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How First Federal Bank of Kansas City built and scaled an unsecured consumer lending portfolio with Upstart


Deeply connected to the Kansas and Missouri communities for an impressive 88 years, First Federal Bank of Kansas City (FFBKC) is laser-focused on serving its customers through consumer loans.

As a mutually owned institution (meaning its depositors own the institution), customer success is at the heart of the bank. With 11 branches in the greater Kansas City area and a nationwide lending presence, FFBKC is known primarily as a mortgage lender.

However, with a strong belief in empowering consumers to improve their financial situation, like consolidating and paying off high-interest credit card debt, FFBKC noticed a gap in its product offering — unsecured personal loans.

Historically, personal loans weren’t offered at FFBKC, but personal loans aligned with its mission of helping customers pay off their debt at lower interest rates while also diversifying their assets. "If we were going to be truly about our mission, vision, and values to help communities prosper, we knew we needed to add a product offering in the unsecured consumer lending space to help our customers," explained Barry Cooper, Chief Innovation Officer at FFBKC.

Unsecured loans also fit into the bank’s strategic plan to intentionally and proactively engage in fintech partnerships. The next step was finding the right partner.

 

Upstart: A blend of scale, ease, and speed

“We had this desire for a turnkey solution, and we found a partner that had the
right type of attitude about a partnership. That made it easy.


Barry Cooper
CIO, FFBKC

At a FinTech conference, FFBKC’s executive team saw a presentation given by Upstart and was impressed by the technology and white-glove service offering. Though FFBKC had already started to build an infrastructure to provide digital products and services, the reality of building its own platform internally would be expensive and risky.

Cooper explained that as a smaller community bank, FFBKC couldn't grow new products and services itself. “We had this desire for a turnkey solution, and we found a partner that had the right type of attitude about a partnership. That made it easy,” Cooper said.

FFBKC saw Upstart as a solution to help their customers quickly access affordable credit while reducing lending risk and costs. The partnership meant FFBKC could proactively help its customers by launching a new product, all without taxing the bank's resources.

From a business standpoint, FFBKC knew that Upstart could help it scale quickly because of Upstart's turnkey infrastructure. This meant the bank could forgo the heavy lifting of implementing this kind of digital transformation. In addition, FFBKC knew that Upstart proactively works with regulators to ensure fair lending and appreciated Upstart’s support and collaboration should a regulator request additional information.

Three key reasons led to FFBKC's decision to partner with Upstart:

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Scale - FFBKC wanted to bring products to their customers quickly and on a broader scale in order to compete with larger banks.

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Ease - The bank wanted a white-glove service and to leave the technical heavy lifting to Upstart’s proven digital consumer experience.

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Speed - FFBKC could be up and running in a matter of three months, rather than years.

As an FFBKC board member during Upstart’s vendor evaluation process, Cooper established himself as Upstart’s champion and worked to gain buy-in from the rest of the executive team.

Ultimately, Upstart’s alignment with FFBKC’s business model, dedication to customer success, and disruptive AI and machine-learning model pushed FFBKC to move forward with the partnership.

Complete control over risk and limits

FFBKC was able to go live with Upstart in just three months and was pleased with Upstart’s transparent and consultative approach. Cooper explained that other fintech partnerships had failed due to a lack of transparency around the product roadmap. With Upstart, the team members shared real-time insights they were seeing from the model and applied these insights in ways that allowed FFBKC to increase profitability.

As a partner, Upstart is responsible for predicting the risk of a loan, while lending partners like FFBKC have the freedom to apply their pricing strategy to Upstart’s risk analysis of the loans. With Upstart, lenders control their own loss limits. While Upstart’s machine learning models estimate borrower risk, lenders then specify how much risk they are willing to take on and proceed with those parameters.

As a traditional, more conservative institution, FFBKC opted for what Cooper calls a, “crawl, walk, run” approach, and began with a $500,000 loan origination target per month in April 2019.

Full control over loan volume and risk proved to be crucial when COVID-19 struck.

Growing loan volume while limiting loss

Like many banks, FFBKC was flooded with deposits during the COVID-19 pandemic and needed to find ways to put this capital to work quickly. Seeing the success of Upstart’s model, FFBKC took what was a modest personal loan target of $500,000 per month and steadily doubled, then tripled its loan volume targets. “Throughout COVID, Upstart's AI-driven credit model continued to prove itself as profitable, safe, and accurate, even in a market that was completely uncertain,” Cooper said.

