Upstart started offering three-year personal loans in May 2014, two years after its founding. Since then, the company has adopted artificial intelligence (AI) as an effective way to vet loan applicants and create connections between borrowers and lenders.
The company went public in 2020, making Q3 of 2021 its fourth quarter as a publicly traded company. During a Q3 earnings call, executives from Upstart addressed several critical topics, including the struggles of going public during a pandemic, recruiting remote employees, and its rapid growth.
Extraordinary financial performance has signaled that Upstart could 5X in 5 years. Here are the breadcrumbs as to why:
Upstart’s Number of Loans Has Grown Quickly
The quarter before Upstart went public, 80,893 loans were originated on its platform. During Q3 2021, Upstart facilitated 362,780 loans. That’s a 348% growth rate that has increased the company’s revenues and grown its brand visibility.
Several factors contribute to Upstart’s rapid growth. Perhaps most importantly, the company increased the number of banks and credit union partners that use its platform to find borrowers. In 2020, Upstart had 10 banks and credit unions as partners. By the end of Q3 2021, it had 31 partners. Upstart has numerous other partners waiting to join the platform over the next few months.
Critically, Upstart has found more efficient ways to onboard its lending partners. The most recent bank to join went live within 50 days, which the executives say is a notable improvement over previous years.
More Upstart Partners Plan to Drop FICO Requirements
Upstart and many other fintech company’s have found that FICO scores matter much less than traditional lenders believe. The scoring system has become an outdated approach to measuring a person’s creditworthiness.
Unfortunately, many consumers cannot access short-term personal loans because traditional lenders do not want to work with people who have low FICO scores.
More of Upstart’s lending partners have decided to drop their FICO requirements, which means Upstart can start serving more consumers across the financial spectrum. Whether people need loans to cover immediate expenses or to purchase cars, Upstart leads the way in making it easier for them to access money.
The fact of the matter is that Upstart’s AI does a better job than FICO. The company has proven that, so more lenders are starting to feel comfortable relying on Upstart instead of scores from credit bureaus.
By opening lending opportunities to more consumers, Upstart could very well 5X within 5 years.
Upstart Expands Its Products and Encourages Lower Rates
Upstart’s lending partners are eager to explore new products that can generate small revenues rapidly. Upstart has been working with several of these partners to develop small loans that get repaid within a few months. Taking this path offers several benefits for everyone involved because it:
- Gives more consumers access to loans.
- Helps lenders make money.
- Generates data that Upstart can use to fine-tune its algorithm.
As more lending partners join Upstart’s platform, the company believes that it is in a position to revolutionize lending. More lending partners means that banks and credit unions will need to lower their fees and interest rates to attract borrowers. Lenders will still have plenty of opportunities to make money, but they will have to keep consumers in mind while doing so.
Eventually, Upstart believes it will have the ability to offer a service similar to that of Geico Insurance. By spending 15 minutes or less exploring lending options on Upstart, borrowers can save 15% on their loans. The numbers will undoubtedly look different than those used by Geico, but the strategy remains the same: generate higher revenues by lowering prices to attract more customers.
Upstart Has Hired a Lot of New Employees
Upstart added hundreds of employees over the last year. Dave Girouard, the CEO, says that 4 out of 5 Upstarters joined during the pandemic and have never seen the inside of their offices.
The pandemic created enormous shifts in employment. Many companies found it challenging to pivot to remote work. A lot of companies lost employees as people realized that they wanted a better work-life balance, higher salaries, and more meaningful work.
Upstart was already positioned to benefit from the change. Although Upstart earns money by connecting borrowers and lenders, it’s primarily a technology company. Its expertise made it fairly simple to adapt to the evolving nature of work.
How High Can Upstart Go?
At the start of the year, Upstart shares trade for $123 per share. Is it possible that the company could 5X in 5 years? At the pace it is currently growing, and after taking a 50% haircut since late November 2021, it’s certainly a feat the company could achieve.
Upstart has shown that its focus on AI and other technologies makes it enormously adaptable. It has managed to grow quickly during one of the biggest cultural and economic upsets since the Great Depression. If it can stay on this track, it could easily 5X or more.