This is Upstart
Our mission is to enable effortless credit based on true risk.
Why? Because credit really matters. Money is a fundamental ingredient of life, and unless you’re one of the few percent of Americans with significant wealth, the price of borrowing affects you every day. Throughout history, affordable credit has been central to unlocking mobility and opportunity.
Upstart is a leading artificial intelligence (AI) lending marketplace designed to improve access to affordable credit while reducing the risk and costs of lending for our bank partners. By leveraging Upstart's AI marketplace, Upstart-powered banks can offer higher approval rates and experience lower loss rates*, while simultaneously delivering the exceptional digital-first lending experience their customers demand.
of loans fully automated
* In an internal study, Upstart replicated three bank models using their respective underwriting policies and evaluated their hypothetical loss rates and approval rates using Upstart’s applicant base in late 2017. Such results represent the average rate of improvement exhibited by Upstart’s marketplace against each of the three respective bank models.
** As of 6/30/2022. Fully Automated metric is calculated on a quarterly basis.
^ Fully automated loans are defined as loans originated end-to-end (from initial rate request to final funding) with no human involvement.
Lending is centuries old,
but has changed little in recent decades.
Traditional lenders use simple FICO-based models to decide who is approved for credit and at what interest rate. While simple and intuitive, these “scorecard” methods are limited in their ability to quantify risk.
Four in five Americans
have never defaulted on a credit product, yet less than half have access to prime credit.* The implication is eye-opening. With a smarter credit model, lenders could approve almost twice as many borrowers, with fewer defaults.
* According to an Upstart retrospective study completed in December 2019.
AI is upending existing industries
and creating new ones. Whether self-driving cars, home assistants, or language translation, software that learns and improves on its own has moved from research labs to the mainstream in just a few years.
Upstart is one of the first
to apply AI to the multi-trillion dollar credit industry. Upstart goes beyond the FICO score, using non-conventional variables at scale to provide superior loan performance and improve consumers' access to credit.
The system improves constantly,
learning and optimizing in response to daily loan-level repayment and delinquency data.
Upstart's model is significantly more accurate than traditional lending models;
allowing us to approve more applicants at lower loss rates.
As of December 31, 2021, and based on a comparison between the Upstart model and a traditional credit-score only model. The APR calculation compares the two models based on the average APR offered to borrowers up to the same approval rate. The hypothetical credit-score only model used in Upstart's analysis was developed in connection with the CFPB No Action Letter access-to-credit testing program and was built from a traditional credit score only model trained on Upstart platform data. APR for the scorecard was averaged for each given traditional credit score grouping.
Upstart model vs. traditional bank models
In an internal study, Upstart replicated three bank models using their respective underwriting policies and evaluated their hypothetical loss rates and approval rates using Upstart’s applicant base in late 2017. Such result represents the average rate of improvement exhibited by Upstart’s platform against each of the three respective bank models.
Realized Loss Rates vs. Rating Agency Model
Rating agencies have an assessment of default for each marketplace. Upstart has performed better than rating agency expectations.
In an internal study, Upstart compared the actual realized loss rates of Upstart loans securitized in Thirteen securitization transactions between 2018 and 2021 and the loss rate predictions for those loans obtained from KBRA Surveillance Reports published by Kroll Bond Rating Agency, with the most recent report being published in May 2022. As compared to Kroll’s loss predictions, actual realized losses ranged from 34% to -72% vs base case assumptions, with an average deviation across all thirteen securitization transactions of 30%. Compared to our internal forecasts, actual realized losses ranged from approximately 27% higher to approximately 56% lower, with an average absolute deviation across all of thirteen securitization transactions of approximately 28%.
Upstart’s AI models allow us to rewire the verification process
approving a majority of loans nearly instantly.
Fully automated loans are defined as loans originated end-to-end (from initial rate request to final funding) with no human involvement.
AI has the opportunity to improve most types of lending globally
over the next decade. While Upstart is focused today on the US consumer market, similar techniques can be applied to all credit markets.
Upstart has worked with regulators since inception to ensure it operates safely within the law.
AI-based lending expands access to affordable credit by constantly finding new ways to identify qualified borrowers. Yet an AI based model must avoid unlawful disparate impact or statistical bias, that would be harmful to disadvantaged groups.
Upstart has demonstrated that our marketplace doesn’t introduce bias to the credit decision process and has developed reporting procedures to ensure future versions of the model will continue to be fair. In September 2017, Upstart became the first company to receive a No Action Letter (NAL) from the Consumer Financial Protection Bureau (CFPB). The purpose of such letters is to reduce potential regulatory uncertainty for innovative products that may offer significant consumer benefit. On November 30, 2020, at the expiration of the first NAL, Upstart received a new NAL from the CFPB for a 3-year term. On June 8, 2022, the CFPB terminated the program at Upstart's request.