is outrageous. If Upstart can demonstrate to banks that using Upstarts AI to assess the creditworthiness of their current customers with outstanding loans will help improve banks to manage their current outstanding debt risk. To understand ho much of an opportunity this is, the outstanding auto loans TAM is $1.3 trillion. The mortgage outstanding debt is $16.01 trillion (2019).

Whilst Upstart are still to to breach the mortgage market, or any of the ‘big banks’, Upstart are quickly carving out a very profitable and expansive market within the credit unions which are focussed on personal and auto lending. Given that only 5 of the 180+ credit Unions have signed up to Upstart so far, Upstarts current focus market is still extraordinarily deep.

The share price as I finish this post is $183.52. Whilst the share price has risen very quickly since my first BUY at $116 (justifiably based on earning results achieved and forecast) I think we will look back in two years time and say…“I wish I bought more at $183…”.

I see plenty more upside in Upstart.

LongMalibu

PLEASE NOTE: I am not a professional investor. This is only an opinion piece and you should conduct your own research and validate all of my work before making any decision to invest in UPST.

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Longmalibu,

Great post.

Regarding:
Competition. I have not deep dived into this too much, but the only company I can find out there that has a similar tool is Zest AI, who are working with VyStar Credit union (one of the largest CU’s in the US). It seems Upstart have the jump on them, and their technology is far more mature. But what is does show, is that Upstart needs to make the absolute most of being the first mover in this new market. To date, Upstart are certainly succeeding on this front.

I have previously written about ZestAI here: https://discussion.fool.com/upst-has-a-real-competitor-zest-ai-3…

I was hopeful there could be greater discussion about ZestAI vs UPST but the post didn’t get too many responses other than an insight from FooLforBCS.

Perhaps others can chime in now?

Pulling from my post to summarize:
12 years ago, Zest AI was created as a payday direct to consumer lender in the subprime market. They were among the first, way before Upstart, that I know of, to utilize machine learning and truly alternative data for credit underwriting models. That venture was not profitable and got them into huge trouble with a class action lawsuit. Around 4 years ago they pivoted to a SaaS business, selling their AI/ML underwriting to financial institutions. They claim to have improved approval rates and loss rates, similar to Upstart’s results. We can also see they have lots of patents filed for their models https://patents.justia.com/inventor/douglas-c-merrill

Since old management was kicked out two years ago, they have aggressively expanded their footprint further with many different leading institutions going into 2021, which includes names such as Discover and Ford, and even with companies in international/outside geographies like Brazil, France, China or Turkey.
Although they don’t have a No Action Letter from CFPB like Upstart, they appear to be doing well on the compliance front, as they even got Freddie Mac to sign on.

Key differences from Upstart:
1) They are selling only their underwriting abilities, not as a White label service like Upstart is doing, but by helping each institution ‘build’ their own models.
Therefore, they don’t appear to have much influence on the consumer experience, like Upstart does with their direct website/white label app, and Upstart’s expansion into the auto dealership front with Prodigy. So, it seems ZestAI won’t have much control on customer satisfaction which otherwise could help drive loan volumes for banks.

2) They have their hands on everything as much as possible: different international geographies and the entire spectrum of credit. They didn’t start out focused entirely on personal loans before moving on; they’re in credit cards, auto, mortgages, point of sale microfinancing, etc.
Their company size is still quite small, at 88 employees. (Upstart has 800+) It’s almost hard to believe as they have so many partnerships with big institutions and internationally, and still be focused on working on all the different types of credit.

3) Management is not up to par as Upstart’s, but maybe improving?
Limited reviews on glassdoor (wow, only 33% approve of current CEO) but some examples: https://www.glassdoor.com/Reviews/Zest-AI-Reviews-E610161.ht…
Sep 2020: Most existing organizational issues have seen significant progress over last year with leadership effectively communicating changes
Nov 2020: Total Toxic workplace dominated by unreliable, and unavailable senior Sales and Exec team. This company feels like a used car dealership that somehow stumbled across AI/ML and stitched together a slick sounding software.
Aug 2020: Company changed from a culture that was about doing the best work to one that is about selling whatever a customer will buy.
May 2020: Recent management change. New management is far less competent and has been cutting way back on benefits. Hiring standards have gone way down. Big customers won’t save you.

4) Culture is not the same as Upstart. They don’t talk much about trying to lower interest rates to consumers, their website is all about “here’s how we can help your instiution increase approval rates and avoid losses”. And they had to pay up big in their class action lawsuit, after overcharging subprime folks with payday loans.
2014 Glassdoor review: “The interest rates may be lower than payday loans, but not by much, so borrowers are paying a lot of interest which may raise some ethical questions.”

