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Written by Jeff Keltner, SVP Business Development

Many financial institutions (FIs) compare the Upstart Referral Network to loan purchase programs – and while the two share some similarities, the Upstart Referral Network creates the opportunity to acquire new customers or members, more precisely control credit policy, exceed loan volume goals and more.

Both the Upstart Referral Network and loan purchase programs allow FIs to expand into new asset classes quickly and build a sizable balance sheet with minimal investment in technology and marketing. However, the Upstart Referral Network differs from traditional loan purchase programs in a few crucial ways, resulting in tangible benefits for banks and credit unions.

The Upstart Referral Network creates the opportunity to acquire new customers or members, more precisely control credit policy, exceed loan volume goals and more.

Strengthening Brand Connection 

In traditional loan purchase programs, loans are originated by the original lender under their brand and sold into the secondary market after origination or to other banks or credit unions directly. In either scenario, banks and credit unions purchase and own the asset on their balance sheet, but they don’t own the customer or member relationship. This restricts the institution from cross-selling other products to that borrower. 

With Upstart, lending partners originate the loans using their loan documents and acquire customers directly. Customers or members know they are getting the loan through the bank or credit union lending partner during the origination process on the Upstart platform. 

Upstart’s marketing engine drives borrowers to Upstart.com through various channels, such as direct mail, targeted ads and more, and then qualifies, approves and matches borrowers to the bank or credit union during the application process. Upstart handles everything from credit decisioning, through verification, closing and servicing, but the loan is ultimately originated by the institution, building a stronger borrower relationship. This direct relationship creates the opportunity for FIs to cross-sell to their borrowers over time. 

Customers and members can also open a depository account with the institution during the loan origination process, immediately creating a two-product relationship. For credit unions, borrowers can also complete the member application seamlessly during the origination process.

Greater Credit Policy Control

With Upstart, lenders have more precise control over their credit policy allowing them to configure parameters, such as credit score, maximum debt-to-income, max APR and many other variables. and they can also define geographic restrictions. Lenders can determine who is eligible for their program based on their specific requirements, giving them more control than a loan purchase program. They can also monitor the performance of the program and make adjustments quickly to ensure they meet their volume and return targets. Loan purchase providers may offer some cross-sections of risk, but they may not match the lender’s credit policy or geography precisely. It’s based on their demand and you would be purchasing pools of loans based on expected returns, in bulk, and less frequently. 

Upstart also has the ability to approve more borrowers by utilizing its AI and machine learning algorithm versus traditional credit scoring. According to a study, the Upstart model can approve 26 percent more borrowers than traditional lending models. Since institutions can tailor the program according to their credit policy, any additional approvals will fall within the risk tolerance desired by the lender.

Exceeding Loan Volume Goals

While macroeconomic conditions continue to evolve, many FIs flooded with deposits are looking for effective ways to put their capital to work. 

In Q4 2021, Upstart’s lending partners originated almost 500,000 loans, with Upstart driving over a billion dollars in loan originations per month.  With this high loan volume, Upstart has the capacity to meet and even exceed its partners’ loan volume needs compared to loan purchase programs. In fact, several lending partners joined the Upstart Referral Network because they were not meeting their desired volume targets through their loan purchase programs.

A Committed Partner in Your Digital Transformation Journey

Upstart is fully committed to supporting its partners and their core business strategy, allowing them to deepen their borrower relationships, meet their loan volume goals and deliver an exceptional borrower experience. 

Upstart gives FIs the right tools and technology to find the right borrowers within their appropriate risk appetite, ultimately allowing them to expand their customer footprint. Fintechs have the choice to compete or partner with FIs, and Upstart has clearly chosen the latter path.

If you’re interested in learning more about how the Upstart Referral Network can help you exceed your loan volume goals while acquiring new borrowers, book a demo today. 

Learn more about how Upstart can help your bank or credit union more accurately predict risk.