NAFCU Services Blog

Dec 19, 2023

Achieving fintech partner excellence in an era of increasing change

By:  Upstart 

“We’re living in a world where the rate of change and the amount of things we can’t see is only going to increase,” said Michael Lock, SVP of Lending Partnerships at Upstart last month at NAFCU Lending.

Lock emphasized that a combination of geopolitical upheaval, bank failures and all-time-high interest rates and prices indicate that as events become more difficult to predict, staying ahead of the curve with technology can ensure credit unions remain on the front foot.

Leveraging AI for enhanced lending

“[Upstart] is overlaying machine learning and AI over various data sources, and if we do this right, we can cope with the massive rate of change,” Lock said. He highlighted four key advantages to partnering with the right AI partner:

  • Higher returns at lower losses: One of the main advantages of using AI to underwrite is that AI allows credit unions to price loans more accurately, contributing to higher profitability. In fact, Upstart’s net annualized returns are 42 percent higher than industry average for borrowers with a 660 FICO score and above.[1]
  • Regulatory support: Unlike banks, credit union regulators, such as Kyle Hauptman and Rodney Hood, from the National Credit Union Administration (NCUA) have shared that partnering with fintechs should be a strategic imperative. “Fintech is no longer a luxury but a strategic imperative for credit unions to remain relevant, attract younger generations of members and promote financial inclusion,” Hood said.[2]
  • More inclusive lending: Lock shared that AI lending platforms enable credit unions to lend to a wider audience, including economically disadvantaged individuals. Statistics show that Upstart’s AI lending model approves 40 percent more black and Hispanic borrowers[3] with 28.8 percent of Upstart-powered loans going to low-to-moderate income (LMI) communities.[4] This aligns with credit unions' mission to serve their communities and support economic inclusivity.
  • Speed: Furthermore, AI lending processes are incredibly fast, with 88 percent of Upstart’s loans approved without human intervention.

Key takeaways for partnership excellence

As credit unions consider embracing AI lending, Lock concluded by sharing key learnings from partnering with over 60 credit unions and undergoing over 100 NCUA exams.

  • Set mutual goals and metrics: Successful partnerships require a shared vision and measurable success metrics, including yields, loan performance and member growth. Lock shared that both parties must work towards common objectives to ensure the partnership's success, and also shared success stories of Upstart’s partners such as Vantage West, who acquired over 1,400 new members, and Commonwealth Credit Union, who achieved a cross sell rate of ~8 percent with Upstart-sourced members.
  • Regulatory compliance: A robust regulatory program is non-negotiable. Credit unions must undergo thorough due diligence, with continuous monitoring to demonstrate compliance and reassure regulators.
  • Start small, grow fast: Lock advised credit unions to begin with a strong business case to start small and grow rapidly. This approach allows credit unions to adapt to new technologies without committing to multi-year projects with extended pay-off times.

In a world marked by uncertainty and rapid change, credit unions face a strategic imperative to remain relevant and resilient. Partnering with AI lending platforms not only addresses the challenges posed by the current economic landscape but also positions credit unions as leaders in embracing innovation. By building a strong business case, setting mutual goals and continuously adapting to change, credit unions can navigate the future with confidence while growing members and lending more inclusively.

[1] In an internal study, Upstart compared data on marketplace loans facilitated through the Upstart platform to data on loans originated by other consumer lenders in DV01's Consumer Unsecured Benchmark group. The study considered loans originated during the period from October 2022 - August 2023.
[3] As of October 2023, and based on a comparison between the Upstart model and a hypothetical traditional model. Upstart does not collect demographic data on borrowers. Upstart uses standard industry methodology to estimate borrower demographic status to conduct access-to-credit analysis comparing Upstart to traditional credit model outcomes. For more information on the methodology behind this study, please see Upstart’s Annual Access to Credit results here
[4] Based loans originated on the Upstart platform from Jan 2017 to September 2023. LMI categorization is based on comparing median income in customers zip code vs median income within the MSA of that zip code.

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