Latest / Leaders in Lending / From Polls to Partnerships: Election Season and the NCUA’s Role in Modern Lending

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From Polls to Partnerships: Election Season and the NCUA’s Role in Modern Lending · Leaders in Lending

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Speaker 1: You are listening to Leaders in Lending from Upstart, a
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Speaker 1: podcast dedicated to helping consumer lenders grow their programs and
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Speaker 1: improve their product offerings. Each week, here decision makers in
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Speaker 1: the finance industry offer insights into the future of the
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Speaker 1: lending industry, best practices around digital transformation, and more. Let's
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Speaker 1: get into the show.
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Speaker 2: Welcome to another episode of Leaders in Lending. I'm your host,
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Speaker 2: Matt Snow this week joined by Nat Hoops upstarts very
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Speaker 2: own head of public policy and regulatory affairs.
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Speaker 3: Natt Welcome, Thanks Matt.
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Speaker 4: It's good to be back on the pod.
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Speaker 2: Yeah, return guests, but first time I get the pleasure
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Speaker 2: of chatting with you in this format.
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Speaker 3: So I've been looking forward to this.
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Speaker 4: Yeah, it's going to be It's a good month.
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Speaker 5: I guess we're almost in November, a big, big election
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Speaker 5: in Washington and around the country, so good time to
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Speaker 5: talk politics and policy.
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Speaker 2: Yeah, And I was wondering Mat, like, this close to
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Speaker 2: an election a few weeks away, do you see increased activity?
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Speaker 2: Are people distracted or you know, what's what's it like
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Speaker 2: in Washington right now? What are people thinking about?
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Speaker 5: Yeah, ironically, it's kind of a time when Washington slows down,
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Speaker 5: and all of the operatives and all of the energy
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Speaker 5: is in Pennsylvania or or Arizona, or Georgia or North Carolina.
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Speaker 5: And so it's definitely a time when a lot of
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Speaker 5: people are anxiously looking at the polls. They're looking at
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Speaker 5: the weather forecast for election day. They're really trying to
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Speaker 5: kind of get a sense of you know, who's going
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Speaker 5: to come out. And I think the campaigns tend to
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Speaker 5: focus on their core you're turning out their core voters.
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Speaker 5: And it's really a time when policy takes a back seat.
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Speaker 5: So where I spend the vast majority of my time,
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Speaker 5: which is you know, regulatory work and and the the
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Speaker 5: evolving policy landscape for for upstart in the financial technology
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Speaker 5: industry really isn't the folks, is during an election season.
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Speaker 2: Yeah, a lot of variables that go into the outcomes
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Speaker 2: of an election. Maybe there's an AI model out there
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Speaker 2: being worked on to get more precise on what's really
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Speaker 2: going to happen.
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Speaker 5: I can guarantee that AI is involved in the election,
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Speaker 5: hopefully not in ways that we don't want, So we'll see.
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Speaker 3: Yeah, exactly.
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Speaker 2: Well, Hey, you mentioned you were in Phoenix recently meeting
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Speaker 2: with a bunch of examiners from the nc UA.
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Speaker 3: What was that like?
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Speaker 2: What's it like when a bunch of examiners get together
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Speaker 2: and invite someone from a fintech in there to speak
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Speaker 2: with them.
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Speaker 5: Sure, well, you know, we've just seen such tremendous growth
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Speaker 5: of credit unions, right so of our you know, one
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Speaker 5: hundred plus institutions, more than half our credit unions. It's
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Speaker 5: a segment that has historically done a lot, you know,
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Speaker 5: of what they would call signature loans, but unsecured personal
2:50
Speaker 5: loans are core product in Upstarts product suite, and so
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Speaker 5: that means we have a lot of experience of working
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Speaker 5: with credit unions, but we're also growing very quickly. And
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Speaker 5: so the regional examiners, the examiners that are on the ground,
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Speaker 5: they may be going through the first cycle where they're
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Speaker 5: working with a credit union who signed up with upstarted.
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Speaker 4: So there can just be.
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Speaker 5: A lot of questions about AI, about unsecured personal lending,
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Speaker 5: about the current macro environment, you name it. And so
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Speaker 5: it was really good to just get in front of
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Speaker 5: the audience where they could all ask any question they wanted,
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Speaker 5: try to demystify some of the partnership, try to give
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Speaker 5: them an understanding of how what we do is both
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Speaker 5: similar to what has been done before if you think
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Speaker 5: about credit scoring and all the machine learning that's always
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Speaker 5: gone into an AI that's gone into the you know,
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Speaker 5: the development of traditional credit scores, and then kind of
3:46
Speaker 5: taking it to the next level in developing this full
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Speaker 5: turnkey solution so that credit unions can can really find customers,
3:53
Speaker 5: help help them price customers, help them add that extra
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Speaker 5: layer of a tool to be more accurate in in
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Speaker 5: how how they do what they do, and then also
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Speaker 5: servicing the customers. And so I think just giving the
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Speaker 5: examine our audience, from our perspective what a partnership looks like,
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Speaker 5: you know how how the how the partnership is overseen
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Speaker 5: by credit unions, that that was just a really good opportunity.
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Speaker 5: And the session went I think I want to say
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Speaker 5: it probably went a half an hour over just with
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Speaker 5: the numbers of you know, really good back and forth
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Speaker 5: and dialogue that we had.
