Latest / Leaders in Lending / Partnering With a Fintech to Diversify in Challenging Times

Transcript

Partnering With a Fintech to Diversify in Challenging Times · Leaders in Lending

0:02
You're listening to Leaders and Lending from Upstart, a podcast dedicated to helping consumer
0:07
lenders grow their programs and improve their product offerings. Each week, here decision
0:13
makers in the finance industry offer insights into the future of the lending industry,
0:18
best practices around digital transformation, and more. Let's get into the show.
0:26
Welcome to Leaders in Lending. I'm your host Jeff Keltner. This week,
0:29
I'm bringing you a conversation between Julie Thurlow, the president CEO of Running Cooperative
0:34
Bank and Upstart to own ed Walters. This was recent webinar, but we
0:38
thought it was worthwhile as content for the podcast as well. Julian ed talk
0:42
about overview of the current economic landscape, how to deliver differentiated, personalized lending
0:47
experiences to meet the expectations of modern customers, best practices for integrating fintech partnerships
0:54
into a community banks lending strategy, and really focusing on expanding access to credit.
0:59
I'm going to use those partners to better serve your customers, to serve
1:02
more customers, and how do we think about managing those effectively in the current
1:06
environment. So I hope you enjoyed this conversation with Ed and most specifically Julie
1:10
Thurlow from Writing Cooperate Bank. I'm Mike Krakowski. I'm the moderator for today's
1:18
program. We're very pleased that you could spend some time with us, take
1:22
some time out of your busy day to learn more about our topic, partnering
1:26
with a fintech to diversify and serve customers in turbulent economic times. Before we
1:32
go any further, I do want to take a moment to thank and acknowledge
1:34
Upstart for sponsoring today's program. We appreciate their support. Today, we're fortunate
1:42
to have with us three expert speakers who are going to engage in a fireside
1:46
chat of sorts, talking about the key issues here, as well as answering
1:51
questions from our audience at the back end of our program. As well our
1:57
speakers, they include Julie Thurrow, President and CEO of Reading Cooperative Bank.
2:06
Julie Thurlow is the president and CEO at Reading and she is responsible for the
2:10
bank strategic direction and management. Julie also serves as president of the RCB Charitable
2:15
Foundation and as vice chair of the American Banking Association. She's a past chair
2:22
of the ABA's Core Platform Council, and she currently serves as a member of
2:25
the Government Relations, Administrative Committee and Membership Council. Jolly joined today by Phil
2:31
Bryant, Executive Vice President and Chief Banking Officer at Reading Cooperative Bank. Prior
2:38
to joining RCB, Bill spent five years as president and CEO of The Cooperative
2:44
Bank and was the EVP and Chief Lending Officer at Georgetown Bank. Over the
2:49
course of his extensive lending career, Full has served as Senior Vice president of
2:52
Retail and Lending at Metro Credit Union, Senior Vice president and Small Business State
2:58
Manager at TD Bank, vice President of Retail Banking at Metro West Bank,
3:02
and Vice President Business Development Officer at Citizens Bank. Finally, we're pleased to
3:08
have with us Ed Walters. Ed is Vice President of account Management for Lending
3:14
Partnerships at Upstart. He is over twenty five years of financial experience of financial
3:20
services and management consulting experience, and it has held various leadership roles, driving
3:24
consumer lending growth and establishing fintech partnerships, building pmos to support bank transformations and
3:30
acquisitions, improving business resiliency, and leading technology development. It's all among Julie
3:38
Phil and Ed. They have a lot of ground to cover, but they
3:40
have a lot of great ideas. So I'm going to turn the program over
3:44
to our host here and that is Ed Walters at Upstart. ED. The
3:49
floor is now yours. Great. Thank you Mike in Too American Banker for
3:53
hosting us today. So we'll plan for about thirty minutes of content and then
3:58
we'll leave fifteen minutes for you and a Today it is Mike said, it's
4:01
it's gonna be a fireside chat, So we want this to be interactive.
4:05
So as we're aving dialogue and asking questions is if you have questions through OUTE,
4:10
please add them in the chat and we're applicable. We'll try to answer
4:14
them within the flow. But again we'll leave time at the end. Julie,
4:16
Phil and I really appreciate you just taking the time out of your day
4:19
to be with us, and we hope that you find our discussion valuable and
4:25
relatable to the environment that we're all operating in today. So when I begin
4:29
these, when I do these conversations, these fireside chats, what I'd like
4:31
to do first is for the audiences give them an overview of our organization.
4:36
So there are two organizations that are speaking today. So Julie and Phil,
4:41
let me let me ask you guys. Could you go first and let's share
4:44
who is Writing Cooperative Bank, And let's describe a little bit about the market
4:47
you serve for the audience if you went mine, sure. So Writing Cooperative
4:54
Bank has been in business since eighteen eighty six. We're a mutual organization and
5:00
for the last ten to fifteen years, we've been thinking differently or probably the
5:03
same about our markets. We actually were founded for the working man, and
5:10
we have really focused ourselves on a couple of gateway cities that are in our
5:15
market area, identifying where there is need and using a human centered design approach
5:19
to hear from the customer what their challenges are. And their challenge is access
5:25
to credit and even banking. When there are check hashers on every corner in
5:29
these communities, clearly folks don't have access to the full array of financial services
5:33
that are other markets benefit from. So we've really been focused and identified the
5:40
underserved customer, and that's when we started working with you, folks. And
5:46
just to add that, I think that as a community bank, pretty much
5:53
all community banks they have that focus on exceptional customer service. But we really
5:57
tried to take a look at what are the needs, what is the competition
6:00
like out there today? How can we how can we combine tremendous or great
6:06
technology along with customer service to create no those efficiencies that you can get from
6:13
technology. And we are yeah, we are willing to embrace technology and use
6:19
technology to improve the consumer outcome. Great, Well, thank you guys for
6:27
taking a little bit to give the audience an overview. Let me take just
6:31
a couple of slides and promise this This is the extent of our slide presentation
6:36
today and it's really just going to be about the dialogue. But let me
6:40
talk about just Upstart for a moment. So Upstart is a leading artificial intelligence
6:46
learning marketplace really that's designed to improve access to affordable credit while reducing the risk
6:51
and cost of learning for our learning partners. And so what does that mean?
