Artificial intelligence (AI)-based lending platform Upstart reported triple-digit growth and profits during Tuesday’s third-quarter earnings call, with auto loans growing from “a handful” to more than 4,000 in 47 different states.

The company reported revenue of $228.5 million, up from $65.4 million one year ago. Despite its earnings, however, trading of Upstart’s stock fell 18.2% Wednesday.

CEO Dave Girouard compared the third quarter with Q3 2020, before Upstart’s December 2020 IPO filing.

“While there were 80,893 loans originated on our platform in Q3 2020, which is the quarter prior to our IPO, we facilitated 362,780 Upstart-powered loans in Q3 2021,” Girouard said on the earnings call. “That’s a growth rate of 348%.”

Bank and credit union partners have originated more than 1.5 million loans using Upstart, totaling more than $16 billion in originations, added Jason Schmidt, vice president of investor relations.

The AI platform that underlies the solution’s alternative credit decisioning also grew, processing 17 million repayment events and training on 28 billion cells of data, Girouard said, up from last year’s 9 million repayment events and training on 15 billion cells of data.

Four of the company’s 31 bank partners have dropped all FICO requirements for lending, instead using Upstart’s alternative credit scoring, Girouard said. One bank reported that 59% of its loans are now to black, Hispanic or low-to-moderate-income customers, he added.

“In just a few months, what was perhaps a canary in the coal mine has now become a trend,” Girouard said. “These trailblazers are building businesses that are more inclusive, more equitable and yet, more profitable.”

Streamlining auto refinance

Auto loans offered an area for substantial growth. One year ago, Upstart used to process “a handful” of refinances in a single state. It now processes more than 4,000 auto loans originating in 47 states, the company reported. Girouard said the auto loan process is “at least as inefficient” as the personal loan market.

“As a reminder, the auto lending market is at least six times the size of [the] personal loan market,” he said. “Millions of Americans pay too much for their car loans every month, and I’m sure each would prefer to spend that money on something else, or even better to save it for a rainy day.”

Upstart is working to streamline auto refinance.

“The complexities of liens and titles, as well as a bewildering array of state-by-state processes, fees and regulations conspired to keep Americans trapped in their mispriced car loans,” Girouard said.

The company rebranded its auto loan product to Upstart Auto Retail — formerly Prodigy — during Q3, when Upstart “added an average of more than one rooftop a day,” he said. That tripled the number of dealers on the platform compared to one year ago.

Last week, the first Upstart-powered loan originated through its auto retail software from one of its long-standing dealership partners in the Bay Area, he added.

“It represents the first step toward leveraging AI to rewire and revamp the entire car-buying process,” Girouard said.

What’s next

Upstart is focusing its platform on personal and auto loans, and laid out plans for expanding beyond these capabilities in 2022, including:

• A small-dollar loan product in the range of a few hundred dollars to be repaid within months would help bring the underbanked into the financial system and “likewise accelerate the pace of learning by Upstart’s AI models,” Girouard said.
• Small business loans, which Girouard called a challenge tailor-made for Upstart. “While there is no shortage of credit options to business owners, we aim to deliver the zero-latency affordable credit solution that modern businesses require,” he said.
• Home mortgages. Girouard said the financial crisis of 2008 led to a “seemingly permanent reduction in access to affordable mortgages to the average American.”

The CEO cited an Urban Institute study that found there were 1 million fewer mortgages issued in 2015 as compared to 2001 to those with FICO scores of less than 700. “This is what we call the ‘missing million,’ and from where we stand it’s crystal clear that a huge fraction of these million would-be homeowners is more than credit-worthy and deserve access to an affordable mortgage,” Girouard said. “This is an opportunity that we’re excited about and we’ll begin to invest in significantly throughout 2022.”

Shares of Upstart [NASDAQ: UPST] were trading at $264.92 at 9:28 a.m., up 3.37% as of market open. Market cap for Upstart is $20.4 billion.