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Speaker 2: Yeah, that's great that there was so much engagement. Do
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Speaker 2: you think they even understand or grasp like the need
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Speaker 2: for outside partnership with fintech companies like Upstart, Like do
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Speaker 2: they understand the premise of why maybe some of these
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Speaker 2: smaller institutions can't even do this themselves.
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Speaker 5: I do think that there's an education that needs to
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Speaker 5: be done about the long term viability of their customer
4:51
Speaker 5: base wanting anything other than a deposit accountan we know
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Speaker 5: deposits are pretty sticky. You know, if you have been
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Speaker 5: with the credit union for a long time, you may
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Speaker 5: not be planning to leave on a deposit basis. But
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Speaker 5: just doing the education that people are really searching for credit,
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Speaker 5: not with their primary institution, but they're out there at
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Speaker 5: the comparison sites. They're trying to get the best possible rate,
5:13
Speaker 5: just the way we would buy you know, an airline
5:15
Speaker 5: ticket or anything else. Like, we're going to be out
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Speaker 5: there trying to find the best option, and that means
5:18
Speaker 5: you know, finding the Internet, and so in doing that,
5:23
Speaker 5: you know, really explaining to them the whole order of
5:25
Speaker 5: operations of how somebody comes upstart dot com, how they
5:28
Speaker 5: get matched with the credit union in their region, you
5:31
Speaker 5: know why. You know, if the customer isn't walking in
5:34
Speaker 5: with a bunch of paperwork under their arm physically, it
5:37
Speaker 5: doesn't mean that the credit union can't have a viable
5:39
Speaker 5: lending program. But they're really going to need a partner,
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Speaker 5: So we did spend a lot of time on that.
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Speaker 5: I think I think the examiners, you know, they can
5:48
Speaker 5: be suspicious, that they can be skeptical.
5:50
Speaker 4: I think it's their job to be skeptical.
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Speaker 5: There have been a lot of you know, snake oil
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Speaker 5: salesman through the year saying this is going to be transformative,
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Speaker 5: this is going to be the greatest thing, and then
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Speaker 5: and then it doesn't always turn out, And so you
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Speaker 5: have to kind of be willing to meet that skepticism
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Speaker 5: head on and then show why, you know, we're the
6:07
Speaker 5: kind of company, as a public company that's really built
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Speaker 5: to last and it's going to be here for Credit
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Speaker 5: Unised for a really long time.
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Speaker 1: Yeah.
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Speaker 2: You know, the one thing that's helped me put some
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Speaker 2: of that into context that is a memory that not
6:18
Speaker 2: only are they a regulator, they're the ensure, right, so
6:21
Speaker 2: they have a bit of a right and a reason
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Speaker 2: to be skeptical. It's part of their job right to
6:25
Speaker 2: make sure that these credit unions are operating safely and
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Speaker 2: soundly to protect their their customer's deposits.
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Speaker 4: That's that they're not that's absolutely right.
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Speaker 5: They're an insure and and there's a certain amount of
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Speaker 5: you know, truth to the possibility that even if something
6:45
Speaker 5: is only a you know, reputational harm to the bank
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Speaker 5: or the credit union like that, that that could.
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Speaker 4: Then trigger sort of more problems.
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Speaker 1: Right.
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Speaker 5: So, they they tend to be very interested in understanding
6:58
Speaker 5: at the front end of a partnership, you know, when
7:00
Speaker 5: something is launching, because they know they may not be
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Speaker 5: back for another eighteen months or two years, and so
7:06
Speaker 5: you know, they want to make sure that it's you know,
7:09
Speaker 5: as they like to say, if something's right at the beginning,
7:11
Speaker 5: it can be right in the middle, and then it
7:12
Speaker 5: can be right at the end. So I think I
7:14
Speaker 5: think we did a pretty good job of walking them
7:17
Speaker 5: through the full life cycle and showing them how the
7:20
Speaker 5: credit the credit union is really in charge of the size,
7:25
Speaker 5: the cadence of the partnership, the diligence process, the on
7:30
Speaker 5: going you know, the ongoing monitoring, the performance monitoring, the
7:33
Speaker 5: fair lending monitoring. And I think that really got them
7:37
Speaker 5: more certainly more comfortable than they were walking in. I
7:40
Speaker 5: think that you know, they they there were concerns not
7:43
Speaker 5: with Upstart, but just in general with financial technology companies,
7:47
Speaker 5: you know, maybe sort of trying to jump in and
7:49
Speaker 5: take advantage of small credit unions. And by the end,
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Speaker 5: I think that they saw that upstarts on that list
7:55
Speaker 5: of companies, it's going to be around for credit unions
7:57
Speaker 5: for a long time.
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Speaker 2: Yeah, you made a good point about them, you know,
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Speaker 2: in their field, exams being every twelve to eighteen months,
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Speaker 2: and the rate of pain, pace of change in technology
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Speaker 2: now seems to be exponentially growing, you know, whether that's
8:12
Speaker 2: the availability of cloud computing, the different you know, algorithms
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Speaker 2: and techniques you can use at that space, the number
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Speaker 2: of third parties that are coming into play. So I
8:22
Speaker 2: would imagine they would want to be keeping up to
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Speaker 2: date and learning as much as they could in between
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Speaker 2: those exams and staying in sync with those things. Did
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Speaker 2: you find there were any specific areas they were really
8:34
Speaker 2: you know, seeking more information on, or you found gaps
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Speaker 2: and that they were trying to rectify.