6:56
And so, so the thing about Start is we're this, we're a
6:58
marketplace that in ables our lending partners to acquire new customers that align with the
7:03
bank's risk appetite, which is which is very important. And what it does
7:10
is we're able to provide our lending partners a means to diversify and expand their
7:15
learning portfolios by growing with asset classes such as personal and auto loans, and
7:20
in particular or personal loans are attractive right now to our learning partners because they
7:26
accomplish two things. They're a high yield and they're short duration asset, which
7:30
is which is really important in a very volatile environment with with with a rate
7:35
environment. And then you talk about providing access to credit and be able to
7:41
approve more borrowers. And so how we're able to do that is through upstarts
7:46
AI credit decisioning model. So we use over a thousand data points and advanced
7:51
a machine learning algorithms really to find the credit whether credit worthy borrowers that fit
7:58
into a bank's risk cappatite right, So really the bank themselves defines that that
8:03
that credit policy, and the upstart model is able to fit borrowers into that
8:09
fine borrows that meet that expectation, and all of it is delivered in a
8:15
fully modern, all digital experience, which which really is is what the consumers
8:20
is expecting today. So let me explain the last size really okay, like
8:24
how does that? How does that work? And so banks can partner with
8:30
Upstart really on two fronts. There's there's the Upstart referral network and then also
8:35
within a bank's digital infrastructure sometimes referred to as as our white label solution,
8:39
and there's two asset classes currently that Upstart supports, So there's there's a personal
8:43
loan as well as they're the auto loans. So now the referral network,
8:48
what that does is it allows our bank partners to subscribe to our marketplace and
8:54
really they define on a monthly basis what's the desired volume U target that they'd
9:00
like to get, as well as kind of the core underwriting criteria and economic
9:03
criteria. And then so then as borrowers are coming into upstart dot com,
9:09
as we're driving kind of as a national marketing effort, those borrowers are the
9:15
match to a single lender that is providing them the best rate based upon the
9:18
capital that's available of where they meet that lending partner's criteria. So it's really
9:24
matching up a benefit to the consumer and a benefit to the lenning partner right
9:30
making that connection, and then that borrower becomes a customer of the bank,
9:33
so it's originating on that bank's paper and it's it's becoming a customer, and
9:39
so it's really an effective tool for driving growth all within a bank's economic and
9:46
restolerances. Now, the white label solution that is something that's integrated within a
9:50
banks fully branded experience within a banks kind of a digital website, and so
9:56
it's really what that intent is for is to serve kind of existing clients or
10:01
any prospects that are coming to your website, are coming into your branches.
10:07
And with the upstart program, banks have the flexibility to either leverage one or
10:11
both of those solutions. It really depends on what your business need is,
10:15
what are you trying to accomplish. Reading, for example, actually uses both
10:20
and we'll be able to talk a little bit about that today. So before
10:24
we go into the discussion, I think everyone's acknowledging that the learning environment has
10:28
changed. Right a lot of the past eighteen months, banks are monitoring the
10:33
macro impact on their customers. We're going through a rising rate environment. But
10:39
what hasn't changed is that consumer still has expectations for digital improved digital experiences and
10:46
lending needs exist. And so what's critical right now is for a bank is
10:50
how do you provide that digital experience and support those lending needs, but really
10:56
be confident that you're originating loans within the risk tolerance right with with just a
11:00
lot of moving pieces. So what we like to do is is before we
11:03
start getting to some of our questions, let's get to know you a little
11:07
bit, and let's start with two polling questions. So let me pull up
11:11
our first polling questions. So this is the the audience participation would be great.
11:15
So the first question we have is what is the sediment in your organization
11:20
right now? I'm consumer personal ending. This gives us a chance to get
11:24
a sense of or do you have do you offer personal loans today? Did
11:28
you offer how is how is that change your your perspective over the over the
11:35
past year. Okay, I'll give it just a couple more seconds. We're
11:46
getting just one more second, all right. I was I always you know,
12:01
I was either go too fast or I or I U I take too
12:05
much time. But well I think we've got enough. Let's switch this one.
12:09
Okay, So interesting, pretty pretty even distribution kind of across the categories.
12:18
Any anything here that surprises um, any of my my fellow panels kind
12:28
of what you would expect. So I actually I'm not surprised, especially at
12:31
the very first first question. Um, when I think about our markets,
12:37
Um, most people use their credit card to day instead of getting a personal
12:39
loan, even though a personal loan is probably easier for them. Or what
12:43
about by now pay later? Um? So what is actually replacing the consumer
12:46
loan? I'm about it, but um, I also think about it.
12:50
What's what's in the consumer's best interest? Um? And we can talk about
12:52
that more later. Yeah, no, it's great. Yeah, I'm not
12:56
surprised. So the next is is about the digital approach. So what is
13:05
your organization's digital approach to consumer personal ending? Get a sense of you know,
13:11
our consumer is still required to come to your to a branch to close
13:16
or have you built a digital experience and and that digital experience have you have
13:22
you built on your own or have you looked to partner with a with a
13:26
fintech to to provide that experience? Let me pause here for a moment.
13:43
Okay, one more second. All right, let's go to the answers.
13:50
Okay, so so interesting. Almost almost fifty percent still required to come into
13:54
a branch. Yeah, what any any reaction there? Uh? Really infilled?
14:01
Well, I think this is a great opportunity for you to talk about
14:03
up start. Yeah. Well good, that's what we were too, so
14:09
it's not surprising at all. Not surprising. Yeah, well great, So
14:13
let's let's actually here. Let me do this, let me I'm gonna just
14:16
um, let me just move to this slide because really I'm doing more slides,
14:20
but I'll just leave this up so you guys can get everyone and see
14:22
more of our faces, which is really what people want to say. Um,
14:26
all right, so let's let's jump into the really the first question.
14:30
So I had the audience kind of give us their feedback. Um, could
14:35
you talk a little bit about reading as far as what are your goals?
14:39
Is it relates to kind of consumer lending and both you can relate to personal
14:45
but just overall consumer lenning. How do you look at it from from your
14:48
business goals? So maybe I'll talk about it from more of a macro perspective.
