Dave Girouard, Co-founder& CEO of Upstart, just finished an interview Q&A at the Barclay’s Emerging Payments and Fintech Forum. Here are my notes.
- He is very pleased with how the company’s product development around its AI model is going. typically from a customer perspective people are looking for the best price for a loan and the best experience in applying for and receiving funds from the lender. He said that the Upwork model looks for the best statistical credit offer for the customer. The company has been working on this model for six years. They have found that many borrowers are overpaying for credit based on a FICO scores which do not paint a complete picture of the borrower with regard to credit risk.
To make the borrower experience better the company tries to reduce friction for the borrower in areas such as uploading of docs, etc.
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The company saw stimulus as a headwind to people applying for loans as they had received cash from the stimulus payments. It also helped people in that they had more money to make payments against outstanding loans. This caused the company to have to tweak its AI model to account for more money available for consumers to make payments against outstanding balances.
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When asked about where the AI model is today at Upstart in comparison to its end state Dave said with 0 being the lowest and 100 the highest score Upstart is at about 10. He said FICO scores are about a 2. He said the company has a long way to go in the development of its AI model. Future challenges will be to adapt the model to different types of loans and geographies outside the United States.
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He said that the unit economics for the company are getting better which leads to a virtuous cycle as the company can afford to advertise in places such as Google because it is making more money. This helps attract more customers.
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Interesting comment that Credit Karma is no longer the fastest growing channel for the company - direct to Upstart is growing faster.
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He commented that the Upstart AI model is constantly learning and improving - most large banks will upgrade the model they use about once per year.
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The reason the company chose to move to auto loans next is because it recognized major inefficiencies with consumers paying too much to borrow for an auto loan. The company realized that acquiring Prodigy gave Upstart immediate access to car dealerships - he said you can think of Prodigy for auto dealerships being analogous to what Shopify did for small merchants. It brings the auto dealers into the world of the internet very quickly.
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I found a comment he made about what is next after auto loans very interesting - he said in 6 to 12 months the company will begin to show its hand as to what is next. Other types of loans he mentioned during other parts of the interview were loans derived from business cash flows, loans outside the U.S. where data sources are different, and not necessarily first mortgages for homes but other type loans where the home secures the loan.
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He stated repeat customers are a very small fraction of the company’s business today however they are very welcome customers as the cost to acquire repeat customers is very low.
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The session closed out with a question about the CFPB’s “no action” letter. Dave said that this simply means the CFPB has no observations as of the date of the letter that would imply the company is doing anything wrong - like a clean bill of health.
Here is a link to the events page to access the webcast.
https://ir.upstart.com/news-and-events/events-and-presentati…
Frank - long UPST, see profile for all holdings