Credit Unions are Partnering with Upstart to Grow Loans and Members Amidst Economic Uncertainty

Rising rates and inflation have slowed lending activity for many banks, who have tightened their credit standards across all asset classes.¹ While the uncertain economic environment has caused some lenders to pull back, credit unions have stepped in to fulfill consumer demand for credit.

Credit unions are having one of their best lending seasons in over 30 years, and the second quarter of 2022 was a record time for loan production.² Unsecured lending grew 13 percent in the first six months of 2022 compared to 0 percent in the first 6 months of 2021.³

Credit unions also gained share in the auto loan space, producing over a quarter of loans and leases – their highest share to date.⁴ Additionally, the Federal Reserve and the Credit Union National Association (CUNA) showed that credit unions held over a third of the nation’s auto loan balance, an all time high.⁵ Despite the interest rate environment, credit unions have prioritized providing affordable credit to members who need it most and have reaped the benefits of loan and membership growth. Credit unions also play a pivotal role in offering credit to traditionally underserved borrowers.

Like education or healthcare, credit is the key to opportunity for most Americans, yet groups including Blacks and Hispanics, young people and immigrants are disproportionately denied access. During economic disruption, this credit gap only widens as some lenders tighten their credit boxes to borrowers with higher FICO scores. With concerns of future losses from rising delinquencies, some banks also shift away from consumer lending to other asset categories like commercial lending.

Ironically, larger banks also tend to increase their APR rates during economic downturn, furthering the cycle of debt more for financially-vulnerable Americans.⁶ This leaves more people susceptible to increasing debt; in fact 61 percent of Americans live paycheck to paycheck.⁷

While lenders typically want to avoid “non-prime” borrowers in the market due to skepticism and fear, these underserved groups deserve the same, easy access to credit as traditionally “prime” borrowers. Though 48 percent of Americans have access to prime credit, 80 percent have never defaulted on a credit product, showcasing a huge opportunity for lenders, especially credit unions, to fulfill the lending needs of this underserved group.⁸

So, how can credit unions expand credit access to more Americans and continue to grow market share without taking on more risk?

With Upstart, credit unions have full visibility and control over their program. In close partnership with their dedicated account manager and customer success manager, credit unions set their target returns and have scheduled check-ins and business reviews to ensure that their program goals are being met.

In addition to meeting their desired credit parameters, the Upstart Referral Network empowers credit unions to acquire borrowers within their field of membership requirements. Credit unions can set geographically-based or SEG-based requirements in order to gain new members to expand relationships with.

Most importantly, credit unions have full control over their credit box, allowing them to customize their program based on their risk parameters. Credit unions can set their minimum credit score, annual loss rates, maximum debt-to-income, maximum loan size, loan terms and more, ensuring the ability to scale up or down as economic conditions change.

Given evolving economic conditions, credit unions also have the option to begin with lower loan volumes and gradually scale as their comfort level increases. By closely monitoring and revisiting their loan parameters with their account management team, credit unions can dial loan volumes up or down in accordance with market conditions.

Upstart is partnering with credit unions like Alliant, BCU, Patelco and Abound to ensure member needs for credit continue to be met. With Upstart, credit unions have:

Improved their credit risk decisioning by leveraging Upstart’s model, which uses over 1,000 variables to assess creditworthiness versus traditional credit score-only models
Incorporated individual, risk-based pricing versus using manual rate and scorecards
Quickly implemented a modern, all-digital lending experience in as little as 60 days
Implemented instant verification and online fraud detection

As a digitally-first, national lender, Alliant emphasizes the importance of upgrading its technology and applying it to every aspect of the lending process. Lending to marginalized communities has remained a focus for the credit union, and with Upstart, Alliant is enabled to generate higher approval rates while also delivering the exceptional, digital experience today’s consumers demand. Additionally, the partnership is enabling Alliant to reach borrowers in disadvantaged communities. Through mobile accessibility and a digital lending experience, Upstart is helping Alliant deliver fair-priced credit options to borrowers in so-called ‘credit-deserts.

Similarly, BCU has already acquired over 1,100 new members to expand relationships with. As a credit union focused on growing membership through Select Employee Groups (SEGs), the BCU team worked with its dedicated Upstart account manager to target members within these designated SEG groups. BCU has also enjoyed the flexibility of the Upstart program given evolving economic conditions. David Brydun, SVP and Chief Lending Officer at BCU, said, “The biggest takeaway with rising interest rates and liquidity issues has been the Upstart team educating our teams at BCU of the capabilities and dials we can adjust to hit our various goals around volume and net return.”

With an AI lending partner, credit unions can not only go to market quickly and affordably, but also leverage alternative data to more accurately predict risk and expand access to credit safely. As economic conditions continue to evolve, credit unions that partner with a mission-aligned fintech can expand their loans and membership safely, even in difficult times.

To learn more about how Upstart has empowered credit unions to achieve their loan volume and return targets in challenging times, check out the BCU case study.

¹ CNBC. “Banks say they are tightening lending standards even as demand for money falls.” August 3, 2022.

² Credit Union Times. “Credit Union Lending Sets 30-Year Record.” July 11, 2022.

³ American Banker. “Demand for personal loans pressures banks, fintechs, credit unions.” August 19, 2022.

⁴ Experian. “State of the Automotive Finance Market Report.” August 2022.

⁵ Ibid.

⁶ US News. “8 Biggest U.S. Credit Card Companies This Year.” Feb 17, 2022.

⁷ PYMTS. “Report: 36% of Consumers Earning $250K+ Now Live Paycheck-to-Paycheck.” June 1, 2022.

⁸ According to an Upstart retrospective study completed in December 2019.

⁹ As of December 31, 2021, and based on a comparison between the Upstart model and a traditional credit-score only model. The APR calculation compares the two models based on the average APR offered to borrowers up to the same approval rate. The hypothetical credit-score only model used in Upstart's analysis was developed in connection with the CFPB No Action Letter access-to-credit testing program and was built from a traditional credit score only model trained on Upstart platform data. APR for the scorecard was averaged for each given traditional credit score grouping.

for LENDERS

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Growing market share by offering affordable credit

The importance of credit in challenging times

Expanding credit access in uncertain times

Full flexibility and control

How Upstart is enabling credit unions to lend in challenging times

“The biggest takeaway with rising interest rates and liquidity issues has been the Upstart team educating our teams at BCU of the capabilities and dials we can adjust to hit our various goals around volume and net return.”

Credit unions can leverage fintechs to deliver on their mission