14:52
Community banks have been losing the personal loan business that we've lost the auto
14:56
loan business. Um, we're quickly losing the mortgage business. Just because everything
15:01
has become more and more automated. Consumers have their credit card access to so
15:05
many other options. As far as credit is concerned. So the reason why
15:11
we looked at the ability to automate is and of course regulators right now are
15:16
very concerned about equable access to credit and financing. However, the consumer loan
15:22
is probably the most expensive to originate as it relates to the return that you're
15:28
actually going to achieve. So unless it's automated, it is actually costing you
15:31
more than you're actually going to make an interest on that short term loan and
15:37
small dollar loan for the bank. But it is what people need. So
15:41
I mentioned earlier that we've actually opened a couple of branches in Gateway cities and
15:45
what we heard loud and clear as people want credit. They recognize that if
15:48
they want to be successful financially, they need to use credit so that they
15:54
can leverage and get the things that they need so that they can actually achieve
15:56
the next goals and take that additional job, et cetera. So how do
16:00
you actually get money into people's hands, but do it in a profitable way.
16:03
It has to be through automation and in fact consumers and you know it's
16:08
the thing that happens with your kids, right they turn eighteen, they want
16:11
a loan, They come to you to cosign because they can't get a loan
16:15
on their own because they don't have a credit score. But you can't get
16:18
a credit score without having a loan. It's a chicken or egg scenario.
16:22
So just hearing from the folks on the ground, why you know, what
16:26
are your aspirations and what are your challenges you with your banking relationship. Access
16:32
to credit is a huge friction point, so solving for that and that's really
16:37
what we liked about upstarts. Your willingness to provide better access to borrowing that's
16:42
not just driven off the credit score, helping us serve existing customers but also
16:48
new customers. And even the fact that you your model does adjust to the
16:53
current economic condition and we're still in control of what the rate is, what
16:59
market we're lending into. We're not a large institution where I mentioned a mutual,
17:04
so we can only leverage our capital so much, so we can actually
17:07
set the expectations and on what size of a portfolio we want in making sure
17:12
that we deliver for our consumers first, No, that's thanking, So but
17:22
I will say this just want to add something to it, is that I
17:25
grew up in consumer lending even though when you look at my resume, I've
17:27
been kind of all over the lending world and I grew up there, and
17:30
I also spent some time at a credit union, and I couldn't understand credit
17:33
unions seem to do just a great job with auto lending and consumer lending and
17:37
they figure it out. And why community banks don't play there, I never
17:41
quite got. But certainly having a way to automate that. There's a cost
17:45
of doing it. There's a cost of collections, there's a cost of servicing.
17:49
So trying to solve for those problems was our biggest issue, but self
17:53
solvable. So we just you just had to find the right partner to do
17:56
it. Oh great, thanks for your contexts there. So let's talk a
18:02
little bit about the consumer. You and you you talked a little bit about
18:04
about habits and in different products that that that the consumer is is looking at
18:11
or have available. So is you look at your business are you are you
18:15
seeing like spending habit changes with your with your with your customers today or or
18:21
even seeing the needs adjust, say over the over the past um, you
18:25
know, twelve to eighteen months. Um. So I would say so during
18:30
the pandemic, we actually saw that consumers had a build up of cash.
18:33
UM, they weren't actually looking for a tremendous amount of credit. Well,
18:37
if you can't go anywhere, and you can't go out to dinner and so
18:40
this but UM and UM and we offered skip payments for mortgages, so UM
18:45
people did have have access access funds in their account. Are we are seeing
18:49
those UM draw down UM and UM. We haven't yet seen UM in increasing
18:55
delinquencies, but we hear from from other areas that there are increases in credit
19:00
card usage and by now pay lay later, we're seeing a fair number of
19:03
that payments are moving outside of the banking system with benmo and balances are external.
19:11
UM. Any consumers have changed their behaviors for an expectation of immediate satisfaction
19:17
and so being able to get anything on your mobile device and to be able
19:22
to act when you need to and get access to the things that you need.
19:26
I think that's important to consumers. UM. I mean I grew up
19:30
with layaway, not me myself. Might remember my mom, that's how she
19:34
saved for Christmas. We still offer Christmas clubs. But on the other side
19:41
of the house, UM, there seems to be more of a lean towards
19:45
um, more more predatory payday loans, and and I am concerned about the
19:52
whole buy now, pay later when consumers don't necessarily have a hundred percent control
19:56
over their account anymore. I do like a personal loan because it is a
20:00
way to level out monthly payments, to be able to plan and prepare um
20:06
so that the consumer is more in control, whereas right now it seems like
20:08
the payment companies are in control. And just to add to that, yes,
20:15
we are seeing I see you read about it in the Wall Street Journal
20:18
and you you're losing it here with some of our portfolio. Is that your
20:22
credit is being used more, most of its variable rate credit cards, as
20:26
to we mentioned, So now people are turning to what can I fix that
20:29
out for three, three, seven years whatever that may be at a better
20:33
rate than they're getting it with the credit card company. So we are seeing
20:36
that credit consolidation starting to happen now as well well. Alone the interest rates
20:42
already eight percent. So yeah, when you when you saw, as you
20:48
mentioned it right during during COVID, just spending habits. Really we're dictated because
20:55
they're just books. Weren't able to spend right, and and then there was
20:59
just this kind of this build up and and I think there's is a lot
21:03
of is a lot of bank and creating union executives I talked to, you
21:06
know, talking about now you're you're you're seeing you're seeing that, You're seeing
21:08
the usage go up, You're seeing people are out there taking vacations. There
21:12
there, there are all these things that was kind of uh, you know,
21:15
penned up for for a number of years. Now is is kind of
21:18
it's kind of coming back and at different stages that it did different cycles.
21:22
So um, definitely interesting times that we're in over these uh these these past
21:26
couple of years. So that then the leads me kind of my next question
21:30
is as is the is the environment is is changing? And you talked a
21:36
little bit about, you know, consumer expectations. We live in this this
21:38
this Amazon world where you know, I want it now and speed, So
21:44
how do you see the need for data and more automation and and and and
21:49
just the digital experience really kind of impact your approach. You're is you're looking
21:53
at seeing those components is almost almost table stakes, I think in some cases
21:59
of of getting into some of these areas. So if the consumer loan is
22:03
your first loan product or your first experience with term financing. The small dollar
22:11
consumer loan is hard to justify. I've alluded to it earlier. It takes
22:15
the same amount of work as a home echoy loan, but there's no collateral
22:18
underneath it, which makes it very expensive for the consumer but also expensive to
22:22
originate higher risks presumably higher default rates. So you need to make sure make
22:29
sure that this is a prime customer that you're lending to, one that's not
22:32
going to default because there's nothing backing it and it all gets written off of
22:36
the payments don't get made. So scaling a product and building a portfolio that
22:40
provides the return, it can't be ten loans and then you lose on one.