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Speaker 5: No, I think you know they were interested in, you know,
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Speaker 5: when in the process, you know, they can get a
8:47
Speaker 5: better understanding of the upstart model. We talked a lot
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Speaker 5: about what's appropriate to ask, you know, a credit union
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Speaker 5: executive who may not be an AI machine learning expert
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Speaker 5: with a computer science degree, versus where it's fair for
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Speaker 5: you know, upstart to answer a straightforward question that might
9:03
Speaker 5: be posed in writing. And so we've sort of talked
9:05
Speaker 5: a little bit about that and how to have the
9:08
Speaker 5: exam process feel fair to somebody who isn't steeped in
9:12
Speaker 5: it the way.
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Speaker 4: Our team is. And then we also spend a lot
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Speaker 4: of time on open banking.
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Speaker 5: Interestingly, because I think there's a lot of skepticism initially
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Speaker 5: in this idea of like, well, would why would Congress
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Speaker 5: in the DoD Frank Act, which you know I worked
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Speaker 5: on back in twenty ten, you know, why would we
9:32
Speaker 5: want to empower and say that the customer owns their
9:34
Speaker 5: own data, And then you walk through just the importance
9:38
Speaker 5: of being able to shop around for the best possible
9:40
Speaker 5: product and relating it to our own lives of how
9:43
Speaker 5: we do that all the time, and that that applies
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Speaker 5: in banking as well, and then making it come for
9:47
Speaker 5: all circle and say, well, but now credit unions can
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Speaker 5: actually take advantage of that too with partnerships like I'll start,
9:52
Speaker 5: like you know it's it's the credit union upstart partnership.
9:55
Speaker 5: If it's enabling somebody to refinance their credit card that
9:57
Speaker 5: might be with one of the biggest banks in the country,
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Speaker 5: and then all of a sudden, that's now become a
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Speaker 5: credit union customer that could be become a member, right,
10:04
Speaker 5: that's going to be you know potentially like you know,
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Speaker 5: a depositor with that credit union, or get other services
10:09
Speaker 5: from that credit union. We talked a little bit about
10:10
Speaker 5: that cross selling, and so I brought up an example
10:13
Speaker 5: where you know, a credit union that worked with Upstart
10:15
Speaker 5: was able to cross sell you know, something like ten
10:18
Speaker 5: percent of their customers into other products and so forth,
10:20
Speaker 5: or their member their new members through through through the
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Speaker 5: Upstart partnership into into you.
10:24
Speaker 4: Know, other products.
10:25
Speaker 5: And so I think it just positioning everything as on
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Speaker 5: the long term side of the health.
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Speaker 4: Of the credit union, which is ultimately what they care about.
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Speaker 1: Right.
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Speaker 5: They are just like you said, they are the insurer.
10:37
Speaker 5: They want these institutions to survive, thrive. They're not so
10:41
Speaker 5: much interested whether they grow quickly, but they at least
10:44
Speaker 5: don't want them to wither and fail. And so I
10:47
Speaker 5: think that that was probably a really healthy kind of
10:52
Speaker 5: I think a little bit of an AHA moment of
10:54
Speaker 5: like open banking is meaning that our credit unions have
10:57
Speaker 5: a chance to compete for customers that they probably never
10:59
Speaker 5: had a shot at before.
11:02
Speaker 2: Yeah, that's interesting. I wasn't expecting you to bring up
11:04
Speaker 2: open banking. Maybe. Spoiler alert, there's a mutual friend of
11:08
Speaker 2: ours who's been on the podcast before as well. We've
11:10
Speaker 2: been having some conversations about this offline and are planning
11:13
Speaker 2: maybe a future conversation. So I might have to get
11:15
Speaker 2: some more talking points from you, some more insight in
11:17
Speaker 2: your perspective on that, because I think that the interesting
11:21
Speaker 2: correlation you mentioned like it's probably going to open up
11:24
Speaker 2: the opportunity for more partnership opportunities for credit unions. I
11:27
Speaker 2: would imagine in a world where data is more portable,
11:30
Speaker 2: our customers have more choice.
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Speaker 4: Yeah, I think so one hundred percent.
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Speaker 5: And I think the challenge for the smaller institutions, which
11:37
Speaker 5: we've seen across a lot of products, you know, small
11:40
Speaker 5: dollar product being you know a recent most recently there's
11:44
Speaker 5: you know, some studies of how many of the very
11:47
Speaker 5: large five or six banks of the country have built
11:50
Speaker 5: pretty viable you know, small dollar products for loans under
11:54
Speaker 5: a thousand dollars. But it's it's a difficult product, difficult
11:57
Speaker 5: customer to underwrite on, you know, in you know, online interface,
12:02
Speaker 5: people want their money quickly. You know, how are you
12:05
Speaker 5: going to compete in an area like that if you
12:08
Speaker 5: don't have a partnership. And so I think that there's
12:11
Speaker 5: a you know, there's a host of ways in which
12:14
Speaker 5: these credit unions can use the right type of partners
12:16
Speaker 5: to get them, you know, the type of members that
12:19
Speaker 5: they want to find in their regions and offer them
12:22
Speaker 5: a viable you know, such as the product.
