Axos Bank is expanding its credit box to include subprime borrowers through a partnership with automation fintech Open Lending that allows the lender to monetize losses.

The partnership, which went live in March on the bank’s direct auto channel and was rolled out on its indirect channels in May, reduced the lender’s FICO floor from 700 to 560, Anthony Capizzano, senior vice president of direct consumer lending at Axos, told Auto Finance News. The move was part of the bank’s strategy to deepen relationships with existing customers while also acquiring new customers, he said.

“Basically, Open Lending is an insurance product, and what they usually do is partner with lenders that want to monetize their declines,” Capizzano said.

When Axos Bank declines a contract, it is automatically sent through an API to Open Lending before sending the dealer or consumer a decline letter, Capizzano said.

“Within 10 seconds, Open Lending comes back with, ‘here’s what we think the rates should be, here’s what we think the credit parameters should be,’ and we buy the loan off those parameters,” Capizzano said. “The reason we do that is because [Open Lending] insures on average 85% of the net losses.”

Axos Bank pays Open Lending a premium for each contract originated using the fintech’s parameters, as well as a monthly insurance premium. The bank does not price the cost of the premiums into the contracts. “We just price for the risk,” Capizzano said.

Origination volume has quadrupled from February to May, and portfolio yield has been climbing as loan-to-value, payment-to-income and debt-to-income ratios have remained consistently low, Capizzano said, although he did not provide specific figures.

Axos first piloted the program for six months between 2018 and 2019 in three states in the western U.S., Capizzano said. “We had a myriad of starting points. Sometimes we went down to [Fico] 640, sometimes we went down to [Fico] 600 to test out the different return rates.”

Default rates during the pilot remained less than 1%, which resulted in a total net loss of less than $800, Capizzano said, although he acknowledged current market conditions were likely pushing that figure down.

“Used-car market was inflated a little bit, so we expect that number to be higher,” Capizzano said.

The move into subprime is part of the bank’s larger strategy to expand its auto offering, Capizzano explained. In February, Axos inked a direct-lending partnership with online used-car retailer Carvana that redirects the bank’s direct loan applications to Carvana’s website.

Austin, Texas-based Open Lending provides loan analytics, risk-based pricing, risk modeling and automated decision technology to auto lenders, according to its website. The fintech went public in January through a reverse IPO valued at $1.3 billion with a special purpose acquisition company created by San Francisco-based investment firm True Wind Capital Partners. Shares began trading on the Nasdaq at $10.30 and have since grown 324.87% to $41.06 as of 12:45 p.m. ET. The company has a market capitalization of $5.17 billion.

Axos is a digital bank with assets of $14.4 billion and had a managed auto portfolio of about $269 million as of year-end 2020.