Upstart seeks to spread indirect auto loan business in Q2, go national in Q3

Artificial intelligence underwriter and digital auto retail vendor Upstart seeks to facilitate indirect auto lending in four states by the end of this quarter and roll out the capability to dealerships nationally next quarter.

The company reported significant first-quarter gains in auto refinancing volume, the other key element of the auto finance push it planned for 2022.

Upstart estimated in February it would serve as an intermediary for $1.5 billion worth of auto finance volume during 2022. Upstart CFO Sanjay Datta predicted during a Feb. 15 earnings call this figure would draw heavily upon the company's more mature auto refinance business for the first half of the year.

But CEO Dave Girouard told an earnings call Monday the indirect auto business would contribute "meaningfully" to Upstart's monthly transaction volumes by the end of the year. The company would be poised for a "significant ramp in 2023," he said.

"This is one of the most exciting developments in Upstart's history," Girouard said. "You should feel confident that we have a lot of executive attention on getting it right."

Girouard said Upstart has introduced limited indirect finance capabilities into its Upstart Auto Retail software, which was created out of the digital retail platform Upstart acquired when it bought Prodigy in 2021. i

Upstart said 525 dealerships used its Upstart Auto Retail software during the first quarter, a 115-rooftop increase from the fourth quarter. It's also more than double the 199 rooftops it counted in the second quarter of 2021, during which the Prodigy deal closed.

Upstart's auto financing option has been present in "just a handful" of California dealerships, Girouard said. However, Upstart has won those retailers' loans at a rate "far better than anticipated," he said.

"Without question, our early progress in delivering loans through our retail software has exceeded our most optimistic expectations," Girouard said.

Upstart plans to expand this capability to a few dozen dealerships in four states this quarter, putting it before a quarter of the U.S. population, according to Girouard. A national rollout is a goal for the third quarter, he said.

Girouard reported Monday that Upstart facilitated the refinancing of more than 11,000 auto loans during the first quarter, almost double the amount it handled in 2021. It also more than doubled the rate at which refi applicants were approved.

He said the company has launched its first AI model for auto refinance, partially trained by Upstart's own auto lending performance data. He described it as the start of the process for building out the model Upstart views as a primary competitive advantage.

Borrowers refinancing auto loans through Upstart as of Jan. 1 saved an average of $4,800 on the life of the loan, the company said.

Upstart, whose primary business right now is personal loans, doesn't seek to be a lender itself. It makes money by funneling deals to lenders who trust the company's AI to vet borrowers' creditworthiness — and potentially help them scoop up customers whose risk was misunderstood by a traditional underwriting model. Girouard said 11 of the company's 57 lender partners in the first quarter had no minimum FICO score requirement.

Upstart's underwriting decisions often need no human involvement. The company's automated approval rate across all loan applications increased to 74 percent during the first quarter, up from 71 percent a year earlier.