12:25
Speaker 4: As you know, it's like the user experience is everything.
12:27
Speaker 5: I mean, if if it's going to take days and
12:29
Speaker 5: days to get through the process, they're going to just
12:31
Speaker 5: they're going to just drop out of the of the
12:33
Speaker 5: application and go go find somebody else who can get
12:36
Speaker 5: it done for them in an efficient manner.
12:38
Speaker 6: Yeah.
12:39
Speaker 3: Absolutely, I think we don't talk about that enough.
12:42
Speaker 2: You know. Obviously a lot of attention rightfully, so it
12:43
Speaker 2: goes to the underwriting, the verification, all the data and
12:47
Speaker 2: insights that drive that, but you know, the user experience
12:50
Speaker 2: has to be seamless and continually evolving as well. So
12:53
Speaker 2: definitely a huge benefit to partnerships there.
12:56
Speaker 4: Yeah, and we.
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Speaker 5: Talked a lot with the examiners you know at nc
13:00
Speaker 5: u A about the fair lending testing as well, how
13:04
Speaker 5: to keep how to keep a rigorous set of tests
13:09
Speaker 5: on the upstart you know models, you know, doing some
13:13
Speaker 5: education on the upstart is just one piece of the decision.
13:17
Speaker 5: So so the person's you know, credit criteria as determined
13:22
Speaker 5: by other companies that are not upstart, Fyco being a
13:25
Speaker 5: great example, their their credit score, things like their debt
13:28
Speaker 5: to income ratio. Things that that tend to create like
13:31
Speaker 5: who is actually going to be even eligible can drive
13:34
Speaker 5: a lot of who gets declined, approved, et cetera. And
13:38
Speaker 5: then upstart is sort of this this piece that comes
13:42
Speaker 5: in afterwards. And so once they understood that, there's a
13:45
Speaker 5: very big difference between using AI and all the alternative
13:49
Speaker 5: data as this really helpful additional layer as opposed to, oh, no,
13:55
Speaker 5: you're just turning over your entire underwriting to some black
13:57
Speaker 5: box that's not you Like, that's a different story. And
14:00
Speaker 5: so I think people also, just examiners don't always appreciate
14:04
Speaker 5: that when they come into the first time to examine
14:08
Speaker 5: a credit union that is signed up with a financial
14:09
Speaker 5: technology provider, they think, oh, like, now this is out
14:12
Speaker 5: of their control and like showing no, no, this is within
14:16
Speaker 5: their control. And not only that, but it's really these
14:19
Speaker 5: other tools that are what is driving the vast majority
14:22
Speaker 5: of who gets credit and who doesn't, and then the
14:25
Speaker 5: upstart that's helping them really get a more refined look
14:28
Speaker 5: at those who would qualify within their desired region or
14:33
Speaker 5: other eligibility requirements.
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Speaker 4: Thanks, and now back to the show.
15:20
Speaker 2: Did you find other than fairness? Were there other things
15:22
Speaker 2: they really leaned into and kind of that compare contrast,
15:26
Speaker 2: Like you mentioned, there's a lot of things that happen
15:27
Speaker 2: in the process that are the same as they've always been.
15:30
Speaker 2: You know, we just maybe newer techniques, faster, more more
15:35
Speaker 2: data points. Like as they went through that exercise of
15:38
Speaker 2: trying to think about, you know, how is this similar
15:40
Speaker 2: or dissimilar from what they're used to?
15:42
Speaker 3: Were there other things that they tended to investigate harder.
15:47
Speaker 4: I think that they just they had some prior assumptions.
15:50
Speaker 5: That where we had a really robust discussion. I mean,
15:55
Speaker 5: there was one comment in one of the earlier forums,
15:58
Speaker 5: not the main forum, where you know, why would you
16:02
Speaker 5: need The question was posed by an example, why would
16:04
Speaker 5: you need a lot of data points for a for
16:06
Speaker 5: a seven hundred fifty dollars loan? Right? And so I
16:09
Speaker 5: had to say, like, no, no, that's exactly where you
16:11
Speaker 5: probably need the.
16:12
Speaker 4: Most data points, do you know what I mean?
16:14
Speaker 5: In a certain sense that like it seems like a
16:16
Speaker 5: low stakes, but if you're trying to scale a program
16:19
Speaker 5: and you're going to have a whole lot of them.
16:22
Speaker 5: You know, people who are you know, at at at
16:28
Speaker 5: a point in their life where they need to borrow
16:30
Speaker 5: five hundred bucks or seven hundred fifty bucks or a
16:33
Speaker 5: thousand bucks from a financial services provider, they can't come
16:35
Speaker 5: up with that kind of money on their own. You
16:38
Speaker 5: really want to understand, you know, details about their you know,
16:43
Speaker 5: for instance, like it might be their cash flow in
16:45
Speaker 5: a writing speaking of open banking and through plaid, or
16:48
Speaker 5: you know, details about their their paycheck history to really
16:52
Speaker 5: understand that they're going to be able to repay that loan,
16:54
Speaker 5: because it's not as though you're lending into some cushion
16:57
Speaker 5: where you know, there's enormous there's enormous wealth there and
17:01
Speaker 5: you're sort of saying, well, you know that we know
17:03
Speaker 5: that this person is you know, both wealthy and has
17:06
Speaker 5: this huge high income. Like many times these you know,
17:09
Speaker 5: these smaller dollar loans, like you need more data. And
17:12
Speaker 5: so there again, we had a lot of a lot
17:14
Speaker 5: of these I think, really interesting prior assumptions that had
17:21
Speaker 5: to kind of be like addressed in a really direct way.
