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Cross-selling Members for Long-term Growth · Leaders in Lending

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You're listening to Leaders and Lending from Upstart, a podcast dedicated to helping consumer
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lenders grow their programs and improve their product offerings. Each week, here decision
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makers in the finance industry offer insights into the future of the lending industry,
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best practices around digital transformation, and more. Let's get into the show.
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Welcome to Leaders in Lending. I'm your host Jeff Keltner. This week our
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episode features a webinar conversation between Janel Christensen, who's been a previous podcast guest,
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so welcome back, Janel, and Upstarts Drew Megre. They really dive
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into what is going on at Commonwealth see you, the current state of personal
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lending, how that's changing, how you can use AI and mL to improve
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the lending experience and the lending process for your customers, Strategies for creating high
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quality member experiences, specifically in personal lending. They also delve a little bit
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into auto lending, kind of what are the new things there, how do
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you streamline what can be a cumbersome process in the auto lending space, and
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how you can diversify your portfolio and the value of diversifying your portfolio into shorter
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duration higher yield assets which can be pretty useful in economic situations like the current
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one. So please enjoy this conversation Withdrew and most specifically Janel Christensen. Thanks
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for joining us again. I'm Mike Krakowski. I'm the moderator for today's program.
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Today, we're fortunate to have with us three expert speakers who are going
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to engage in a fireside chat of sorts talking about the key issues here,
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as well as answering questions from our audience at the back end of our program
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as well. Our speakers today include Really Turo, President and CEO of Reading
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Cooperative Than. Julie Thurlow is the president and CEO at Reading, and she
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is responsible for the bank strategic direction and management. Julie also serves as president
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of the RB Charitable Foundation and as vice chair of the American Banking Association.
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She's a past chair of the ABA's Core Platform Council, and she currently serves
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as a member of the Government Relations, Administrative Committee and Membership Council. Who
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is joined today by Phil Bryant, Executive vice president and Chief Banking Officer at
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Reading Cooperative Bank. Prior to joining our CB, Bill spent five years as
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President and CEO of the Cooperative Bank and was the EVP and Chief Lending Officer
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at Georgetown Bank. Over the course of his extensive lending career, full of
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served as Senior Vice president of Retail and Lending at Metro Credit Union, Senior
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Vice president and Small Business State Manager at TD Bank, vice President of Retail
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Banking at Metro West Bank, and Vice President Business Development Officer at Citizens Bank.
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Finally, we're pleased to have with us Ed Walters. Ed is vice
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president of account Management for Lending Partnerships at Upstart. He is over twenty five
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years of financial experience, of financial services and management consulting experience, and it
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has held various leadership roles, driving consumer lending growth and establishing fintech partnerships,
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building pmos to support bank transformations and acquisitions, improving business resiliency, and leading
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technology development. It's all among Julie, Phil and Ed. They have a
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lot of ground to cover, but they have a lot of great ideas.
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So I'm going to turn the program over to our host here and that is
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Ed Walters at Upstart. Ed the floor is now yours. Great. Thank
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you, Mike Into American Banker for hosting us today. So we'll plan for
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about thirty minutes of content and then we'll leave fifteen minutes for Q and A.
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Today it is Mike said, it's gonna be a fireside chat, so
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we want this to be interactive. So as we're having dialogue and asking questions,
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is if you have questions throughout, please add them in the chat and
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we're applicable. We'll try to answer them within the flow. But again and
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we'll leave time at the end. Julie Phil and I really appreciate you just
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taking the time out of your day to be with us, and we hope
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that you find our discussion valuable and relatable to the environment that we're all operating
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in today. So when I begin these, when I do these conversations,
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these fireside chats, what I'd like to do first is for the audience is
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give them an overview of our organization. So the our two organizations that are
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speaking today. So Julian Phil, let me let me ask you guys,
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could you go first and let's share who is Writing Cooperative Bank, and let's
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describe a little bit about the markets you serve for the for the audience.
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If you went mount sure, So Writing Cooperative Bank has been in business since
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eighteen eighty six. We're a mutual organization and for the last ten to fifteen
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years, we've been thinking differently or probably the same about our markets. We
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actually were founded for the working man, and we have really focused ourselves on
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a couple of gateway cities that are in our area, identifying where there is
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need and using a human centered design approach to hear from the customer what their
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challenges are. And their challenge is access to credit and even banking. When
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there are check hashers on every corner in these communities, clearly folks don't have
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access to the full array of financial services that are other markets benefit from.
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So we've really been focused and identified the underserved customer and that's when we started
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working with you, folks. And just to add on to that that,
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I think that as a community bank, pretty much all community banks they have
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that focus on exceptional customer service. But we really tried to take a look
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at what are the needs, what's the competition like out there today, how
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can we how can we combine tremendous or great technology along with customer service to
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create noble hoals efficiencies that you can get from technology, and we are we
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are willing to embrace technology and use technology to improve the consumer outcome. Great,
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well, thank you guys for taking a little bit to give the audience
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an overview. Let me take just a couple of slides and promise this this
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is the extent of our slide presentation today, and it's really just going to
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be about the dialogue. But let me talk about just Upstart for a moment.
