UPST Question


I am in the process of finally doing my deep dive into Upstart (UPST) and came across some interesting lines in the 10-K.

“On the funding side, our bank partners can retain loans that align with their business and risk objectives; loan volumes exceeding their collective funding capacity or risk tolerance can be flowed through the CRB conduit and sold to our network of institutional investors, which have far broader and more diverse capacity to absorb and distribute risk.”

Does this mean that Cross River Bank (CRB) is the sole owner of the channel between banks and institutional investors? I know people have talked about the customer concentration in CRB but I thought that was just because they originate a lot of loans. This seems to say that instead they have a monopoly on the Upstart loans resold to institutional investors. Earlier in the 10-K they mentioned that 77% of loans were purchased by institutional investors which makes sense of the 63% revenue concentration by CRB.

My main question is to someone who understands this world better. CRB will end their agreement with Upstart on Dec 31, 2022 with the ability to renew 2 more years. When this happens, does that open the door for other intermediaries to fill that void or does CRB have something special that others can’t replicate, leading to a loss of revenue for Upstart? Looks to me like CRB got in there early, put a 4 year stake in the ground, and will potentially lose their monopoly on these loans sold to institutional investors at the end of 2022. Is this correct thinking?



IMO, I think other banks can also act as the loan originator or they can have multiple originators after the current contract with CRB expires. Probably CRB just wanted to take advantage and lock in 4 years as major originator for UPST and then quickly resell most of them to 100+ institutional investors (and get a cut).

So from end loan buyers perspective, I don’t think UPST has customer concentration issue - after all, CRB only took a small percentage of the “originated loans” with their own book.



UPST is basically a personal loan service based upon proprietary AI. Upstart carries no credit risk itself. Then it is essentially a middle man in the lending process providing services on a fee basis.

Question 1) What differentiates the UPST model (personal loans) from say the Rocket Mortgage (RKT) (home loans)? Both help originate loans and both will re-sell the loans. RKT has had phenomenal revenue growth but the stock is flat for the last 12 months. I think ‘maybe’ Wall Street treats RKT more like a bank service whose business will drop when interest rates rise. For whatever reason that I do not understand, RKT stock never gets a good valuation.

Question 2) What is the likelihood for UPST to expand their customer base with the other major lending partners in 2021? Upstart does have a partner concentration risk; CRB with Credit Karma. Looks like CRB does the loan origination and the Credit karma does the redirect to UPST. Maybe it is just too early for little ole UPST to get the recognition from the big boys. Or maybe the big lenders just see UPST as a small fry that possesses no significant AI disruptive value. Certainly UPST is proving a faster loan approval turnaround than anybody else (kinda like LMND for insurance)

Evidence of concentration from the UPST S-1:

"In the nine months ended September 30, 2020, Cross River Bank originated 72% of the loans facilitated on our platform and fees received from Cross River Bank accounted for 65% of our total revenue. And: “A significant number of consumers that apply for a loan on learn about and access through the website of a loan aggregator, Credit Karma. The percentage of loan originations that were derived from traffic from Credit Karma was 52% in 2019 and the nine months ended September 30, 2020, respectively.”

I purchased some UPST as a learning stock a couple weeks ago and am a bit surprised at the sudden price spike. Guess a butterfly flapped its wings in Hong Kong last week. I am not very good with fintech or bank valuations so excuse my questions if they are not the brightest. I am just trying to understand the risks better as the UPST potential looks very exciting in a re-opening economy.