17:25
Speaker 4: And that doesn't mean it was uncomfortable.
17:27
Speaker 5: It's just it's a really important sort of evolution and
17:29
Speaker 5: conversation that we're having.
17:32
Speaker 2: Yeah, and I wondered that, like, how I don't regulators
17:35
Speaker 2: examiners think about that trade off of data versus human interaction,
17:40
Speaker 2: the cost, the ability to probe those decisions, you know,
17:43
Speaker 2: one by one or at scale, you know, the cost
17:46
Speaker 2: of those like did you guys get into those, whether
17:49
Speaker 2: it's you know, in terms of making the underwriting decision,
17:52
Speaker 2: reviewing fairness, like just the difference like you were saying
17:56
Speaker 2: with especially with a small dollar loan, every time you
17:59
Speaker 2: have to involve a human in any of that really
18:02
Speaker 2: makes that kind of a loan or a decision much
18:05
Speaker 2: more expensive. So you're you're not as able to expend
18:08
Speaker 2: extend credit to as many customers as you might like.
18:11
Speaker 4: Yeah, we talked a lot about that.
18:12
Speaker 5: We talked about the value in automation and again in
18:17
Speaker 5: the value also in scale from a you know, even
18:20
Speaker 5: from a performance standpoint, the importance of diversification, and I
18:24
Speaker 5: think that, uh, you know again, in some ways we're
18:28
Speaker 5: fortunate with the n c U A and credit unions
18:30
Speaker 5: because they have offered this product area a long time.
18:34
Speaker 5: As you know, there's like the pal loan program in
18:37
Speaker 5: credit unions for small dollar loans. They've won't long offered
18:41
Speaker 5: you know, signature loans and so, you know, as opposed
18:44
Speaker 5: to some in the banking greune that mostly do commercial
18:47
Speaker 5: lending and might just be for the first time dipping
18:49
Speaker 5: their toe into consumer you know, uh, closed in installment
18:53
Speaker 5: like loans. That this is an area that is sort
18:55
Speaker 5: of bread and butter for a long time for credit unions,
18:58
Speaker 5: I think, and so that gives there is a little
19:01
Speaker 5: bit more expertise. I think one of the things that
19:06
Speaker 5: was probably compelling to hear were just the anecdotal examples
19:10
Speaker 5: where I could say that those that have kept a.
19:12
Speaker 4: Traditional program running alongside upstart have.
19:15
Speaker 5: Reported uniformly that that the AI version has outperformed right
19:21
Speaker 5: or that products where they've made this conversion to AI,
19:23
Speaker 5: or if they went with a prior vendor that wasn't
19:27
Speaker 5: using as much data or AI in a similar product
19:30
Speaker 5: like that, that that the AI version may not have
19:33
Speaker 5: been perfect, credit performance may not be perfect, you know,
19:35
Speaker 5: do the macro or whatever, but that it outperformed what
19:38
Speaker 5: they had been doing or what they were doing side
19:42
Speaker 5: by side with a different program. And so I think
19:45
Speaker 5: that was I think helpful for people to understand that,
19:48
Speaker 5: you know, there's a context to what they have to
19:50
Speaker 5: view if they if they go into a credit union,
19:53
Speaker 5: you know, they they need to understand like, hey, why
19:55
Speaker 5: don't I take a look at whether or not you know,
19:58
Speaker 5: a traditional portfolio is a scalable is it actually going
20:02
Speaker 5: to become anything five years from now that can produce
20:05
Speaker 5: you know, some some sort of healthy you know income,
20:08
Speaker 5: you know for the credit union or so that's one question.
20:12
Speaker 5: And and then also is it is it actually performing
20:15
Speaker 5: in a decent way from a credit performance stample.
20:19
Speaker 3: Yeah, that's a good point.
20:20
Speaker 2: That's one thing that typically helps skepticism, I think is
20:23
Speaker 2: data and experience. So we're starting to get more and
20:26
Speaker 2: more proof points out there, and good point about the
20:29
Speaker 2: side by side comparison as well, So hopefully that helps you.
20:33
Speaker 5: And there's data on that, as you know, Matt, we
20:35
Speaker 5: talked about the data from d v O one a
20:36
Speaker 5: little bit, so we were able to kind of share
20:39
Speaker 5: some data on upstarts performance and you know, while acknowledging
20:43
Speaker 5: that that every credit union, based on their region, may have,
20:46
Speaker 5: you know, variations are based on their.
20:48
Speaker 4: Hard credit criteria.
