Conversion Rates on Upstart’s Consumer Loans

Upstart is having a tough time in the current interest rate environment.

“In the third quarter, rates were at an all-time high in our marketplace, higher than we expected them to be, reflecting both decades high interest rates and significantly elevated risk in the consumer economy,” said Upstart CEO David Girouard during the company’s Q3 earnings call. “This is not a path we would have chosen and is obviously not constructive to our growth, but it reflects the reality of operating responsibly in this environment.”

The company won’t offer loans above 36% APR which means if the risk models indicate a rate higher than that would be necessary to move forward, they just decline the loan altogether. Notably, this and other economic factors has had a negative impact on their conversion rates.

“I think our [conversion rate] for this quarter was around 8.5%,” said Upstart CFO Sanjay Datta. “So meaning, of all applicants to fill in an application and submit, about 8.5% of them become funded loans. I think at our peak, that number was closer to 24%.”

And of all loans that get approved, only 1/3rd of them fund.

It’s been a rough couple of years for Upstart. The stock is down 92% from its all time high in October 2021. At the time the company was planning to expand into the small business loan market, which it finally did in June 2022. In the subsequent quarter it originated $9M in small business loans. But earlier this year the company suspended it entirely. At the time Girouard said, “This was a necessary step to ensure we can adequately resource the rest of the roadmap. We look forward to the day when we can resume our pursuit of the world’s best AI-powered business loan.”

It has not resumed business lending though it continues to cite in its quarterly earnings presentations that the addressable small business loan market numbers $895B.