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So Upstart is a leading artificial intelligence lending marketplace really that's designed to improve
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access to affordable credit while reducing the risk and cost of lending for our learning
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partners. And so what does that mean? And so, so the thing
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about Start is we're this, we're a marketplace that enables our lending partners to
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acquire new customers that align with the bank's risk appetite, which is which is
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very important. And what it does is we're able to provide our lending partners
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a means to diversify and expand their learning portfolios by growing with asset classes such
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as personal and auto loans. And in particular, we're personal loans are attractive
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right now to our letting partners because they accomplished two things. They're a high
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yield and they're short duration asset, which is which is really important in a
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very volatile environment with with with the rate environment. And then you talk about
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providing access to credit and be able to approve more borrowers, and so how
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we're able to do that is through upstarts AI credit decisioning model, So we
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use over a thousand data points and advanced and machine learning algorithms really to find
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the credit whether credit worthy borrowers that fit into a bank's risk appetite. Right,
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So really the bank themselves defines that that that credit policy and the Upstart
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model is able to fit borrowers into that fine borrowers that meet that expectation,
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and all of it is delivered in a fully modern, all digital experience,
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which which really is is what the consumers is expecting today. So let me
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explain the last size really okay, like how does that? How does that
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work? And so banks can partner with Upstart really on two fronts. There's
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there's the Upstart referral network and then also within a bank's digital infrastructure sometimes referred
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to as ours our white label solution, and there's two sset classes currently that
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Upstart supports. So there's there's a personal loan as well as they're the auto
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loans. So now the referral network, what that does is it allows our
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bank partners to subscribe to our marketplace and really they define on a monthly basis
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what's the desired volume target that they'd like to get as well as kind of
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the core underwriting criteria and economic criteria. And then so then as borrowers are
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coming into upstart dot com, as we're driving kind of as a national marketing
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effort, those borrowers are the match to a single lender that is providing them
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the best rate based upon the capital that's available of where they meet that lending
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partner's criteria. So it's really matching up a benefit to the consumer and a
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benefit to the lending partner right making that connection, and then that borrower becomes
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a customer of the bank, So it's originating on that bank's paper and it's
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becoming a customer, and so it's really an effective tool for driving growth all
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within a bank's economic and risk tolerances. Now, the white label solution that
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is something that's integrated within banks fully branded experience within a banks kind of a
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digital website, and so it's really what that intent is for is to serve
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kind of existing clients or any prospects that are coming to your website, are
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coming into your branches. And with the upstart program, banks have the flexibility
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to either leverage one or both of those solutions. It really depends on what
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your business need is, what are you trying to accomplish Writing, for example,
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actually uses both and we'll be able to talk a little bit about that
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today. So before we go into the discussion, I think everyone's acknowledging that
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the lending environment has changed right a lot over the past eighteen months. Banks
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are monitoring the macro impact on their customers. We're going through a rising rate
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environment. But what hasn't changed is that consumer still has expectations for digital improved
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digital experiences and lending needs exist. And so what's critical right now is for
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a bank is how do you provide that digital experience and support those lending needs
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but really be confident that you're originating loans within the risk tolerance right with just
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a lot of moving pieces. So what we like to do is is before
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we start getting to some of our questions, let's get to know you a
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little bit. And let's start with two polling questions. So let me pull
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up our first polling questions. So this is the audience participation be great.
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So the first question we have is what is the sediment in your organization right
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now? I'm consumer personal lending. This gives us a chance to get a
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sense of or do you have do you offer personal loans today? Did you
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offer how is how is that change your your perspective over the over the past
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year. Okay, I'll give it just a couple more seconds. We're getting
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some It is one more second, all right. I always, I always,
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you know, I was either go too fast right or I take too
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much time. But well, I think we've got enough. Let's switch this
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one. Okay, So interesting, pretty pretty even distribution kind of across the
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categories. Any anything here that surprises any of my fellow panels kind of what
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you would expect. So I actually I'm not surprised, especially at the very
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first first question. When I think about our markets, most people use their
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credit card to day instead of getting a personal loan, even though a personal
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loan is probably easier for them, or what about by now pay later?
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So what is actually replacing the consumer loan? I'm about it, but I
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also think about it, what's what's in the consumer's best interest and we can
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talk about that more later. Yeah, no, that's great. Surprised.
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So the next is is about the digital approach. So what is your organization's
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digital approach to consumer personal ending? Get a sense of you know, your
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consumers still required to come to your to a branch, to to close or
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have you built a digital experience and and that digital experience have you have you
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built on your own or have you looked to partner with with a fintech to
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to provide that experience. Let me pause here for a moment. Okay,
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one more second. All right, let's go to the answers. Okay,
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so so interesting, almost almost fifty percent still required to come into a branch.
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Yeah what any any reaction there? Uh, Julian phil Well, I
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think this is a great opportunity for you to talk about up start. Yeah
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well good, that's when we were too, so it's not surprising at all.
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Not surprising. Yeah, well great, So let's let's actually here.
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Let me do this. I'm gonna just let me just move to this slide
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because really I'm doing more slides, but I'll just leave this up so you
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guys can get everyone can see more of our faces, which is really what
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people want to see. All right, So let's let's jump into the really
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the first question. So I had the audience kind of give us their feedback.
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Could you talk a little bit about reading as far as what are your
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goals? Is it relates to kind of consumer lending and both you can relate
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to personal but just overall consumer lending. How do you look at it from
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from your business goals? So maybe I'll talk about it from more of a
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macro perspective. Community banks have been losing the personal loan business that we've lost
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the auto loan business, we're quickly losing the mortgage business, just because everything
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has become more and more automated. Consumers have their credit card access to so
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many other options as far as credit is concerned. So the reason why we
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looked at the ability to automate is and of course regulators right now are very
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concerned about equable access to credit and financing. However, the consumer loan is
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probably the most expensive to originate as it relates to the return that you're actually
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going to achieve. So unless it's automated, it is actually costing you more
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than you're actually going to make an interest on that short term loan and small
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dollar loan for the bank. But it is what people need. So I
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mentioned earlier that we've actually opened a couple of branches in Gateway cities. And
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what we heard loud and clear as people want credit. They recognize that if
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they want to be successful financially, they need to use credits so that they
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can leverage and get the things that they need so that they can actually achieve
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the next goals and take that additional job, et cetera. So how do
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you actually get money into people's hands, but do it in a profitable way.