20:49
Speaker 5: That doesn't have to do with upstart, like they could
20:51
Speaker 5: have different different outcomes and experiences. But but the you know,
20:55
Speaker 5: the bottom line, if you look in the aggregate at
20:57
Speaker 5: the performance and the risk adjusted returns and so forth
21:01
Speaker 5: of the upstart portfolio, you know it's been quite strong
21:05
Speaker 5: through the cycle. And so we spend a little bit
21:07
Speaker 5: of time on the macro cycle and sort of the
21:08
Speaker 5: importance of allowing credit unions the opportunity to see programs
21:16
Speaker 5: perform on all sides of the cycle, right, and and
21:19
Speaker 5: the way that we encourage you know, institutions. Obviously we
21:21
Speaker 5: want them to do as much as we they can
21:23
Speaker 5: with us, but we're not pressuring them to do so
21:26
Speaker 5: this is their program. They can decide to scale it
21:28
Speaker 5: up and scale it down at whatever times. You know,
21:31
Speaker 5: we have our own macro tools. We talked a little
21:33
Speaker 5: bit about you MI and so forth, and so how
21:37
Speaker 5: how does the macro index help inform the way people
21:40
Speaker 5: can be thinking about about their their risk appetite at
21:44
Speaker 5: any given time.
21:45
Speaker 4: But you know, just as we you know, invest in the.
21:48
Speaker 5: Stock market, you dollar cost average, it's it's not always
21:51
Speaker 5: good to be stopping and starting.
21:53
Speaker 4: In general, it's better to see things through the cycle.
21:55
Speaker 5: And so we talked a little bit about about that
21:57
Speaker 5: and how ultimately, you know, being as inclusive as possible
22:01
Speaker 5: and seeing through the cycle is how we think people
22:03
Speaker 5: will probably do the best.
22:05
Speaker 2: Yeah, I totally agree. That's typically when people need it
22:08
Speaker 2: the most. Right access to these types of credit products
22:11
Speaker 2: as well, yeap, you know, with the credit unions, a
22:16
Speaker 2: lot of them being a regionally focused or bound within
22:18
Speaker 2: certain states or field and membership. Did you guys discuss
22:21
Speaker 2: or what's your point of view on some of the
22:22
Speaker 2: state regulation that's happening out there, or do you see
22:25
Speaker 2: like how out of things modulate between states versus a
22:29
Speaker 2: national federal level and thinking about lending from that lens.
22:33
Speaker 5: Yeah, I mean, like, and this is an interesting dynamic
22:36
Speaker 5: because we know in DC there's this big, you know,
22:40
Speaker 5: long term battle.
22:42
Speaker 4: Between banks and credit unions.
22:44
Speaker 5: And most recently you probably saw the CEO of the
22:48
Speaker 5: American Bankers Association, Rob Nichols, wrote to the head of
22:51
Speaker 5: the NCUA, Todd Harburn's, you know about acquisitions and the
22:55
Speaker 5: transparency because there's now so many credit unions buying small
22:58
Speaker 5: community banks, and you know, that's just the latest iteration
23:03
Speaker 5: of this. There there is a fight when I was
23:05
Speaker 5: on the hill about business lending, how much business what
23:07
Speaker 5: percentage of the balance sheet credit unions could use for
23:10
Speaker 5: commercial lending, which kind of impedes in their turf and
23:13
Speaker 5: and then of course the tax status of credit unions,
23:15
Speaker 5: and so there is this long term battle that's always
23:18
Speaker 5: gone on and and questions about the the the the
23:23
Speaker 5: the overall role of credit unions in their communities and
23:26
Speaker 5: for specific communities as opposed to broadly broader uh, you know,
23:31
Speaker 5: serving broader constituencies. We have a lot of national credit us.
23:34
Speaker 5: I I just made the point of diversification that credit
23:37
Speaker 5: unions in general will do better if they're able to
23:41
Speaker 5: draw you know, members from as broad an area as
23:45
Speaker 5: they possibly can, and then they'll do better if they
23:47
Speaker 5: can you know, have you know, non concentrated portfolios again
23:53
Speaker 5: broadly speaking, as much as they can. So those that
23:55
Speaker 5: are in certain states and operating within those state guidelines
23:58
Speaker 5: and and are are you know going to.
24:00
Speaker 4: Stay there for a variety of reasons, that can be fine.
24:02
Speaker 5: And then those that are national there's going to be
24:05
Speaker 5: you know, kind of a constant, I believe push towards
24:09
Speaker 5: the national model because of the Internet, right, I mean
24:12
Speaker 5: this is just if you know, if you can find
24:15
Speaker 5: new members, if you can find you know, new members
24:18
Speaker 5: through you know, a credit channel, and then somebody signs
24:23
Speaker 5: up for a deposit account, like you're going to want
24:25
Speaker 5: to do that if you can. And so I think
24:28
Speaker 5: it's going to become a long term sort of trend
24:31
Speaker 5: that you're going to see of more and more of
24:33
Speaker 5: you know, credit unions that are sophisticated enough to handle
24:36
Speaker 5: it or going to want to be able to have
24:37
Speaker 5: as wide a footprint as they possibly can.