22:42
It needs to be a lot of loans that actually drive down the cost.
22:48
But those whole host of loans requires that you have a department that actually
22:52
can collect on the loans, that can process the loans, that can book
22:56
the loans. It just is an expensive expensive to scale at the community bank
23:00
level. And to add what you said about table staying, I think from
23:07
my perspective is if we couldn't do this quickly, we couldn't do it easily
23:11
app based and be able to get funding to them in a relatively short period
23:17
of times, that I didn't want to do it at all, because that's
23:18
what the experience is with larger institutions that they have across the country. Right,
23:22
So that was really kind of a no starter for us. If we
23:26
couldn't do that, then it just wasn't worth going down the road. Well,
23:30
and that leads us to kind of the next question. I mean on
23:34
just hey, you have expectations of how you want to deliver solutions, and
23:41
it actually it bodes us. Someone asked a question about evaluating partnership. So
23:47
thank you for who asked the question, because you let into my question number
23:48
four is really can you talk about your approach to partnerships? And so I
23:52
think a lot of people join these these types of calls to hear from other
24:00
bank executives on how did you approach looking at fintech partnerships? How how you
24:06
know? What were the things that you are evaluating and the processes that you
24:10
go through As folks are thinking about, you know, how do I how
24:14
do I do this in my organization? So for the fintech that are actually
24:22
looking at trying to figure out how to make the connection with the bank.
24:26
It is UM. Sometimes it is just you know, fortuitous conversations that that
24:30
just happened. UM. We are looking for fintech that provide a service that
24:34
our customers are looking for, UM and not some obscure, unrelatable service.
24:41
It has to be within the banking bandwidth, UM and UM and for us,
24:45
it has to align with our organizational values. So it has to be
24:48
providing something that is right for the customer. It is not taking advantage of
24:51
the customer. It's fair, it's transparent, UM and UM. And we
24:55
have to be mindful of our bandwidth. So UM, we're not going to
24:59
be doing ten product it's every single year. UM. We have to be
25:02
very intentional about which ones we select. Is itself contained? Is it easy
25:06
to stand up UM and UM and Canada achieve our objectives and not just be
25:11
a one off. Yeah. And the support is also helping. That support
25:18
from from the the fintech itself in that we don't know how to stand up
25:22
something like this. It's foreign to us. We need a lot of handholding
25:26
in the process to be able to say, okay, here's here's some other
25:30
people to talk to you that I've gone through it. Here's what other institutions
25:33
are doing. Now, um, here's you know, this is how you
25:38
got to deal with your auditors when they come in because duly mentioned earlier a
25:42
lot of appliance around consumer lending. So there's really a we need a lot
25:47
of handholding from the from the fintech, from the partner to help us get
25:51
through that process. But it doesn't just end after we've stood this up right
25:56
now, it's going to be let's let's look at this ongoing is is it
26:00
performing the way we want to do? We need to make tweets with it
26:03
because again this is our first time going down this road, so we need
26:06
all that help we can get. So you got to make sure that when
26:07
you're talking to somebody else, if you're getting references, that you're digging deep
26:12
into that support, not just in the beginning but after they close and after
26:17
they stand up the product. Well our chap point we also and to that
26:22
point, we also need to know that we're not betting the bank on something
26:26
that could actually harm the institutions. So the reporting that you actually provide,
26:30
I know, fail goos throughout a monthly basis and reports out the performance of
26:33
portfolio. We can make tweaks to it. We understand the impacts and the
26:38
fact that you do monitor the outcomes on an ongoing basis, so there aren't
26:44
any surprises for us as an institution. So again going back to an evaluation,
26:48
whatever we're doing, it is additive to the customer and it is not
26:53
doesn't create any adverse risk to the financial institution. Well, and can you
27:00
end that's some volutary on like the process that you have so when you do
27:07
you have a standard approval process, so to get a fintech approved in your
27:12
organization, Um, can you can? I got to describe that that the
27:15
steps and there is there certain committees or how what what step did you have
27:22
to go through to say approve our partnership? Well, say, first of
27:29
it was doing a lot of due diligence and someone the one we had to
27:30
go do that. Uh, there's a lot of due diligence you had to
27:34
you know, to talk about what the benefits were. And it's with anything
27:37
you've dually said it right before, which is it's gonna be hard to get
27:41
someone's attention at a bank if you are from the fintech world, because there's
27:45
got to be that perceived need from us first and which is which starts with
27:48
our customers. But it really was doing a lot of homework on it,
27:53
checking the references. Like I said, before, making sure that check the
27:56
boxes. I had a very clear idea of what this process should look like,
28:03
what we did not want to do. We did not want to build
28:04
a department, you know we wanted to have We didn't want to put extra
28:10
stress on our on our loan servicing department, So we really tried to have
28:14
it be as turnkey as possible to do everything it needed for us and at
28:17
the end of the day we get a net return UM. So it is
28:22
making it easy, but we do the due diligence. We talk about it
28:25
at our senior management meeting committees. In our meetings, we run up by
28:30
our Board of directors to say, this is what we're thinking about doing UM
28:33
and here's a breakdown of how this will all work. So that's it's it's
28:37
a little bit informati, but we do have a vendor review process that that
28:42
we do go through UM. But I think the bandwidth of the organization is
28:48
also really important to us. This cannot be something that we stood up today,
28:52
UM, and it's an MVP UM that tomorrow is UM didn't make sense
28:57
or it didn't stand the test, so that UM that that we have to
29:02
do it all over again. So UM that is I think the challenge from
29:06
an innovation perspective is UM, a fintech wants to make their first bank partnership,
29:10
but the bank needs to make sure that the fintech actually has UM the
29:15
glide path in front of them that is going to be there in the future.