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It has to be through automation and in fact consumers And you know it's
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the thing that happens with your kids, right they turn a team, they
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want a loan, They come to you to cosign because they can't get alan
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on our own because they don't have a credit score. But you can't get
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a credit score without having a loan. It's a chicken or egg scenario.
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So just hearing from the folks on the ground, why you know, what
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are your aspirations and what are your challenges you with your banking relationship. Access
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to credit is a huge friction point, So solving for that, and that's
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really what we liked about Upstarts. Your willingness to provide better access to borrowing
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that's not just driven off the credit score, helping us serve existing customers but
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also new customers. And even the fact that your model does adjust to the
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current economic condition and we're still in control of what the rate is, what
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markets we're lending into. We're not a large institution where I mentioned a mutual,
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so we can only leverage our capital so much so we can actually set
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the expectations and what size of a portfolio we want in making sure that we
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deliver for our consumers. First. No, that's so, but I will
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say this just want to add something to it, is that I grew up
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in consumer lending, even though when you look at my resume, I been
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kind of all over the lending world, and I grew up there. And
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I also spent some time at a credit union, and I couldn't understand.
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Credit unions seem to do just a great job with auto lending and consumer lending
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and they figure it out, and why community banks don't play there, I
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never quite got. But certainly having a way to automate that there's a cost
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of doing it. There's a cost of collections as a cost of servicing.
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So trying to solve for those problems was our biggest issue. But it's alf
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solvable, so we just you just have to find the right partner to do
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it. No, great, thanks for your context there. So let's talk
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a little bit about that the consumer. You and you talked a little bit
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about about habits and and different products that that that the consumer is is looking
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at or have available. So is you look at your business, are you
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are you seeing like spending habit changes with your with your with your customers today
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or or even seeing the needs adjust say over the over the past you know,
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twelve to eighteen months. So I would say so during the pandemic,
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we actually saw that consumers had a build up of cash. They weren't actually
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looking for a tremendous amount of credit. Well, if you can't go anywhere,
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and you can't go out to dinner, and so this, but and
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and we offered skip payments for mortgages. So people did have have excess access
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funds in their account. While we are seeing those draw down and we haven't
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yet seen in increasing delinquencies, but we hear from from other areas that there
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are increases in credit card usage and by now pale later, we're seeing a
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fair number of that payments are moving outside of the banking system with Benmo and
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balances our external any consumers have changed their behaviors board expectation of immediate satisfaction and
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so being able to get anything on your mobile device and to be able to
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act when you need to and get access to the things that you need.
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I think that's important to consumers. I mean, I grew up with layaway,
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not me myself. I remember my mom, That's how she saved for
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Christmas. We still offer Christmas clubs. But on the other side of the
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house there seems to be more of a lean towards more more predatory payday loans
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and and I am concerned about the whole buy now, pay later, when
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consumers don't necessarily have a one hundred percent control over their account anymore. I
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do like a personal loan because it is a way to level out monthly payments,
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to be able to plan and prepare so that the consumer is more in
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control, whereas right now it seems like the payment companies are in control and
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just a we are seeing I see it, you read about it in the
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Wall Street Journal, and you're loosing it here with some of our portfolio.
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Is that your credit is being used more, most of its variable rate credit
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cards, as we mentioned, So now people are turning to what can I
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fix that out for three, three, seven years whatever that may be at
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a better rate than they're getting it with the credit card company. So we
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are seeing that credit consolidation starting to happen now as well. Yeah, the
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interest rate. So yeah, when you when you saw as you mentioned it
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right during during COVID, just spending habits. Really we're dictated because they're just
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folks weren't able to spend right, and and then there was just this kind
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of this build up, and I think you's is a lot of a lot
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of bank and credit unique executives I talked to, you know, talking about
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now you're you're seeing You're seeing that, You're seeing the usage go up,
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You're seeing people are out there taking vacations there there, they're all these things
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that was kind of you know, pend up for for a number of years.
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Now is it's kind of it's kind of coming back, and at different
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stages it did different cycles. So definitely interesting times that we're in over these
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uh, these these past couple of years. So that then the leads to
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me to kind of my next question is as is the is the environment is
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changing, and you talked a little bit about you know, consumer expectations.
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We live in this this this Amazon world where you know, I want it
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now and speed, So how do you see the need for data and more
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automation and and and and just the digital experience really kind of impact your approach
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is you're is you're looking at seeing those components is almost almost table stakes,
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I think in some cases of getting into some of these areas. So if
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the consumer loan is your first loan product product or your first experience with with
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term financing, the small dollar consumer loan is hard to justify. I've alluded
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to it earlier. Takes the same amount of work as a home echoy loan,
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but there's no collateral underneath it, which makes it very expensive for the
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consumer but also expensive to originate, higher risk, presumably higher default rates.
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So you need to make sure make sure that this is a prime customer that
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you're lending to, one that's not going to default because there's nothing backing it
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and it all gets written off of the payments don't get made. So scaling
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a product and building a portfolio that provides the return, it can't be ten
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loans and then you lose on one. It needs to be a lot of
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loans that actually drive down the costs. But those a whole host of loans
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requires that you have a department that actually can collect on the loans, that
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can process the loans, that can book the loans. It just is an
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expensive expensive to scale at the community bank level. And to add what you
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said about table stakes, I think from my perspective is if we couldn't do
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this quickly, we couldn't do it easily, app based and be able to
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get fun into them in a relatively short period of times, that I didn't
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want to do it at all, because that's what the experience is with larger
23:04
institutions that they have across the country. Right, So that was really kind
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of a no starter for us. If we couldn't do that, then it
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just wasn't worth going down the road. Well, and that leads us to
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kind of the next question. I mean on just hey, you have expectations
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of how you want to deliver solutions, and it actually it bodes us.