24:41
Speaker 2: Yeah. That leads me to think of another topic I've
24:44
Speaker 2: been debating with a few people. I don't if I'll
24:45
Speaker 2: have enough time in this episode to get into it,
24:47
Speaker 2: but like the idea of a primary financial institution, like
24:50
Speaker 2: does that exist anymore? What you know, the role of
24:52
Speaker 2: these institutions, whether the banks or credit unions or community banks,
24:56
Speaker 2: you know, do they serve a customer or is there
24:59
Speaker 2: specialization and other products? And you know, no one really
25:02
Speaker 2: owns a customer, but you're you're kind of fighting for
25:04
Speaker 2: that next product.
25:06
Speaker 4: Yeah.
25:07
Speaker 5: Well, if I mean think, I think from a regulatory standpoint,
25:10
Speaker 5: you know, you want you want the credit union to
25:15
Speaker 5: be able to offer the types of products and experiences
25:19
Speaker 5: that can keep it healthy over the long haul. And
25:23
Speaker 5: if it can't do that, then it's gonna wither and
25:27
Speaker 5: you're gonna see, you know, the consolidation.
25:31
Speaker 4: And and all the challenges around that.
25:35
Speaker 5: You know. So I think that there is interest in
25:38
Speaker 5: a lot of this innovation from that standpoint, It's just
25:40
Speaker 5: that there's also that healthy skepticism of is this innovation
25:45
Speaker 5: serving the credit union and the consumer?
25:47
Speaker 1: Right?
25:47
Speaker 5: And so if you can show that it does both,
25:51
Speaker 5: and I think, you know, we have a lot of
25:52
Speaker 5: great data and studies to show that that Upstart, you know,
25:56
Speaker 5: is one of those companies that does both, but you.
25:58
Speaker 4: I think you need to be able to be prayer
26:00
Speaker 4: to show that, you know.
26:02
Speaker 5: Moving back, I think we're at an interesting moment in Washington,
26:08
Speaker 5: not only because of the election, right where we're at
26:10
Speaker 5: a moment where you know, we're going to have a
26:12
Speaker 5: new administration either way, which doesn't happen very often. Right,
26:16
Speaker 5: We're not you know, Joe Biden is not going to
26:19
Speaker 5: be president in January, so like that's a new administration.
26:22
Speaker 4: Is that that's a that's a big deal.
26:24
Speaker 5: So we're gonna have a new a new administration either
26:26
Speaker 5: way to spend time with talking about about financial technology,
26:32
Speaker 5: about AI and underwriting, about partnerships between supervised institutions and
26:39
Speaker 5: institutions that are regulated but aren't directly supervised in the
26:42
Speaker 5: same way. And and we're doing that against the backdrop
26:47
Speaker 5: where as we mentioned, they are all of these compelling
26:51
Speaker 5: reasons why, especially for any institution but the very biggest
26:55
Speaker 5: of the of the you know, the largest institution of
26:58
Speaker 5: the country that build a lot of amazing products in
27:01
Speaker 5: house for all, but that you know, handful of companies.
27:04
Speaker 5: Partnerships are going to be the way of various kinds
27:05
Speaker 5: of way that that a lot of things move forward.
27:10
Speaker 4: And yet you have, uh, you know, there's.
27:13
Speaker 5: Negative there's been negative headlines, not in the lending area
27:16
Speaker 5: so much, but on you know, things like synapse bankruptcy
27:18
Speaker 5: and others. Right now, there's a request for information from
27:23
Speaker 5: the federal regulators about third party risk management at partnerships.
27:27
Speaker 4: We at Upstart will be responding to that. American Fintic
27:30
Speaker 4: Council will be responding to that.
27:32
Speaker 5: And so you know, we're also making the point all
27:35
Speaker 5: of these forums, whether it's the NCAA Examiner's Forum or
27:37
Speaker 5: when we meet with the OCC or the fd i
27:39
Speaker 5: C or the ten of these conferences, we're spending a
27:41
Speaker 5: lot of time talking about the value. And then we
27:45
Speaker 5: also have to bring the examples where the rovert meet
27:47
Speaker 5: throat of where we think a regulation or implementation or
27:52
Speaker 5: regulation or supervisory question or expectation may be so onerous
27:57
Speaker 5: that it is going to disrupt a partnership, right, And
27:59
Speaker 5: so so that's not where anybody wants to be. You know,
28:03
Speaker 5: nobody wants to be complaining, but you have to be
28:06
Speaker 5: willing to advocate on behalf of partnerships that have the
28:10
Speaker 5: chance to really move the whole financial system forward in
28:13
Speaker 5: a productive way, both for the institutions for the consumer.
28:17
Speaker 3: Yeah, totally agree.
28:18
Speaker 2: And I wonder not how did you leave Phoenix in
28:21
Speaker 2: that meeting with the examiners. Do you feel like they
28:23
Speaker 2: were bullish on the idea of partnerships and you know,
28:26
Speaker 2: companies being able to help credit unions in that sustainability
28:30
Speaker 2: like you mentioned, I think they were bullish.
28:32
Speaker 5: I think that they though want to think about how
28:36
Speaker 5: to how to tease out whether an institution like up
28:40
Speaker 5: Start with a lot of resources, is the partner and
28:43
Speaker 5: able you know, thousands of employees able to able to
28:46
Speaker 5: support a partnership in a viable long term way, versus
28:50
Speaker 5: a vendor that might come with a lot of promises
28:53
Speaker 5: and not the ability to like really deliver, right. And
28:56
Speaker 5: so I think they are going to be continuing to
29:01
Speaker 5: bring scrutiny, but I think it's going to be with
29:04
Speaker 5: more knowledge of Upstart, more and more understanding of how
29:08
Speaker 5: the partnership works, and more understanding of the whole reason why.
