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Some 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 grow new households or members, more precisely control credit policy and provides the tools to support lenders through their regulatory examinations.

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 grow new households or members, more precisely control credit policy and provides the tools to support lenders through their regulatory examinations.

Growing households and members

With the Upstart Referral Network, banks and credit unions not only improve their digital experience, but gain new customers and members that fit their desired credit parameters. Qualified personal loan applicants on Upstart.com who meet the bank or credit union’s requirements are automatically offered a personal loan. Upstart works with the credit union throughout each stage of the loan process, from application through closing and same-day funding. 

By leveraging the Upstart Referral Network, banks and credit unions have acquired new customers and members for long-term growth. Over 3 years of partnership, First Federal Bank of Kansas City has acquired over 3,000 new customers. Additionally, Commonwealth Credit Union has acquired over 680 new members after a year of partnership. 

A unique cross-sell opportunity

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. On the other hand, Upstart-powered loans are originated using the bank or credit union’s loan documents, giving institutions a true customer or member relationship.

With Upstart, banks and credit unions are poised to grow these relationships by cross-selling other offerings that best meet those new members’ needs – in fact, Upstart’s API enables credit unions to board members directly to their core for long-term relationship building. In addition, banks and credit unions can promote additional products or services, at no cost, during the loan origination process to provide additional cross-sell opportunities. 

Upstart’s lending partners have also seen success cross-selling these Upstart-sourced customers and members for long term growth. For example, 7.8 percent of Commonwealth Credit Union’s members gained from Upstart are cross-sold additional products, including checking and savings accounts, credit cards, home equity loans and auto loans. Therefore, the Referral Network presents a strong cross-sell opportunity that is traditionally difficult with indirect lending models. 

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, including the ability to 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. 

As economic cycles change, lenders also have the option to begin with lower loan volumes and gradually scale as their comfort level increases. In fact, Upstart developed a metric called the Upstart Macro Index (UMI) to measure how changing economic conditions like inflation and unemployment are impacting credit performance for Upstart personal loans, allowing banks and credit unions to make better informed decisions about their portfolios. By closely monitoring and revisiting their loan parameters with their account management team, they can adjust return targets or dial loan volumes up or down in accordance with market conditions.

Upstart also has the ability to approve more borrowers by utilizing its AI and machine learning algorithm versus traditional credit scoring. Upstart’s model can approve 43 percent more borrowers than a credit score only model. Since institutions can tailor the program according to their credit policy, any additional approvals will fall within the risk tolerance desired by the lender.

A team of seasoned compliance professionals

With risk programs led by a team of financial industry professionals, each with over 15 years of experience, Upstart’s Risk and Compliance teams partner with over 90 banks and credit unions nationwide to accommodate their regulatory requirements. Upstart’s bank and credit union partners range from under $100M to over $20B in assets, and Upstart’s team of compliance professionals is dedicated to giving banks and credit unions the tools needed to have a compliant program. Upstart provides the support and tools for our lenders to be regulatory-ready at every step of the program lifecycle.

A committed partner in your digital transformation journey

Upstart is fully committed to supporting its lending partners and their core business strategy, allowing them to deepen their new customer and member relationships, meet their portfolio 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.

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.