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Someone asked a question about evaluating partnerships, So so thank you for who asked
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the question, because you let into my question Number four is really can you
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talk about your approach to partnerships? And so I think a lot of people
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join these these types of calls to hear from other bank executives on how did
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you approach looking at fintech partnerships? How how you know? What were the
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things that you were evaluating and the processes that you go through as folks are
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thinking about, you know, how do I how do I do this in
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my organization? So for the FinTechs that are actually looking at trying to figure
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out how to make the connection with the bank, it is sometimes it is
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just you know, fortuitous conversations that that just happened. We are looking for
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FinTechs that provide a service that our customers are looking for and not some obscure,
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unrelatable service. It has to be within the banking bandwidth, and for
24:29
us, it has to align with our organizational values. So it has to
24:32
be providing something that is right for the customer. It is not taking advantage
24:34
of the customer. It's fair, it's transparent, and we have to be
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mindful of our bandwidth, so we're not going to be doing ten projects every
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single year. We have to be very intentional about which ones we select.
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Is itself contained? Is it easy to stand up and can it achieve our
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objectives and not just be a one off? Yeah, and the support is
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also helping. That support from from the fintech itself, and that we don't
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know how to stand up something like this, it's foreign to us. We
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need a lot of handholding in the process to be able to say, Okay,
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here's here's some other people to talk to that I've gone through it.
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Here's what other institutions are doing. Now here's you know, this is how
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you've got to deal with your auditors when they come in. Because Julie mentioned
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earlier a lot of appliance around consumer lending, so there's really a we need
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a lot of handholding from the from the fintech, from the partner to help
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us get through that process. But it doesn't just end after we've stood this
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up. Right now, it's going to be let's let's look at this on
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going. Is it performing the way we want to do? We need to
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make tweets with it because again this is our first time going down this road,
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so we need all that help we can get. So you've got to
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make sure that when you're talking to somebody else, if you're getting references,
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that you're digging deep into that support, not just in the beginning but after
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they close and after they stand up the product. Well to that point,
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we also well and to that point, we also need to know that we're
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not betting the bank on something that could actually harm the institutions. So the
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reporting that you actually provide, I know Fiel goes through on a monthly basis
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and reports out the performance of portfolio. We can make make tweaks to it.
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We understand the impacts and and the fact that you do monitor the outcomes
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on an ongoing basis, so there aren't any surprises for us as an institution.
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So again going back to an evaluation, whatever we're doing, it is
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additive to the customer and it is not doesn't create any adverse risk to the
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financial institution. Well, and can you add that coaltry on like the process
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that you have, so when you do you have a standard approval process,
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so to get a fintech approved in your organization, can you can I get
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an described that the steps and there is there certain committees or hot what what
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step did you have to go through to say approve our partnership. Well,
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say, first of it was doing a lot of due diligence and someone the
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one we had to go do that. There's a lot of due diligence you
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had to you know, to talk about what the benefits were. And it's
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with anything you dually said it right before, which is it's gonna be hard
27:25
to get someone's attention at a bank if you are from the fintech world,
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because there's got to be that perceived need from us first and which is which
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starts with our customers. But it really was doing a lot of homework on
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it, checking the references. Like I said before, making sure that check
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the boxes. I had a very clear idea of what, uh, this
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process should look like. What we did not want to do. We did
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not want to build a department, you know, we wanted to have we
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didn't want to put extra stress on our on our loan servicing department. So
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we really tried to have it be as turnkey as well, do everything it
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needed for us and at the end of the day we get a net return.
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So it is making it easy, but we do the due diligence.
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We talk about it at our senior management meeting committees and our meetings. We
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run up by our Board of directors to say, this is what we're thinking
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about doing, and here's a breakdown of how this will all work. So
28:19
that's it's it's a little bit informant, but we do have a vendor review
28:25
process that that we do go through. But I think the bandwidth of the
28:30
organization is also really important to us. This cannot be something that we stood
28:34
up today and it's an MVP that tomorrow is didn't make sense or it didn't
28:41
stand the test, so that that that we have to do it all over
28:47
again. So that is I think the challenge from an innovation perspective is a
28:52
fintech wants to make their first bank partnership, but the bank needs to make
28:56
sure that the fintech actually has the glide path in front of them that's going
29:00
to be there in the future. Because once this product is offered and there's
29:04
an expectation from our consumer that it's there and available to them, we can't
29:08
just pull it from the menu. Well, I think that's a great this
29:14
is not when when we look at success and I've had the opportunity of being
29:19
being sitting in your chairs, uh, you know, in the in the
29:23
in the banking world, making the decisions and then now on now on the
29:29
partner side, you know, we look at these partnerships of successes in one
29:33
month, one quarter, you know, two quarters, right, You're you're
29:37
you're building when you get in a relationship like this and we're we're integrating,
29:41
we're integrating our two organizations together right to serve the needs of the community and
29:45
the consumers that you you know that you're serving. You have to think about
29:49
it, is we want to be celebrating two years, four years, five
29:53
years, ten years, right of of of successful kind of partnership together and
29:57
is there is there the right alignment right with the values of the organizations?