29:18
Because UM, once this product is offered and there's an expectation from our
29:22
consumer that it's there and available to them, we can't just pull it from
29:26
the menu. Well, I think that's a great This is not when we
29:32
look at success and I've had the opportunity of being being sitting in your chairs,
29:38
uh you know, in the in the in the banking world, making
29:41
the decisions and then now on now on the partner side. UM. You
29:45
know, we look at these partnerships of successes in one month, one quarter,
29:51
you know to two quarters. Right, You're you're you're building when you
29:53
get in a relationship like this and we're we're integrating, we're integrating our two
29:57
organizations together. Right to serve the needs of the community and the consumers that
30:03
you you know that you're serving. Um, you have to think about it,
30:06
is we want to be celebrating two years, four years, five years,
30:10
ten years, right of of of successful kind of partnership together and is
30:14
there is there the right alignment right with the values of the organizations? Are
30:18
we are we both kind of heading in the right direction of of how we're
30:22
trying to consuh serve the consumer. So it's it's, it's, it's that's
30:26
great to hear of kind of how you guys, you know, how you
30:26
guys were thinking about it, and and and it leads me to kind of
30:30
this follow up and you you've you talked a little bit about it, but
30:33
just pull a little more threads because I think it's it's it's it's a good
30:37
one of just selecting the relationship right that that doesn't end it right there,
30:44
there's hey, there's there's there's high fives of right, we've we've made a
30:47
decision when you've selected a partner. But then there's there's the ongoing management,
30:51
right, So there's there's making you're continuously working to oversee and and and manage
30:59
this this real relationship and to continue to evaluate is it still meeting the expectations,
31:04
the expectations of why did you get in this business in the first place,
31:07
as well as evaluating that are your business goals still aligned? So can
31:11
you talk about I think how you are just I'll say that continuing monitoring of
31:17
partnerships to just make sure they stay aligned with your expectations. Yeah, you
31:22
know, and your poll question a little earlier, you had something like twenty
31:26
five percent of the audience say that they're concerned about the current environment and that's
31:32
why they're not doing consumer lending. And I know certainly was a real concern
31:36
because we were going into this process while things were starting to go down,
31:38
Rachel going up, issues were starting to happen, and that was a big
31:41
question for us. But we get through a dashboard and I get KPIs on
31:47
a monthly basis, but I can go in anytime like they did before this
31:49
call and looked at the KPIs to see, Okay, what do we have
31:52
for delinquency, what's our volume, what's our average rate yield? All those
31:57
types of things, And I know we all also have ongoing calls. We
32:00
did one six eight weeks ago we talked about, hey, you could be
32:05
getting more yield fill for reading Cooperative Bank if we do some tweaking and still
32:09
get the type of volume that you're looking for. So that was a proactive
32:13
approach which I appreciated from up Start to come up to me and say there's
32:16
opportunity here, because what bank doesn't want to get more yield, right?
32:20
So we work that out. I think we moved our yield up from a
32:22
net of all expenses of a five percent yield to to a seven percent yield,
32:28
which is not bad in this environment. So we also get a slew
32:30
of reports that I can look out on a daily basis to figure out what
32:35
loans of command and if anyone are looking for extensions or modification. So we
32:38
can really pick and choose and look at this and break it down at a
32:43
very micro level, which gives me comfort. I know, it gives truly
32:46
comfort to have that information, you know. I think the other piece that
32:51
I like is the option of actually just originating a portfolio and also using a
33:00
white label standpoint and going to market with individual products, maybe um marketed in
33:06
a different way depending on what the usage toward the appetite might be. Based
33:10
on the consumer group that you're marketing too, so um having that ability to
33:15
also launch other products in addition to making tweaks to the existing based on what
33:21
you're actually seeing. I also like the fact that you're constantly evaluating what data
33:24
is out there in the marketplace because times changed. Right now, we know
33:29
that consumers belts are tightening, rates are rising, costs are rising, and
33:34
making sure that we're always operating in a current environment, not on historic data.
33:39
Yeah, and your model and mention that your model adjusts and adjust for
33:46
it's a learning model to incorporate an account for delinquencies that are happening now based
33:53
upon past approvals. And so because the model learns your it's it's current that
34:00
it's ongoing and it's up to date as learning and making adjustments on the fly.
34:05
Yeah. And I think one of the things I can I can add
34:07
to that is the advantage of of a of a of a partnership like upstart
34:14
to to our learning partners is the scale, meaning that you're benefiting of what
34:21
the model is learning, not just from what you're originating, but you're you're
34:25
getting the whole um bandwidth of all the loans that we've originated on the platform.
34:32
So now you start competing almost with the same data as you know what
34:37
we'll say, starting to compete with the trillionaire banks of the amount of data
34:43
that they're processing. Um, all of our learning partners are getting similar scale
34:47
because of just all the capital that's that's it's coming together. And so you're
34:52
right, the model is continuously looking at and you're benefiting from loans, other
34:57
lenning partners are originating and the in the repayment events because the models absorbing all
35:01
of that to build a very broad uh um sense. There was a question
35:07
here. I'll go back to the when you're talking about the diligence. Is
35:09
someone's asking when you were like looking for partnerships, Um, like, how
35:16
did you go to identify who was who was available in the marketplace? Was
35:22
it was? It? Was it conferences you went to? Was it sites
35:24
that you went to to do your research? Kind of like how did you
35:29
how did you build I'll say, your short list of Hey, these are
35:31
some of the companies we should talk to For the answer to the first part,
35:37
yes, that's good, it's true. I mean the conferences and U
35:45
and colleagues. Um, we ended up having a list of I think ten
35:47
companies that we looked at in total UM and in fact, the first time
35:52
we looked at Upstart at writing, we actually loved your model, loved what
35:54
you were doing UM, but it was very early on UM in UM and
36:00
up starts UM tenure, and so we ended up coming back a little bit
36:06
later when we were ready and we could get comfortable. So there's a lot
36:09
of vendor due diligence finding out who the other institutions that are writing, looking
36:14
at the behaviors that are actually happening. And then just again as I mentioned
36:19
it, because I know there's a few FinTechs that are actually on this call
36:22
is UM. It might not be you, it might be us when when
36:28
we actually don't engage with the fintech because sometimes our bandwidth is what it is.
36:31
You have turner over in your organization, you need to bring on even
36:35
the right leader or maybe you don't have the innovation appetite in your area of
36:38
the bank at that point in time, and bringing on the right chief banking
36:44
officer that actually has an appetite for more innovation might actually be the right spot.
