There has been a lot of good board dialog regarding the quality of Upstart’s AI and how difficult/easy that will be to replicate. The quality of the AI obviously results in better/worse loan loss ratios for the bank partners which has a huge impact on the success of the business over time. I’ll leave that debate to AI and lending experts on other threads!
One item I’m seeing as a reason for the success and guidance of Upstart is the ease of use from a consumer perspective. I love companies that make things easy. It’s why I use Amazon, Uber, and AirBnB. Easy to use! In the same way that I don’t take an Uber for the ride itself (but rather to get to where I’m going), you don’t obtain a loan for the fun of it…if a loan works perfectly (from a consumer perspective) it’s not something I think about – both at origination (i.e. it’s easy) and during the servicing life of the loan.
It sounds like the user experience is great for small & unsecured consumer loans - the substantial increase in conversation rate in recent quarters (22% for Q1 2021 vs. 17% Q4 2020 and 14% in Q1 2020) proves it.
As they move to other segments of lending, if they can maintain strong ease of use it seems that really lengthens the runway; not only will banks like them (good loss rates) but consumers will as well. So the question becomes how difficult is that quality user experience to replicate by other lenders? And, can Upstart continue to differentiate user experience in other segments of lending?
My belief is that making things easy for the consumer is difficult – which increases the MOAT.