30:03
Are we are we both kind of heading in the right direction of of how
30:06
we're trying to serve the consumer. So it's it's it's it's it's great to
30:10
hear of kind of how you guys, you know, how you guys are
30:11
thinking about it and and and it leads me to kind of this follow up
30:15
and you've you talked a little bit about it, but just pull a little
30:18
more threads because I think it's it's it's it's a good one of just selecting
30:23
the relationship, right that that doesn't end it right there, there's hey,
30:27
there's there's there's high fives of of right, we've we've made a decision when
30:32
you've selected a partner. But then there's there's the ongoing management. Right,
30:36
So there's there's making your continuously working to oversee and and and manage this this
30:44
relationship and to continue to evaluate is it still meeting the expectations, the expectations
30:49
of why did you get in this business in the first place, as well
30:52
as evaluating that are your business school still aligned? So can you talk about
30:56
I think how you are just I'll say that can tinuing monitoring of partnerships to
31:02
just make sure they stay aligned with your expectations? Yeah, you know,
31:07
and your poll question a little earlier, you had something like twenty five percent
31:11
of the audience say that they're concerned about the current environment and that's why they're
31:17
not doing consumer lending. And certainly was a real concern because we were going
31:21
into this process while things were starting to go down Rachel going up, issues
31:25
were starting to happen, and that was a big question for us. But
31:26
we get through a dashboard and I get KPIs on a monthly basis, but
31:32
I can go in anytime like I did before this call, and looked at
31:34
the KPIs to see, Okay, what do we have for delinquency, what's
31:37
our volume, what's our average rate yield? All those types of things,
31:42
and I know we also have ongoing calls. We did one sixty eight weeks
31:47
ago. We talked about, hey, you could be getting more yield fill
31:51
for reading Cooperative Bank if we do some tweaking and still get the type of
31:53
volume that you're looking for. So that was a proactive approach which I appreciated
31:57
from up starts to come up to me and say there's opportunity here, because
32:01
what bank doesn't want to get more yield? Right, So we work that
32:06
out. I think we moved our yield up from a net of all expenses
32:08
of five percent yield to to a seven percent yield, which is not bad
32:13
in this environment. So we also get a slew of reports that I can
32:15
look out on a daily basis to figure out what loans of command and if
32:20
anyone are looking for extensions or modifications, so we can really pick and choose
32:24
and look at this and break it down at a very micro level, which
32:29
gives me comfort. I know, it gives truly comfort to have that information.
32:34
Yeah. I think the other piece that I like is that the option
32:37
of actually just originating a portfolio and also using from a white label standpoint and
32:45
going to market with individual products, maybe marketed in a different way depending on
32:52
what the usage or the appetite might be based on the consumer group that you're
32:55
marketing too, So having that ability to also launch other products in addition to
33:02
making tweaks to the existing based on what you're actually seeing. I also like
33:06
the fact that you're constantly evaluating what data is out there in the marketplace because
33:12
times changed. Right now, we know that consumers belts are tightening, rates
33:15
are rising, costs are rising, and making sure that we're always operating in
33:20
a current environment, not on historic data. Yeah, and you in your
33:24
model and probable mentioned that your model adjusts, uh and and adjust, but
33:30
it's a learning model to incorporate an account for blink, what's these that are
33:37
happening now based upon past approvals, And so because the model learns yours,
33:44
it's current that it's ongoing and it's up to date as learning and making adjustments
33:47
on the fly. Yeah, And I think one of the things I can
33:51
I can add to that is the advantage of of of a of a partnership
33:57
like Upstart to our partners is the scale, meaning that you're benefiting of what
34:05
the model is learning, not just from what you're originating, but you're you're
34:09
getting the whole bandwidth of all the loans that we've originated on the platform.
34:16
So now you start competing almost with the same data as you know what we'll
34:22
say, starting to compete with the trillionaire banks of the amount of data that
34:27
they're processing. All of our lending partners are getting similar scale because of just
34:32
all the capital that's that's that's coming together. And so you're right, the
34:36
model is continuously looking at and you're benefiting from loans other lending partners are originating
34:43
and in the repayment events because the models absorbing all of that to build a
34:46
very broad sense. There was a question here I'll go back to the when
34:52
you're talking about the diligence. Is someone who's asking when you were like looking
34:58
for partnerships, like how did you go to identify who was who was available
35:05
in the marketplace? Was it was? It? Was it conferences you went
35:07
to, was it sites that you went to to do your research? Kind
35:10
of like how did you how did you build I'll say your short list of
35:15
Hey, these are some of the companies we should talk to for the answer
35:20
to the first part, Yes, that's good, it's true. I mean
35:27
the conferences and colleagues. We ended up having a list of I think ten
35:31
companies that we looked at in total. And in fact, the first time
35:36
we looked at Upstart at writing, we actually loved your model, loved what
35:38
you were doing, but it was very early on in up Starts tenure,
35:46
and so we ended up coming back a little bit later when we were ready
35:52
and we could get comfortable. So there's a lot of vendor due diligence,
35:55
finding out who the other institutions that are writing, looking at the behaviors that
36:00
are actually happening. And then just again as I mentioned it, because I
36:05
know there's a few FinTechs that are actually on this call is it might not
36:08
be you, it might be us when when we actually don't engage with the
36:13
fintech because sometimes our bandwidth is what it is you have turnover in your organization,
36:17
you need to bring on even the right leader, or maybe you don't
36:20
have the innovation appetite in your area of the bank at that point in time,
36:24
and bringing on the right chief banking officer that actually has an appetite for
36:30
more innovation might actually be the right spot. Or there it might be,
36:36
as I said, the institution that actually needs to learn how to be more
36:39
innovative. Good good, good dialogue. Let me let me ask about stakeholders,
36:47
because this is something that that I see now. It's it's it's it's
36:52
awesome, you know, having having the CEO so engage that that's a that's
36:58
a that's a that's a pretty important stake or for fill to have working so
37:01
closely. But but can you guys talk a little b about you is your
37:05
organization and is people are looking at these partnerships the kind of the stakeholder committee
37:10
of folks that you need to make sure stay engaged with, you know,
37:16
during the selection process, and then not that they have to be involved on
37:20
a day to day basis, but that that you're keeping i'll say involved,
37:24
whether it's it's quarterly or or monthly and various reviews, and what are some
37:30
of the tactics that you're using to keep your your extended stakeholders engaged. So
37:37
I'd start with saying that when we first started, we had a lot of
37:40
stakeholders. Even though up start manages the bulk of the program for it's getting
37:45
it up and running, making sure that the fund transfers happened. We had
37:50
accounting involved, we had it involved. We had just hired a new what
37:58
they call it they not a product manager, but the project manager, Trevor,
38:07
thank you, project manager who kept us all on track because there were
38:10
a lot of moving pieces and you folks were moving pretty quickly and kept us
38:16
on track. And so we had all those you have to meet on a
38:20
regular basis in the beginning, on a weekly basis, make sure you're hitting
38:23
all your road your stops in the road, and making sure you're you're you're
38:28
on track. And so that was a big part of it. Getting the
38:30
board is involved, you know, having those reports to the board as we
38:32
start getting to launch and what we're hoping to do and here's the the KPIs
38:38
we're looking to attain, and then having to keep them informed on a going
38:44
a quarterly basis. We just started doing this because this relatively new program for
38:47
us is showing them the KPIs here's the growth, here's the delinquency that we're
38:52
seeing. Here's here's you know, a lack of delinquency that we're seeing.