36:51
Or it might be as I said, the institution that actually needs to
36:54
learn how to be more innovative. Let me let me ask about UM stakeholders,
37:04
because this is something that that I see, UM now, it's it's
37:07
it's it's awesome, you know, having having the CEO so engaged that that's
37:13
a that's a that's a that's a pretty important stakeholder for FILL to have working
37:16
so closely. But but can you guys talk a little bit about you is
37:21
your organization and is people are looking at these partnerships, UM, the kind
37:25
of the stakeholder committee of folks that you need to um make sure stay engaged
37:30
uh with you know, during the selection process and then not that they have
37:35
to be involved on a day to day basis, but on that that you're
37:38
keeping I'll say involved, whether it's it's quarterly or or or monthly on various
37:44
reviews and what are some of the tactics that you're using to keep your your
37:49
extended stakeholders engaged. So I'd start with saying that when we first started,
37:55
we had a lot of stakeholders. UM. Even though up Start Manager is
38:00
the bulk of the program for it's getting it up and running, making sure
38:02
that the fund transfers happened, we had accounting involved. We had it involved.
38:07
UM. We had just hired a new UM UM what they call it.
38:14
They not a product manager, but uh, there's project manager Trever.
38:22
Thank you, project manager who kept us all on track because there were a
38:27
lot of moving pieces and you folks were moving pretty quickly and you kept us
38:32
on track. And so we had all those you happen to meet on a
38:36
regular basis in the beginning on a weekly basis, make sure you're hitting all
38:39
your road your your stops in the road, and making sure you're you're you're
38:44
on track. And so that was a big part of it. Getting the
38:45
board is involved, you know, having those reports to the board as we
38:49
start getting to launch and what we're hoping to do and here's the the KPIs
38:53
we're looking to attain UM and then having to keep them informed on a on
39:00
a quarterly basis. We just started doing this because this relatively new program for
39:04
us is showing them the kbis, here's your growth, here's the delinquacy that
39:07
we're seeing. UM, here's here's you know, a lack of delinquency that
39:12
we're seeing. So we keep them involved with quarterly reporting there as well and
39:16
tying that back to what UM what we presumed UM at the very beginning when
39:21
we actually um went to the board for approval of the product. So this
39:24
is the return we're respecting. This is a return we're getting. UM.
39:27
This is what we anticipated the delinquency we're rate to be and here it is
39:30
at this you know, and just you know, confirming um that what we
39:35
expected to happen, UM and UM and setting that threshold for how much you're
39:38
going to originate per month and then seeing that the things that you expected to
39:44
happen did happen UM is the thing that gives you the competence to continue to
39:47
move forward UM. And it is truly a partnership. Yeah. And I
39:52
what's good for them to remember is when you when you launch a product,
39:57
particularly say say personal loan, that that say a bank may not be offering
40:01
today or is offering very small. You may think, oh, this is
40:05
this is a this is a small product in our in our total asset class.
40:09
I don't need all the stakeholders. And I think that's where some folks
40:13
sometimes I see, UM get get up side down we're because then they end
40:17
up maybe having more challenges throughout their program because not getting the right in people
40:24
engaged at the very beginning and they don't have to be involved in at all
40:28
the time. And I think Bill, as you talked about, you start
40:30
with you cast a good net, You get the right people there that are
40:32
helping make a decision, and then you determine who's got to be part of
40:36
it to run the day to day and then keep those those those ancillary stakeholders
40:42
updated on a regular basis so that just they're seeing that the program is growing,
40:45
it's being managed, its being oversight because then you know that comes back
40:50
to the regulators and as you're as you're presenting the regulators about partnerships, you're
40:55
able to describe, Hey, here's how the organization is stay engaged. So
41:00
let's actually when you're talking about our existing portfolio, we were writing very few
41:07
consumer loans, and we were writing them that eighteen percent interest rate, So
41:10
the only person that took them is a person that was desperate. And so
41:14
we actually understood that we had losses in that portfolio because we were providing these
41:19
high rate loans to people that were desperate, because they clearly they would have
41:22
used their credit card if they could, so in this situation, we're instead
41:27
writing loans to people that are using personal loans for a purpose and they're paying
41:31
them back and so we have better performance of the portfolio, but the consumers
41:37
also getting a better experience because the rate is more beneficial to them. Great,
41:45
So you mentioned a little bit about the partnership that you use both the
41:52
earn you have to start referral network for new new customers as well as you
41:57
use the white label to stand alone know of your website for your your your
42:01
existing customer base. So can you talked a little bit about the decision of
42:07
it, like how are you, how are you looking and and leveraging both
42:10
products and and the perspective to kind of kind of leverage both versus one or
42:15
the other. Well, I think that we we wanted to have something to
42:21
offer to our customers um because as Julie mentioned, we didn't really have anything
42:25
in the consumer lending area. We priced it at such a point where it
42:30
really wasn't competitive, and so we want to be able to have a link
42:32
on our website where we hite label this it looks like our product. It
42:37
shows up with the reading logo on it when you go into the app,
42:40
when you click through and experience for the customer that it seems like us,
42:45
it seems like reading. They can get approved and seconds um they get their
42:50
money next day. And so it's a really good experience and we wanted that,
42:53
but we didn't think there was going to be enough volume there. But
42:55
we did want that customer experience, and so we also did the market place
43:00
so that we would be able to UM define an area that we wanted to
43:04
do business in and then UM I'll start with market would market in that area,
43:08
and if loans came up that fit our criteria, our credit criteria which
43:13
we developed from the beginning, then we would get those loans. So you
43:16
know, at the end of the day, we do we do about a
43:19
million dollars a month only because that's our choice. That's the limit. That's
43:22
how much we want to do. UM. We could certainly do more if
43:24
maybe Yeah, I think actually you answered you answered one of the one of
43:30
the questions. I think someone was asking the volume that you're looking to do
43:35
on an on an annual basis, And then I think the other question I
43:37
saw was UM, and it kind of feeds into about the controls UM.
