These are three paraphrased and shortened excerpts from the Upstart Conf Call which were full of information. First about using their AI to help their own sales and marketing, second, about their optimism for the future, and finally a lot of explanation about the auto loan business and where they are going with it.
Saul
Using AI to help their own marketing - …And third, we upgraded the AI models that underpin our own marketing program. That means for every dollar we spent on marketing, we brought incrementally more consumers to the platform into our bank partners. AI has almost unlimited potential in spend targeting and lifecycle marketing. Tying AI to our customer acquisition efforts is a relatively new area of investment for us, and we expect it will be a significant source of growth in the future.
The types of AI model upgrades described here have allowed us to grow loan volumes by a factor of 20 in the last four years, while reducing acquisition costs and generating real profits.
Our optimism for the future comes from two facts. First, we continue to have a lengthy backlog of projects that will improve our funnel throughput and lead to more growth in the future. And second, we don’t see competitors on the same AI centric journey that Upstart is on.
Auto lending is our next big opportunity. The auto lending industry is about six times the size of personal lending. And we believe it has at least as much mispricing and inefficiency, with millions of consumers paying far more than they should to finance a vehicle through a process that is displeasing to all. Our early exploration in this market has confirmed our hypothesis that there’s a wide-open opportunity for us and our bank partners to deliver a superior product to the market, meaning more accurate pricing, instant approvals, and elimination of friction. I’m happy to report that we’re making very fast progress in this new and exciting category.
Since January, we’ve expanded our auto refinance product from a single state to 33 states, representing more than two thirds of the US population, based on various rules and regulations that impact the process of refinancing a car loan, and we’re building the best possible process for each state. At the same time, we’re actively encouraging the states that have yet to adopt modern conveniences such as digital signatures, and electronic liens and titling that make it easier for consumers to access the best possible loan. This is one area where the COVID pandemic has helpfully pushed states toward adopting these remote friendly technologies sooner.
We’re also working to eliminate friction in the borrowing process with the goal of delivering an auto refi product with the same quality experience and instant gratification that has made us the leading personal lending platform. Only it’s happening much faster this time. Given the complexities of auto lending, it’s no small effort to build a refi product that is as simple and as accessible as an unsecured loan. But we’re well on our way to doing that. To date, we’ve activated only a couple of marketing channels to reach enough consumers to test and iterate on our auto refinance product. In fact, you can’t yet find an auto loan offer on Upstart.com. That will all change in the coming months as we begin to more proactively market and cross sell our auto refinance product.
I’m also happy to report that we closed our acquisition of Prodigy, a leader in automotive commerce software. Prodigy is like Shopify for car dealerships helping to create the modern multi-channel car buying experience that dealerships need and consumers rightfully expect in 2021. In addition to modernizing the car buying experience, Prodigy will allow us to bring Upstart’s AI enabled auto loans to dealerships across the country, where the vast majority of loans are transacted. The small but mighty Prodigy team increased our dealership footprint by 45% in the first quarter. Even at this early stage, almost $800 million in vehicles were sold through Prodigy in Q1 2021.
It’s a multi-step process. The first thing that needs to happen, and where we’re focused right now, is in getting the Prodigy Software adopted by the dealers themselves. And as that footprint expands, then within that transaction volume we have the opportunity to offer our loans. Our loans still need to compete with the rest of the marketplace, obviously. At the end of the day, you need to have the best prices and the highest approval rates in order to win. And that scenario, I think we’re relatively confident in. So to us strategically, what’s important is the expansion of the footprint of the commercial software that Prodigy is developing. From that will flow opportunity for loan volume, but that would be almost sort of a second step if you will. To realize this potential we’re significantly increasing investment in Prodigy’s technology and go-to-market teams.
The Prodigy Software, as it exists today, is sold on a sort of subscription basis for a few $1,000 to a dealership to modernize their auto selling experience. We haven’t changed that model to date. In the future the Upstart loans will appear in there and there’ll become an option to finance a vehicle for consumers. Not likely the only option, but an option would be Upstart powered loans. And certainly, the money can flow in different directions depending on the nature of the borrower and such, but in any case, we are extremely optimistic that it will be a source of what amounts to very low acquisition costs for loans for us, if not even negative acquisition costs, which is just an incredible opportunity. And in this particular very large market opportunity, the auto lending market, it’s an incredible opportunity for us.
During the quarter, we became a certified digital retail provider for Subaru retailers. As I said last quarter, we believe Prodigy will enable Upstart to tap into one of the world’s largest buy now pay later market opportunities.
Covid hit the US with two weeks to go in March. We are talking about April, May, and June, when the country was in absolute panic mode. Who was going for a personal unsecured loan then? And who in their right mind would have given them one?