Upstart Says Covid Had No Material Impact on Loan Performance, Believes All Loan Underwriting Will be Powered by AI in the Future

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Upstart foundersYet another online consumer lender has reported that the Covid-era was good for business. Upstart, which went public in December, recorded $1M in profit in Q4 and $6M in profit for the year. Prosper Marketplace, an Upstart competitor, reported an $18.5M profit for 2020 just days earlier.

“Despite the COVID-19 pandemic, we delivered strong growth and profits in Q4 and for the full year 2020,” Upstart CEO Dave Girouard said in the company earnings announcement. “This combination is rare among FinTechs and demonstrates the growing advantages of AI-based lending.”

Upstart actually grew its revenue in 2020 by 42% over the previous year while keeping loan performance steady.

“We’re happy to report that the COVID-19 pandemic had no material impact on the returns that our bank partners and loan investors experienced this past year.”

The company is going full speed ahead on AI-based lending. “We believe virtually all lending will be powered by AI in the future, and we’re in the earliest stages of helping our bank partners successfully navigate that transformation.”

Keenly aware that AI is an overly used buzzword, the company reminded investors about what its AI can actually do.

Our AI models, like all AI systems, are fueled by incredible amounts of data and sophisticated software to interpret that data, while most lenders consider only a handful of variables as part of a lending decision, Upstart’s model considers more than 1,000 variables about each applicant. You can think of these as the columns in a spreadsheet. And as of December 31, 2020, our model was trained on more than 10.5 million unique repayment events.

These are like the rows in the spreadsheet. And we continually upgrade the machine learning software that interprets this data, enabling us to price the next loan on our platform just a bit more accurately. Upstart goes far beyond a singular AI model predicting default risk. We have discrete AI model that improve the entire lending process, including identity fraud, income misrepresentation, loan stacking, prepayment risk, fee optimization, and more.

But of course, our model that targets default risk is the centerpiece of our system. It predicts not just the likelihood that a loan will default, but when that default can be expected to happen.

Upstart also intends to bring that technology to auto lending. The company simultaneously announced that it had acquired Prodigy Software, Inc, a tech that’s been used to assist with selling more than $6B worth of cars.

“…2021, from our perspective with auto, is really a building year,” said Girouard, “And the acquisition of Prodigy, we certainly view as an accelerator toward the point of sale, the majority of the market that happens at the dealership.”

Last modified: March 17, 2021
Sean Murray

Category: Loans

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