43:43
So when we talk about your your footprint here, UM, when you think
43:47
about the controls you have to manage the program, and so that you know
43:52
what what you're able to define, what changes you're able to make to ensure
43:55
um that that the program's staying within your your risk tolerance. Can you can
43:59
you talk about that and even talked a little bit about the controls on from
44:02
a from a footprint standpoint. Sure. So you know, when we started
44:08
the setup of the program, one of the first things we do we had
44:10
a worksheet and say, okay, what are we willing to do. Do
44:14
you want to if they if they have a bankruptcy? Is it an automatic
44:16
note? What's your bottom line credit score that you're willing to accept, what's
44:21
your bottom line debt to income that you're willing to have. So there's controls,
44:23
there's a number of questions we go through to determine just how deep and
44:29
how much risk we want to take. And so we put that in place
44:32
and then let's start works within that. You guys come in and you tell
44:37
us be based upon based upon the controls you have in place in the market
44:40
you define which we define as Massachusetts in southern New Hampshire because we're in the
44:45
northern, we're between you know, New Hampshire and Boston, and so within
44:51
that they'll say, well, there's a based upon card volume, there is
44:53
a nine million dollars a month market opportunity, and so we can and the
45:00
tighter we make that criteria, the smaller that market opportunity would become for us.
45:06
So we determined once we hit a million dollars, stop stop for us,
45:10
stop doing it, stop marketing us. And the way it's worked,
45:15
and I appreciate it's done this way, is that it's not a million dollars
45:17
in the first five days. It's spread out basically evenly over the course of
45:22
a month that we slowly work up to a million dollars. And I think
45:27
we have something like that seven or eight million dollars portfolio Nopp from what was
45:30
probably a two hundred and fifty thousand dollars portfolio. And I think I'll add
45:37
to I think there was another question about, you know, does does the
45:42
does the does a borrower one hundred percent? You know, I'll get the
45:46
get the lowest rate and and and the and the answer is is the borrower
45:51
gets the lowest rate based upon the capital that's available. And so that's kind
45:54
of what what what Phil had shared is you know, Phil happens to have
45:59
the lowest on the platform. All of Phil's capital just doesn't get used up
46:04
at at you know, at midnight or twelve or one am on June first,
46:08
right, So so this is it is it is. It is smoothed
46:12
out throughout the month so that the lender can be paced and that also we're
46:17
we're ensuring that that the best rates are available as as as much as possible
46:22
throughout the month for for for all the concert company of the program. So
46:25
hopefully that answered the the the question that we had in the in the chat
46:30
um. So let's talk a little about you know, if you're if you're
46:36
we saw that fifty percent of the folks aren't doing personal lending today and it
46:39
may not have a partnership today, So a lot of those folks are probably
46:43
considering is now a good time to get into a fintech partnership or not?
46:47
Like, how how would you why would you think now would be a good
46:52
time or not? But too, why would you think it would be a
46:54
good time to to move forward and think about a partnership? Well, you
47:00
just heard from Phil, how how we've made our decision that will enter in
47:06
and we'll do it slowly in a methodical way so that we're constantly investing and
47:09
so they're short term loans. They will pay off in short time. So
47:14
just like we UM, we lived through cycles. UM. But I would
47:19
actually say right now the consumer is going to have more demand um than they
47:23
did during the pandemic. UM. During the pandemic, they were flushed with
47:27
cash. They didn't have an appetite or the trips for the travel for for
47:30
other things. So I think there will be more appetite at this moment.
47:36
But I also think the fact that the market constantly adjusts to the credit conditions
47:40
that are there also UM mean that that a late well ladle plan will actually
47:47
mitigate risks. Right. I think everyone's finding it's a tough market to hire
47:58
people, and so you can find an end end solution where you're not having
48:01
to add staff and replace staff as they leave. UM, it makes it
48:07
much easier for us to manage. So the short answer your question, is
48:12
it a good time to to partner with a fintech? Definitely, particularly if
48:16
you can streamline a process, make it very efficient and U and not have
48:22
to deal with those ongoing issues with m with staff and employees and building an
48:28
apartment that may walk out a new apportions may walk out a new a period
48:30
of time. So certainly from that perspective, it's it's key as well well.
48:35
And I think we're if we look at what our goal is as an
48:39
organization is you know, we're a technology company that that we feel we do
48:46
what we do really well, right is enabling access to credit and really helping
48:52
define true risk and writing does what you do really well as far as is
48:59
you know, being a fine fancial institution be able to be able to serve
49:01
the needs of your community. And I think that partnership then allows us to
49:07
bring the expertise from both our organizations into your right work. Phil. It's
49:13
you know, many organizations don't don't have the capacity to take on all these
49:17
other abilities, right, all these other tasks, and so how do you
49:22
how do you focus on what you do really well and then you find partnerships
49:25
with folks that align with that with your goals and then together really provide those
49:30
services that your consumers will well. I think that's one of the things that
49:36
we liked about Upstart as compared to competitors, is the fact that you are
49:40
intentionally trying to get credit into more hands by recognizing that there are other values
49:46
behind credit beyond credit score to determine some whether or not somebody has the attributes
49:52
to pay a personal loan or an auto loan on a timely basis, and
49:57
the fact that you have opened that up further recognizing them with a six eighty
50:00
credit score. UM, there are a lot more people are are UM that
50:06
actually qualify or there are a lot less people that are going to default on
50:10
the loan. UM and being able to figure out who the eighty percent are
50:14
that will ever default and make sure we give broader access into the community.
50:19
So UM, that alignment with what your organizational values end, even what you're
50:24
doing with them more than Fair initiative, I think is to be commended.
50:29
No, thank you, thanks for bringing that up. And maybe I just
50:31
had a comment on that for for folks and aren't familiar is you know we're
50:36
we're part of this more than Fair And if anyone's interested in in googling it,
50:39
it's it's it's just the website is more than Fair dot com and it's
50:45
it's really it's a community of organizations UM both made up of technology organizations our
50:52
bank partners, m other consumer advocacy groups that are all dedicated to improving access
51:00
to you know, affordable credit and inclusive learning and and really the the idea
51:06
is is that a lot of us all are trying to solve this problem,
51:10
and so how do we kind of scale our our interest together as far as
51:15
everyone's trying to solve this And so it really makes it a much stronger i'll
51:20
say, advocacy for creating change um um, working with regulators, all these
51:25
types of things, of all these partners together, so not just an upstart
51:30
thing, but all of these groups, all of our our learning partners like
51:34
yourselves that are that are advocates, advocates and participants of it. Of really
51:37
how do we enable more in our communities to get access? And so the
51:43
final question I have and we've got some time um left for for some additional
51:49
Q and A that I've seen the in the in the boxes, But so
51:52
what's next, Like what what are you looking forward to? What's what's exciting
51:55
you over the next uh, you know, twelve to twenty four months at
52:00
reading so um, so we're looking forward to tailoring more products. So first
52:07
of all, we actually need to and that's our next step is figuring out
52:13
the new customers that are coming to us through this product and figuring out how
52:15
we can turn them into Reading depositors, turn them into expanded relationships at Reading
52:21
Cooperative Bank. So that's that's the first thing, further automation of our processes
52:28
again figuring out what the customer needs next UM and continuing our digital transformation.
