Upstart’s Unsecured Loan Automation Reaches All-Time High

Artificial intelligence (AI) lending platform Upstart has reached a record percentage of automated unsecured loans.

“Last quarter, we reached an all-time high of 88% of unsecured loans fully automated,” Upstart CEO Dave Girouard said Tuesday (Aug. 8) during the company’s quarterly earnings call. “That means instant and automated approval with no waiting, no documents to upload and no phone calls.”

The company has been steadily progressing toward that accomplishment. The share of unsecured loans that were fully automated stood at 29% in the second quarter of 2017, 64% in the same quarter of 2019, and 69% in that quarter in 2021, Girouard said.

For the company, the higher share of unsecured loans being fully automated means it can scale originations faster than headcount, Girouard said. For its customers, it means they experience a loan application process that is faster and more effortless than any they’ve seen before.

That achievement came during a quarter in which Upstart also gained record highs in both contribution margin and positive cash flow. The contribution margin in the Q2 was 67%.

“We achieved a record-high contribution margin and positive cash flow, a result of our efforts over the past year to improve efficiency and operating leverage in our business,” Girouard said.

Upstart’s core personal loan risk models have been properly calibrated, he added.

Sanjay Datta, chief financial officer, discussed during the call the impact of adverse selection, which is when people select against taking a loan due to unfavorable conditions.

“In our case, for a lot of the segments where we tend to learn a lot of volume, even with higher rates, we tend to still have the best rates available … so even with higher take rates and higher loss assumptions, we, in many instances, are still significantly below what you might think of as the clearing rate out there based on the credit scores,” Datta said.

Looking ahead, Upstart expects that when the funding markets return to normal, becoming less cautious than they are now, the company’s continuing investment in AI will have it in the pole position.

“Regardless of the economy’s direction in the coming months, I’m confident that we’re building a better, stronger enterprise for the future,” Girouard said.