38:57
So we keep them involved with quarterly reporting there as well and tying that back
39:01
to what what we presumed at the very beginning when we actually went to the
39:07
board for approval of the product. So this is the return when we're expecting.
39:09
This is a return we're getting. This is what we anticipated the deliquency
39:13
we're great to be and here it is at this you know, and just
39:16
you know, confirming that what we expected to happen and and setting that threshold
39:22
for how much you're going to originate per month and then seeing that the things
39:27
that you expected to happen did happen is the thing that gives you the competence
39:31
to continue to move forward. And it is truly a partnership. Yeah.
39:35
And what's good for him to remember is when you when you launch a product,
39:40
particularly say say personal loan that that say bank may not be offering today
39:46
or is offering very small, you may think, oh, this is this
39:50
is a, this is a small product in our in our total asset class,
39:53
I don't need all the stakeholders. And I think that's where some folks
39:58
sometimes I see get upside down we're because then they end up maybe having more
40:02
challenges throughout their program because not getting the right in people engaged at the very
40:09
beginning and they don't have to be involved in at all the time. And
40:13
I think Bill, as you talked about, you start with you cast a
40:15
good net, You get the right people there that are helping make a decision,
40:19
and then you determine who's got to be part of it to run the
40:21
day to day, and then keep those those those ancillary stakeholders updated on a
40:27
regular basis so that just they're seeing that the program is growing, it's being
40:30
managed, it being oversight because then you know that comes back to the regulators
40:37
and as you're as you're presenting the regulators about partnerships, you're able to describe,
40:40
Hey, here's how the organization is staying engaged. So let's let's go.
40:45
Actually, when you're talking about our existing portfolio, we were writing very
40:51
few consumer loans, and we were writing them that eighteen percent interest rate.
40:54
So the only person that took them is a person that was desperate, and
40:58
so we actually understand so that we had losses in that portfolio because we were
41:01
providing these high rate loans to people that were desperate, because they clearly they
41:07
would have used their credit card if they could. So in this situation,
41:10
we're instead writing loans to people that are using personal loans for a purpose and
41:15
they're paying them back, and so we have better performance of the portfolio,
41:20
but the consumers also getting a better experience because the rate is more beneficial to
41:25
them. O. Great, So you mentioned a little bit about the partnership
41:34
that you use both the earn the Upstart referral network for new new customers as
41:39
well as you use the white label to stand alone, you know, off
41:44
your website for your your your existing customer base. So can you talk a
41:49
little bit about the decision of like how are you, how are you looking
41:53
and leveraging both products and the perspective to kind of kind of leverage both versus
42:00
to the other. Well, I think that we wanted to have something to
42:05
offer to our customers because as truly mentioned, we didn't really have anything in
42:10
the consumer lending area. We priced it at such a point where it really
42:14
wasn't competitive, and so we want to be able to have a link on
42:17
our website where we hite label this it looks like our product. It shows
42:22
up with the Reading logo on it when you go into the app, when
42:24
you click through, and experience for the customer that it seems like us.
42:29
It seems like reading. They can get approved and seconds, they get their
42:34
money next day, and so it's a really good experience. And we wanted
42:37
that, but we didn't think there was going to be enough volume there.
42:39
But we did want that customer experience. And so we also did the marketplace
42:44
so that we would be able to define an area that we wanted to do
42:47
business in and then I'll start with would market in that area, and if
42:53
loans came up that fit our criteria, our credit criteria which we developed from
42:58
the beginning, then we would get those wells. So you know, at
43:00
the end of the day, we do we do about a million dollars a
43:04
month only because that's our choice. That's the limit. That's how much we
43:07
want to do. We could certainly do more if need be. Yeah,
43:12
and I think actually you answered you answered one of the one of the questions.
43:15
I think someone was asking the volume that you're looking to do on an
43:20
annual basis, and then I think the other question I saw was and it
43:23
kind of feeds into about the controls. So when we talk about your your
43:29
footprint here, when you think about the controls you have to manage the program
43:34
and so that you know what what you're able to define, what changes you're
43:37
able to make to ensure that the program's staying within your your risk tolerance?
43:43
Can you can you talk about that and even talked a little bit about the
43:45
controls on from a from a footprint standpoint. Sure. So you know,
43:52
when we started the setup of the program, one of the first things we
43:54
do we had a worksheet and say, okay, what are we willing to
43:57
do? Do you want to if they have a if they have a bankruptcy
44:00
is an automatic note? What's your bottom line credit score that you're willing to
44:04
accept, what's your bottom line debt to income that you're willing to have.