52:32
We actually mentioned before, we're now in two gateway cities in Massachusetts. There
52:37
those two cities provide us about two hundred thousand more consumers UM, and so
52:43
having this product on our menu and available to those consumers allows us to meet
52:46
consumer needs in these in these broader markets. So we're excited what the future
52:51
has for us and for YouTube. And also one way that we can do
52:59
a similar type product what you have in the small business world. We can
53:01
figure that one out that would be nice, and that's something we're looking at
53:05
certainly, and I think Julie alluded to it earlier. There's we have certain
53:08
ideas and how we can take this product, take takeoff, start and maybe
53:12
be able to to slice it and dice it to be more direct marketing towards
53:16
certain groups out there versus just having it as a consumer loan created and package
53:22
it differently. So we're looking forward to doing that as well. Well.
53:28
We uh we we welcome the creativity in the in the idea generation and see
53:32
what you know, what what what the future head holds. So let me
53:37
We've got a little bit of time for questions, and there's there's there's kind
53:39
of kind of like I think there's a there's a couple of questions that maybe
53:44
we can answer together. And I'll start off and then have you guys add
53:47
is there's there's been a number of questions about like model, model governance,
53:52
UM getting comfortable with with using a third party model in the in the queue
53:57
and and I'll start with so one of the things that that upstart does is,
54:00
I mean we have we have our own internal UM risk management organization and
54:07
and and and risk disciplines. We have model we have model governance team,
54:10
and then we actually use a third party on top of our own internal testing,
54:15
but we use a third party to do model validation and model testing and
54:20
and those types of things are data and information that then we provide back to
54:24
our lending partners as well as you know, other model oversight docs and and
54:30
other information that that we can share as part of our own oversight. But
54:37
then it feeds into what the what the lending partner has available in their own
54:42
kind of model oversight. And then when they're talking to the to the regulators,
54:45
could you guys talk a little bit about just as you know, using
54:50
a third party with a UM, you know, with with a with a
54:53
model, just what you did to get comfortable and the kind of the the
54:58
oversight there. Well, I can tell you well, first we talked to
55:02
a lot of several of your customers and did reference checks on that. But
55:08
most importantly, shortly after starting the program, we had our external internal auditor
55:15
I guess, do a review of the program. And there was a lot
55:19
of questions and it's certainly the one I want to say she was challenging at
55:22
first was they have all the questions, you have all the answers. So
55:28
what was what worked out really nice is we found and I wish I knew
55:30
her name, woman who works for you, who had all the answers,
55:35
and she get on the phone directly with the person who is doing the review
55:40
from our auditing company, and you they got all their answers. They really
55:46
didn't find anything the couple of things. I think, you know, maybe
55:49
I sent you a while back that we're just had to do with the signing.
55:52
That was just a matter of opinion, but it was nice. We
55:57
did that intentionally because we wanted to make sure even though we had a good
56:00
couple level going in with partnership, we wanted to make sure that our auditors
56:04
looked at it and that they were good with it as well. So we
56:07
passed that audit. It just happened to me forty five days ago. Well,
56:12
and I think Upstart also did a lot of legwork as well, making
56:16
sure that they went to the regulatory bodies and went over their model, and
56:22
you were pretty transparent about that, and I think your willingness to be transparent
56:25
with regulators and with US goes a long way to having access to that data.
56:31
Someone else also had a question about APIs that this is not an API
56:37
enabled products that connects to our core and so that also is what makes it
56:43
easier to stand up for us as n F buy no great. Well,
56:47
I know, coming up to the top of the hour, and I try
56:52
to answer as many questions throughout the dialogue, and I know there's many we
56:55
still didn't get a chance to get to. So if folks have further questions
57:00
that we weren't able to get to, UH, please reach out. There's
57:04
some some contact information as well as is my email address. Ed Walters at
57:09
upstart dot com. We've been more than happy to uh to have follow ups,
57:14
um if there's if there's something we didn't answer, and one before I
57:19
turn it back to to Mike. Just you know, thanking u uh,
57:23
Julian Phil for the engaging dialogue. UM, an hour goes by quick when
57:29
when you're when we're when you're having fun, So I really appreciate the time
57:32
and I feel hopefully folks learned a lot today from from talking with with three
57:37
of us. So Mike back to you, Okay, Thanks Ed, and
57:40
thanks to Julie and Phil or your insights and for being so generous with your
57:45
ideas and recommendations. So on behalf of American Banker as well as Upstart and
57:52
your presenters, thank you all for joining us, ladies and gentlemen. Upstart
57:57
partners with banks and credit unions to help grow their concer sumer loan portfolios and
58:00
deliver a modern all digital lending experience. As the average consumer becomes more digitally
58:07
savvy, it only makes sense that their bank does too. Upstarts AI lending
58:10
platform uses sophisticated machine learning models to more accurately identify risk and approve more applicants
58:17
than traditional credit models. With fraud rates near zero, upstarts All digital experience
58:23
reduces manual processing for banks and offers a simple and convenient experience for consumers.
58:30
Whether you're looking to grow and enhance your existing personal and auto lenning programs or
58:35
you're just getting started, Upstart can help. Upstart offers an end to end
58:38
solution that can help you find more credit worthy borrowers within your risk profile.
58:44
With all digital underwriting, onboarding, loan closing, and servicing, It's all
58:49
possible with Upstart in your quarter. Learn more about finding new borrowers, enhancing
58:53
your credit decisioning process, and growing your business by visiting upstart dot com,
58:59
Slash four or dash banks that's upstart dot com, slash forward dash Banks.
59:05
You've been listening to Leaders and Lending from Upstart, make sure you never missed
59:08
an episode. Subscribe to Leaders in Lending in your favorite podcast player using Apple
59:13
Podcasts. Leave us a quick rating by tapping the number of stars you think
59:15
the show deserves, Thanks for listening until next time.