Digital retail provider and AI auto loan underwriter Upstart is poised for significant growth this year, predicting it would serve as an intermediary for $1.5 billion worth of auto finance volume during 2022.
"We have enough confidence to put a real number out there," CEO Dave Girouard said on an earnings call Feb. 15.
The $1.5 billion in auto loans predicted for 2022 would be an increase from a 2021 volume that wasn't reported because it was too low to be material for the publicly traded Upstart, according to Jason Schmidt, investor relations vice president. The company has been referring auto loans and helping partner lenders rate such loans since only September 2020, starting with refinancing and then expanding to indirect lending.
"We now have the confidence to invest the resources necessary to unleash the model and technology improvement in auto lending that made Upstart the category leader in personal lending," Girouard said.
Upstart CFO Sanjay Datta declined to break down the proportion of refinanced and indirect auto loans within the $1.5 billion estimate during the call.
However, he said the more mature refinancing business would drive auto volume during the first half of the year. Customers refinanced about 5,800 auto loans through Upstart.com in 2021.
The retail business of indirect loans originated at dealerships was at a "much earlier stage," Datta said.
Michia Rohrssen, vice president and general manager of Upstart Auto Retail, told Automotive News that Upstart began to pilot indirect auto loans in November. But a large-scale rollout would take place this year, he said, calling the initiative the "future of Upstart."
Upstart also seeks to grow usage of the digital Upstart Auto Retail platform in 2022, according to Rohrssen. The platform was associated with nearly $4 billion in vehicle sales last year. The company launched a mobile-optimized version of the software in March.
Upstart Auto Retail was formerly Prodigy, which Upstart acquired in April 2021. Rohrssen was a Prodigy co-founder. The acquisition brought some retailers to Upstart, but the company's dealership ranks have swollen since then.
Upstart worked with a network of 199 dealerships during the second quarter of 2021. In the fourth quarter, that had more than doubled to 410.
"Similar to Upstart.com, we expect Upstart Auto Retail to become an important aggregator of [loan] demand," Upstart wrote in a government filing.
The company announced last month that Upstart Auto Retail had been certified as Subaru's first "Build and Price" provider and was added to the ranks of Volkswagen's preferred digital providers.
Rohrssen said dealerships have been choosing Upstart loans for customers at eight times the rate it expected.
"We had big hopes," he said, but the result was "significantly more."
Upstart's artificial intelligence looks at variables beyond traditional factors such as credit score, with the goal of helping indirect and refinancing lenders approve more loans with less risk. In addition to auto loans, the company facilitates personal loans and credit consolidation, playing a role in an overall $11.75 billion worth of borrowing in 2021.
Rohrssen said dealers are surprised because Upstart's underwriting is "fundamentally different" from the norm. Sometimes, the rate offered is much worse than a traditional lender, but often, it's much better, Rohrssen said. Upstart often finds it is the only lender to have approved the customer for credit, he said.
Upstart also makes decisions in less than a second, according to Rohrssen, who said rivals average 30 to 50 minutes for approval. The company reported a 69 percent automatic approval rate across all of its loan types in 2021.