44:07
So there's controls. There is a number of questions we go through to determine
44:10
just how deep and how much risk we want to take. And so we
44:15
put that in place and then let's start works within that. You guys come
44:20
in and you tell us be based upon based upon the controls you have in
44:23
place in the market you define, which we define as Massachusetts in southern New
44:28
Hampshire because we're in the northern we're between you know, New Hampshire and Boston,
44:34
and so within that they'll say, well, there's a based upon carent
44:37
volume, there is a nine million dollars a month market opportunity, and so
44:43
we can and the tighter we make that criteria, the smaller that market opportunity
44:47
would become for us. So we determined once we hit a million dollars,
44:53
stop for us, stop doing it, stop marketing us. And the way
44:58
it's worked, and I appreciate it's done this way, is that it's not
45:00
a million dollars in the first five days. It's spread out basically evenly over
45:07
the course of a month that we slowly work up to a million dollars.
45:10
And I think we have something like that seven or eight million dollars portfolio now
45:15
from what was probably a two hundred and fifty thousand dollars portfolio. And I
45:21
think I'll add to I think there was another question about you know, does
45:24
does the does the does a borrower? One hundred percent, you know,
45:30
get the get the lowest rate, and and and the and the answer is
45:34
is the borrower gets the lowest rate based upon the capital that's available. And
45:38
so that's kind of what what what Phil had shared is, you know,
45:42
Phil happens to have the lowest rate in the on the platform. All of
45:45
Phil's capital just doesn't get used up at at you know, at midnight or
45:51
twelve oh one am on June first, Right, So so there's it is.
45:54
It is it is smoothed out throughout the month so that the lender can
46:00
be paced and that also we're we're ensuring that that the best rates are available
46:05
as as as much as possible throughout the month for for for all the concert
46:09
company of the program. So hopefully that answered the question that we had in
46:14
the in the chat. So let's talk a little about you know, if
46:19
you're if you're we saw that fifty percent of the folks aren't doing personal lending
46:22
today and it may not have a partnership today, So a lot of those
46:27
folks are probably considering is now a good time to get in a fintech partnership
46:31
or not? Like, how how would you why would you think now would
46:35
be a good time or not. But too, why would you think it
46:38
would be a good time to move forward and think about a partnership. Well,
46:44
you just heard from Phil how how we've made our decision that will enter
46:50
in and we'll do it slowly in a methodical way so that we're constantly investing,
46:53
and so their short term loans they will pay off in short time.
46:58
So just like you, we we lived through cycles. But I would actually
47:02
say right now, the consumer is going to have more demand than they did
47:07
during the pandemic. During the pandemic they were flushed with cash. They didn't
47:12
have an appetite or the trips or the travel for for other things. So
47:15
I think there will be more appetite at this moment. But I also think
47:21
the fact that the market constantly adjusts to the credit conditions that are there also
47:29
mean that that a late, well later plan will actually mitigate risks. Right.
47:37
I think everyone's finding it's a tough market to hire people, and so
47:44
when you can find an end to end solution where you're not having to add
47:46
staff and replace staff as they leave, it makes it much easier for us
47:53
to manage. So the short answer your question, is it a good time
47:57
to to partner with a fine definitely, particularly if you can streamline a process,
48:04
make it very efficient and uh and not have to deal with those ongoing
48:08
issues with staff and employees and building an apartment that may walk out a new
48:14
proportions may walk out a new a period of time. So certainly from that
48:16
perspective, it's it's key as well. Well. And I think we're if
48:22
we look at what our goal is as an organization is you know, we're
48:27
a technology company that that we feel we do what we do really well,
48:32
right is enabling access to credit and really helping define true risk and writing does
48:39
what you do really well as far as is you know, being a financial
48:44
institution, be able to be able to serve the needs of your community.
48:47
And I think that partnership then allows us to bring the expertise from both our
48:52
organizations into your right where Phil, it's it's you know, many organizations don't
48:59
don't have the capacity to take on all these other abilities, right, all
49:04
these other tasks, and so how do you how do you focus on what
49:07
you do really well and then you find partnerships with folks that align with that
49:12
with your goals and then together really provide those services that your consumers need well.
49:17
And I think that's one of the things that we liked about Upstart as
49:22
compared to competitors is the fact that you are intentionally trying to get credit into
49:28
more hands by recognizing that there are other values behind credit beyond credit score to
49:34
determine some whether or not somebody has the attributes to pay a personal loan or
49:37
an auto loan on a timely basis, and the fact that you have opened
49:42
that up further recognizing that with a six eighty credit score there are a lot
49:47
more people are that actually qualify or there are a lot less people that are
49:53
going to default on the loan, and being able to figure out who the
49:57
eighty percent are that will never never to fault and make sure we give broader
50:01
access into the community so that alignment with what your organizational values end. Even
50:08
what you're doing with the more than Fair initiative, I think is to be
50:10
commended. No, thank you, thanks for bringing it up, and maybe
50:15
I just get a comment on that for for folks and aren't familiar, is
50:20
you know we're part of this more than Fair and if anyone's interested in googling
50:23
and it's it's it's just the website is more than fair dot com and it's
50:30
it's really it's a community of organizations both made up of technology organizations, our
50:37
bank partners, other consumer advocacy groups that are all dedicated to improving access to
50:45
you know, affordable credit and inclusive lending. And and really that the idea
50:51
is is that a lot of us all are trying to solve this problem,
50:54
and so how do we kind of scale our our interest together as far as
51:00
everyone's trying to solve this And so it really makes it a much stronger i'll
51:04
say, advocacy for creating change, working with regulators, all these types of
51:10
things, of all these partners together, so not just an upstart thing,
51:14
but all of these groups, all of our letting partners like yourselves that are
51:19
that are advocates, advocates and participants of it. Of really how do we
51:23
enable more in our communities to get access? And so the final question I
51:28
have and we've got some time left for for some additional Q and A that
51:32
I've seen the in the in the boxes, But so what's next, Like
51:37
what are you looking forward to? What's what's exciting you over the next you
51:43
know, twelve to twenty four months at Reading, So so we're looking forward
51:51
to tailoring more products. So first of all, we actually need to and
51:54
that's our next step is figuring out the new customers that are coming to us
51:58
through this product and out how we can turn them into Reading depositors, turn
52:04
them into expanded relationships at Reading Cooperative Bank. So that's that's the first thing.
