Upstart has been quietly doing something that many others have found difficult: building a profitable online consumer lending business. I caught up with Upstart CEO, Dave Girouard, recently to talk about the state of his business and where he sees the biggest opportunities today.
To date Upstart has issued $2.8 billion in consumer loans which equates to 230,000 loans and they are doing about $180 million a month right now. They will end the year with double the loan volume they did last year. But Dave was quick to point out that they are not all that focused on loan volume. The metric they are most focused on is profitability. They have just completed five profitable months in a row and are now generating $1-2 million a month in profits. They expect to be profitable on a quarterly basis going forward.
How have they been able to move to profitability? One contributing factor is automation. Given Dave’s background (and many others on the team) at Google they have been very focused on technology at Upstart from day one. They have created an underwriting engine that is built for automation. Today, two-thirds of their loans are entirely automated and the median time to close a loan deal is 28 minutes. Most of that time is waiting for the user to respond, Dave said it would take less than five minutes if the customer was completely responsive. Manually underwritten loans have a median close time of 50 hours, still a pretty good user experience. They have also kept customer acquisition costs in check as their cost per loan has remained stable even as loan volume has accelerated.
Upstart made a name for themselves as being the first lending platform to leverage artificial intelligence and machine learning in their underwriting. They have also always used alternative data to build their models and have used this data in new ways. To provide investors comfort that all this was blessed by the regulators they sought and received a no-action letter from the CFPB in 2017. They continue to report to the CFPB on a quarterly basis. [Read more…]