29:13
Speaker 5: I think I mentioned just in the context of open banking,
29:15
Speaker 5: like why why even why you know, why did you
29:18
Speaker 5: take their call? Like why are you spending time? Why
29:20
Speaker 5: are you thinking about it? And understanding the many problems
29:23
Speaker 5: that we're solving for a smaller institution, from finding the member,
29:29
Speaker 5: helping do it with the underwriting, helping with the pricing,
29:31
Speaker 5: helping with the servicing, help you know, supporting fair lending, testing, uh,
29:36
Speaker 5: all of that rigor, and ultimately you know, keeping the
29:41
Speaker 5: viability and health of the institutions that side of the
29:45
Speaker 5: balance sheet, you know, not the deposit so much, but
29:46
Speaker 5: the credit side of the balance that you know that
29:49
Speaker 5: in a in a in a good posture. So that
29:53
Speaker 5: that I think was the time well spent. Let alone,
29:56
Speaker 5: a lot of the time spent on third party risk
29:58
Speaker 5: management and don more of the in the weeds regulatory conversation.
30:04
Speaker 3: Yeah, totally.
30:06
Speaker 2: Well that it's always great catching up. I'm always impressed
30:08
Speaker 2: to you. You have to know so much about so
30:10
Speaker 2: many different things and how upstart operates in the space
30:13
Speaker 2: and the regulations that impact it. I wonder like, is
30:16
Speaker 2: there a source of information you can share with us,
30:18
Speaker 2: like that helps you keep up to date, whether it's
30:20
Speaker 2: you know, the points of view of some of these agencies,
30:23
Speaker 2: the news, the feelings of politicians. Like again, like so
30:27
Speaker 2: many variables can go into impacting how these things turn out,
30:30
Speaker 2: Like how do you ye're a source?
30:32
Speaker 3: I think it's interesting.
30:33
Speaker 4: I think it's interesting.
30:34
Speaker 5: I get that question a lot when I when I speak,
30:37
Speaker 5: Where do you get your news?
30:37
Speaker 4: How do you how do you keep on top of
30:40
Speaker 4: all of it?
30:42
Speaker 8: I think a lot of it is accumulated, and I think,
30:46
Speaker 8: you know, LinkedIn is a great example, you know, when
30:49
Speaker 8: you've developed a career's worth of relationships and then you're
30:52
Speaker 8: able to follow your network and curate your network.
30:55
Speaker 5: Based on what your you know, interests are for upstart,
30:59
Speaker 5: and then you're able of the track a lot of
31:01
Speaker 5: what's keeping your network either up at night or what
31:05
Speaker 5: they're spending that their time on. That can be an
31:06
Speaker 5: incredible source of news. So rather than what some editor
31:11
Speaker 5: it's almost like the ultimate crowdsourcing of of information, right,
31:15
Speaker 5: rather than what some editor at the New York Times
31:17
Speaker 5: or the Wall Street Journal, or the Financial Times or
31:20
Speaker 5: or Fintech Daily decided they thought was important you know,
31:23
Speaker 5: you read all those but then you also have you know,
31:26
Speaker 5: what those who are in the supervised community, like, you
31:29
Speaker 5: know your potential partners, like what they're posting about AI.
31:33
Speaker 4: You have the advocates, what.
31:34
Speaker 5: They're posting, the you know, the civil rights community, and
31:37
Speaker 5: you're able to kind of track, you know, in a
31:39
Speaker 5: real time what is bubbling and try to see a
31:42
Speaker 5: little bit around the corner of what's coming in a
31:45
Speaker 5: way that that wasn't probably possible before that platform. So
31:48
Speaker 5: I do think that that's that's an incredibly powerful one
31:52
Speaker 5: for the type of tracking that you're that you're talking about.
31:56
Speaker 2: Yeah, that's a good, good point. Yeah, LinkedIn with all
31:59
Speaker 2: its worth, and like self appointed gurus like you filter
32:03
Speaker 2: through that to your network of people and see what
32:05
Speaker 2: they care about and where they're finding information that's true.
32:08
Speaker 5: I mean, I just I just block the gurus like
32:11
Speaker 5: I It's it's like people that I know that are
32:14
Speaker 5: you know, they were just at Treasury or they were
32:17
Speaker 5: just at one of these regulatory bodies, and then they're
32:19
Speaker 5: posting something about something that they were wrestling with. Like
32:21
Speaker 5: that's where the magic is that people that are who
32:23
Speaker 5: are who are really employed in the in the workforce
32:27
Speaker 5: in the field that you're in and and really understanding
32:30
Speaker 5: what they're tracking.
32:31
Speaker 4: I think is is powerful. So thanks for the conversation, Matt.
32:34
Speaker 5: It's great and I think we'll be back at it
32:36
Speaker 5: maybe later this fall with a with the new sets,
32:39
Speaker 5: but it's fun to talk a little bit about the
32:40
Speaker 5: NCUA and the event in Phoenix.
32:43
Speaker 3: Definitely thanks again for joining that.
32:45
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