Despite all their past troubles, on the surface I really do think they are poised to be a strong competitor, even with the massive TAMs in consumer lending. They seem to have the tech and access to a lot of data and have big name customers going for them. If they execute quickly and successfully they can get a good network effect going for them.
Their 2019 press release claimed they were helping to underwrite 250,000 customers per month and already $500 billion in total lending. I just don’t get why their private valuation is so tiny, which was $90 million as of last year (Unless someone here has better/accurate info?)

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A few things I am concerned about due to which I did not add more money to it recently -

  • License needs to be renewed every few years for being in their market. I know that they got a certification that is typically not easy to get. - But I am not comfortable enough with this to increase its percentage in my portfolio.
  • I am yet to figure out how the banks and mainly the institutional investors know that Upstart’s AI is helping them - any quantitative figures available?
  • Hard to predict a next quarter revenue.
  • Expecting high volatility.

I had bought it at $160 when it peaked there last time, held on to it when it went to $110s, and now happily watching it nearing $200. I am comfortable with this due to the lower percentage of it in my portfolio due to above concerns.

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As their AI and recoverability of loan becomes much reliable, they could open up lending to individuals, who would love to get higher interest rates from reliable borrowers. Lending platform has been tried before by other companies, but with their solid AI, it may be adopted by much more people and become a common way to invest their money.

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they could open up lending to individuals
In case this phrase is not clear, it means that the lenders could be individual investors.

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Jonwayne, here is why ZestAI is a competitor like some local generic cola is to Coke Cola:

https://growjo.com/company/Zest_AI#revenue-financials

Talking $10 million a year in revenues. Half of Prodigy’s revenues. In fact a local generic cola would be greater competition locally to Coke than this company is.

Here is another estimate at $73 million a year that given number of employees is probably too high: https://www.owler.com/company/zestai

Here is a list of their primary competitors: https://craft.co/zestfinance/competitors

Zest is not even the largest in this peer group.

Sometimes we can just overthink things. I do not see this company as even a flea in regard to Upstart’s competitive environment.

Tinker

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This was a really great read! Thanks for sharing.

” Upstart can almost monetize a banks entire lending volume almost instantaneously. This is almost unparalleled in any other business – no ramp up (just initial system customization and integration)… … I would expect that this would take between 3-18 months to integrate Upstart…”

The CEO confirmed this in a recent interview that he considers 90 days to be a very fast time to get a new partner going; something they have done.

He also said Student Loans are unlikely due to the government’s involvement. Further, he called lines of credit a relic of the past and expects fast and cheap loans to displace them. This is the first time I’ve disagreed with an Upstart comment. There is a feeling of safety to have a line of credit setup and ready to be used. They generally cost nothing to have.

“ At present only 5 banks have partnered with Upstart (as at Q2 2021).”

The CEO said they have close to 20 bank partners.

“…. for at least 2-3 years, they should have a monopoly, and an ability to monopolize the entire market. “

I agree, IF there are already teams at work on catching up. Otherwise it could be years longer. I agree with something else the CEO said: it is more likely their next real competition will come from someone new developing a shortcut in their garage, rather than a major lender. Those are more likely to partner than compete. I guess we’ll see, eventually.

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Thanks for the information Rafes 

LongMaliubu: “ At present only 5 banks have partnered with Upstart (as at Q2 2021).”

RafesUserName replied: “The CEO said they have close to 20 bank partners.”

The research I conducted suggested that only 5 banks had partnered (as at Q2). Maybe 2 or 3 of those would have contributed to Q2 revenue. Am I correct? 

However, given we are now going into week 7 of Q3 would I be correct in assuming that statement made by the CEO may suggest that up to 15 more banks have joined in Q3? 

If this is correct, I don’t think we’ll see their revenues until Q4 reporting. 

It would be helpful for the market to price UPST if they were a little more transparent in their reporting of when each bank was going / or went live on their platform. Do you have any further insight into this? 

Thanks,
LongMalibu
1 Like

Reposting for readability:

Thanks for the information Rafes

LongMaliubu: “ At present only 5 banks have partnered with Upstart (as at Q2 2021).”

RafesUserName replied: “The CEO said they have close to 20 bank partners.”

The research I conducted suggested that only 5 banks had partnered (as at Q2). Maybe 2 or 3 of those would have contributed to Q2 revenue. Am I correct?

However, given we are now going into week 7 of Q3 would I be correct in assuming that statement made by the CEO may suggest that up to 15 more banks have joined in Q3?

If this is correct, I don’t think we’ll see their revenues until Q4 reporting.

It would be helpful for the market to price UPST if they were a little more transparent in their reporting of when each bank was going / or went live on their platform. Do you have any further insight into this?

Thanks,
LongMalibu

LongMaliubu: “ At present only 5 banks have partnered with Upstart (as at Q2 2021).”

RafesUserName replied: “The CEO said they have close to 20 bank partners.”

The research I (Long Malibou) conducted suggested that only 5 banks had partnered (as at Q2). Maybe 2 or 3 of those would have contributed to Q2 revenue. Am I correct?