Cooper also emphasized that Upstart’s dedicated Customer Success and Account Management teams were a huge factor in deciding to scale its personal loan targets.

During the pandemic, the Upstart team met weekly with FFBKC to share trends Upstart was observing from other lenders and ensure that the bank was achieving its loan targets.

This period also proved Upstart’s capability to quickly ramp up FFBKC’s loan volume target. In just two and a half weeks, FFBKC was up and running with a higher loan volume. “We got our expected earnings, even through COVID. We went back to our previous production levels, and now we’re doubling that,” Cooper said.

As of March 2022, FFBKC is originating $12 million per month with Upstart, 24 times its original loan volume.

Seeing success with the performance of Upstart’s model, FFBKC has also scaled its maximum loan size from
$20,000-$30,000 in March 2021 to $30,000-$50,000 in October 2021.

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As of March 2022, FFBKC is originating $12 million per month with Upstart, 24 times its original loan volume.

Cooper said, “One of the things that Upstart has really done well is focusing on the customer journey and walking with us closely every step of the way.”

Through the partnership, Cooper described the trust that was built by being given the freedom to “pull the lever and toggle the level of risk” — this gave the bank full visibility and control over their credit box to be able to scale or dial back when needed. “Upstart has helped us learn how to become less risk-averse,” Cooper added.

“Upstart has helped us learn how to become less risk-averse.”

Barry Cooper
CIO, FFBKC

Auto refinance: The next growth opportunity

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Auto lending was just the logical next step in growing our relationship. We want to grow a relationship that is very cohesive, transparent, and valuable to the bank. When you find a winner, you go all-in.

 

Barry Cooper
CIO, FFBKC

So, what’s next on the horizon for FFBKC? Auto refinance.

“Auto lending was just the logical next step in growing our relationship. We want to grow a relationship that is very cohesive, transparent, and valuable to the bank,” Cooper said. “When you find a winner, you go all-in.”

FFBKC plans to continue its digital transformation journey and improve its automation and orchestration framework. The bank recently deployed a data analytics and business intelligence platform and can ingest data from all of its platforms, including Upstart, and aggregate it inside a data warehouse.

Gaining more customers and
lending more inclusively

“FFBKC has acquired over 1,000 new customers for new cross-selling opportunities.”

One of the benefits of working with Upstart has been the ability to attract new customers. Before the partnership, FFBKC couldn’t originate unsecured consumer loans outside of Missouri, but with Upstart, it began originating nationally, enabling it to meet its loan volume targets.

This geographical presence also allowed FFBKC to create new customer relationships. As of February 2022, FFBKC has acquired over 1,000 new customers for new cross-selling opportunities.

Additionally, Upstart’s AI underwriting model has allowed FFBKC to lend more inclusively. The model goes beyond credit score alone to assess an individual’s true creditworthiness, ensuring more and fairer opportunities for underserved communities.

Between 2017-2018, FFBKC had loans distributed to 24.5 percent of its loans to low-to-moderate income (LMI) customers. As of June 2021, loan distribution to LMI communities in Missouri and Kansas had climbed to 38 percent.

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3 Years of Partnership in Review

  • Scaled loan volume target from $500k/month in April 2019 to $12M/month as of March 2022

  • Increased max loan size from $20-30k to $30-$50k 
  • >1,000 new customer relationships as of February 2022

  • Grew from 24.5% lending distribution to LMI communities to 38%

  • Expansion into Auto Refi in Q2 2022

The executive team also plans to double down on consumer lending, looking for more disruptive technologies like Upstart.

“We’re open to more risk, whether it’s in the digital transformation space, new goods and services, or partners. As an older conservative bank in the Midwest, our survival depends on being able to do this well,” Cooper explained.

In the meantime, FFBKC looks forward to a bright, continued partnership with Upstart. “We are going to listen and support whatever initiatives that Upstart presents. We might not do every one of them, but every one of them will be reviewed at the executive level,” Cooper said. “Upstart has earned that right with us.”

Barry-Cooper

“We are going to listen and support whatever initiatives that Upstart presents. We might not do every one of them, but every one of them will be reviewed at the executive level. Upstart has earned that right with us.


Barry Cooper
CIO, FFBKC