52:07
Further automation of our processes again, figuring out what the customer needs next,
52:15
and continuing our digital transformation. We actually mentioned before, we're now in
52:20
two gateway cities in Massachusetts. There those two cities provide us about two hundred
52:23
thousand more consumers, and so having this product on our menu and available to
52:29
those consumers allows us to meet consumer needs in these in these broader markets.
52:34
So we're excited what the future has for us and for YouTube and also right
52:38
i'd love to one way that we can do a similar type product of what
52:44
you have in the small business world. We can figure that one out,
52:46
that would be nice, and that's something we're looking at certainly, and I
52:50
think July alluded to it earlier. There's we have certain ideas on how we
52:53
take this product, take take up start and maybe be able to to slice
52:58
it and dice it to be more direct marketing towards certain groups out there versus
53:05
just having it as a consumer loan created and package it differently. So we're
53:09
looking forward to doing that as well. Well. We uh we we welcome
53:15
the creativity in the in the idea generation and see what you know, what
53:19
what what the future head holds. So let me we've got a little bit
53:22
of time for questions, and there's there's there's kind of kind of like I
53:24
think there's a there's a couple of questions that maybe we can answer together.
53:30
And I'll start off and then have you guys add is there's there's been a
53:32
number of questions about like model, model governance, getting comfortable with with using
53:38
a third party model in the in the queue and and I'll start with so
53:43
one of the things that that Upstart does is is I mean we have we
53:46
have our own internal risk management organization and and and and risk disciplines, we
53:52
have model we have model governance team, and then we actually use a third
53:57
party on top of our own internal testing, but we use a third party
54:00
to do model validation and model testing and and those types of things are data
54:07
and information that then we provide back to our lending partners as well as other
54:13
model oversight docs and and other information that that we can share as part of
54:20
our own oversight. But then it feeds into what the what the lending partner
54:23
has available in their own kind of model oversight, and then when they're talking
54:28
to the to the regulators, could you guys talk a little bit about just
54:31
as you know, using a third party with a you know, with with
54:37
a with a model, just what you did to get comfortable and the kind
54:42
of the the oversight there. Well, I can tell you well, first
54:46
we talked to a lot of several of your customers and did reference checks on
54:52
that. But most importantly, shortly after starting the program, we had our
54:57
external internal auditor I guess, do a review of the program and there was
55:02
a lot of questions and it's certainly the one I want to say it was
55:07
challenging at first was they have all the questions, you have all the answers.
55:10
So what was what worked out really nicely is we found and I wish
55:14
I knew her name, a woman who works for you who had all the
55:19
answers and she got on the phone directly with the person who was doing the
55:24
review from our auditing company, and they got all their answers, they really
55:30
didn't find anything. The couple of things I think, you know, maybe
55:32
I sent you a while back that where just had to do with the signing.
55:37
That was just amount of opinion. But it was nice. We did
55:40
that intentionally because we wanted to make sure even though we had a good comporal
55:45
level going in with partnership, we wanted to make sure that our auditors looked
55:49
at it and that they were good with it as well. So we passed
55:52
that audit. It just happened maybe forty five days ago. Well, and
55:55
I think Upstart also did a lot of leg work as well, making sure
56:01
that they went to the regulatory bodies and went over their model, and you
56:06
were pretty transparent about that, and I think your willingness to be transparent with
56:09
regulators and with us goes a long way to having having access to that data.
56:15
Someone else also had a question about APIs that this is not an API
56:21
enabled products that connects to our core and so that also is what makes it
56:27
easier to stand up for us as NFI. No great. Well, I
56:32
know, coming up to the top of the hour, and I try to
56:36
answer as many questions throughout the dialogue, and I know there's many we still
56:39
didn't get a chance to get to. So if if folks have have further
56:44
questions that we weren't able to get to, please reach out. There's some
56:49
some contact information as well as is my email address, Ed Walters at upstart
56:54
dot com. We've more than happy to have follow ups if there's if there's
56:59
something we didn't answer, and what before I turn it back to Mike.
57:05
Just you know, thanking Julian Phil for the engaging dialogue. An hour goes
57:12
by quick when when you're when we're when you're having fun, so I really
57:15
appreciate the time and I feel hopefully folks learned a lot today from from talking
57:21
with three of us. So Mike back to you. Okay, Thanks Ed,
57:25
and thanks to Julian Phil for your insights and for being so generous with
57:31
your ideas and recommendations. Ladies and gentlemen. That does conclude today's program.
57:37
We're gled you could take time out of your day to learn more about this.
57:40
We hope that you'll join us for future with seminars brought to you by
57:44
American Banker and its partners and once again we do want to acknowledge and thank
57:47
up Start for sponsoring today's program. We greatly appreciate their support. So on
57:52
behalf of American Banker as well as Upstart and your presenters, Thank you all
57:58
for joining us, ladies and gentlemen. Upstart partners with banks and credit unions
58:02
to help grow their consumer loan portfolios and deliver a modern, all digital lending
58:07
experience as the average consumer becomes more