I don’t know where the 5 comes from, but the 20 comes from a quarter ago. In the conference call this quarter you will find the following (possibly slightly paraphrased as it’s from my own CC notes):

We now have 25 banks and credit unions on the Upstart platform and have a robust and growing list of lenders in our pipeline for the second half of 2021.”

Saul

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25 is the total partners. As Saul noted from the CEO on the call:

“We now have 25 banks and credit unions on the Upstart platform and have a robust and growing list of lenders in our pipeline for the second half of 2021.”

5 is the number signed up for early auto loans. From slide 7 in this quarter’s presentation:

“Five Banks Partners signed up for auto lending on our platform”

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I’ve been trying to keep track of the names of bank partners the last couple months and Upstart definitely has several lenders who I guess didn’t want to be broadcast in a press release.

From my notes, I can only count ~17 that we know definitively.

If anybody can add to the list or make corrections please do so

Per S1: As of September 30, 2020, we had 10 bank partners.
From 10K: As of December 31, 2020, we had twelve bank partners.
From Q1 2021 call: We added 3 banks this quarter for a total of 15 banks.
From Q2 2021 call: now at 25 total bank partners

  1. Accion Chicago (merged with Opportunity fund in March 2020. But, the partnership was not with personal loans, rather to provide “low-cost microloans to minority- and women-owned businesses…way to lend to these inspirational small business owners that other lenders overlook”)

  2. TCF Bank (merged with Huntington Bank June 2021, and I don’t see Huntington use Upstart on the webpage, not sure if they are still active partners. Huntington could be still part of the referral network only, but not using Upstart’s customer facing platform. I emailed investor relations about this a month ago and never got a response.)

  3. Bank Mobile (spun off from Customers Bank in Jan 2021. Appears to partner with Upstart on credit card decisioning and not actually with loans: “Upstart partnered with BankMobile to develop two credit cards: the BankMobile Classic Mastercard and the BankMobile Rewards Mastercard, both available now via online application.”)

  4. Ridgewood Savings Bank

  5. Kemba Financial Credit Union

  6. Apple Bank

  7. Cross River Bank

  8. Finwise Bank

  9. Oriental Bank

  10. Drummond Community Bank

  11. First Financial Bank (uses Upstart’s referral network for personal loans, doesn’t use the consumer facing platform)

  12. Midwest BankCentre (Auto refinance)

  13. Associated Bank

  14. Customers Bank, previously had BankMobile division (Spun off from Customers Jan 2021)

  15. First National Bank of Omaha

  16. First Federal Bank of Kansas City

  17. Telhio Credit Union

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Hi Jonwayne235,

The below are extracted from Q1 2020 Call, answer made by Dave with reference to question raised by JPM.

So, it’s just an ongoing effort and I don’t think we’ll ever be done with it frankly, but we are
making nice progress. There are, I think, 18 banks and credit unions on our platform today
and –

Upthread some one posted that the interest rate for auto loans are an order of magnitude less than for personal loans. Auto loans are secured. Current auto loans are 3 or 4%. Stands to reason that the profit for Upstart on auto loans would be significantly less than for personal loans, no? Her is an interesting web site: https://www.bankrate.com/loans/auto-loans/rates/

“Auto loans are secured loans that help borrowers pay for a new or used car. They are available from dealerships and a variety of lenders, so it’s important to shop around in order to find the best interest rates and terms for your vehicle. The lenders profiled on this page are a great place to start.”

Nothing surprising there. PenFed rate a2.890%, Ally 3.990%. But most interesting is this:

Upstart is also listed. No rate given, but the following three bullet points:

Fast application: see how much you could save in minutes

Easy process: Upstart will pay off your previous loan & update your title, so you can enjoy the savings & your ride

Top-rated customer service to help you along the way

And you can apply for a loan right off this web page.

KC

6 Likes

Current auto loans are 3 or 4%.

KC,

At the very link you posted you’ll find this chart:


CREDIT SCORE	AVERAGE APR NEW CAR	AVERAGE APR USED CAR
781–850	               3.24%	               4.08%
661–780	               4.21%	               6.05%
601–660	               7.14%    	       11.41%
501–600	               11.33%	               17.78%
300–500	               13.97%	               20.67%

So obviously your 3 to 4% is only for top borrowers. In light of that, your post doesn’t really make sense!

But listen, everyone, It’s not just KC (please, please don’t think I’m picking on you!) It’s a LOT of folks.

Since I asked the board to SLOW DOWN yesterday, there have been many one liner posts and even more posts with half-baked information that can be easily researched and corrected. We simply have to do better, or the board will drown in an ocean of low-value posts!

Please – take the time to double check your posts, edit them…quality over quantity! It’s important!

Bear
Who spends a ridiculous amount of time – often half an hour or more – on each post. So if the quality isn’t there, it’s not for lack of trying.

94 Likes