Water and Power Community Credit Union is reaching its loan goals with AI
For most credit unions, the global pandemic led to unprecedented deposit growth and a sharp decline in branch traffic due to changing member behavior. Water and Power Community Credit Union (WPCCU) in Los Angeles, California, was no exception.
To put excess deposits to work, WPCCU leaders knew they would need to aggressively seek new ways to lend to existing members and level up their digital marketing efforts to acquire new members.
WPCCU had long recognized the value of digital experiences and unsecured personal loans before the pandemic struck – not only for members but also for the bottom line.
Yet as WPCCU began to launch its new digital marketing initiatives, it struggled to meet its origination volume goals and find high-quality applicants for personal loans. Executive leaders knew it was time to look externally.
The choice to partner
Unsecured personal loans are one of the most profitable and most widely adopted products by WPCCU members due to their wide variety of uses, ranging from credit card refinancing to large purchases. To increase membership and loans, WPCCU evaluated potential fintech partners.
WPCCU President and CEO Barry Roach knew that for smaller institutions, fintech partnerships could provide an avenue to quickly go to market without the high upfront costs and human resources needed to get started. “We all have scarce resources, especially community-based institutions and especially in a low-rate environment where it’s difficult for traditional lenders to be profitable. If I can partner with a fintech, that is the more efficient solution and a great opportunity for us,” Roach said.
Roach further explained that smaller institutions have limited data compared to fintech, and as a result, fintech partnerships were a natural way to gain new loans and members. “It can be difficult to differentiate ourselves from all the competition in Los Angeles between banks, credit unions and fintech. So, we sought ... to partner with a fintech to help us uncover ways to have a larger presence in the community. We knew this would lead to membership growth as well as more loan opportunities,” he said.
86 days to go live
$6.5M in loan volume in just over two months
700 new members in three months
Finding the right partner
This was not WPCCU’s first go at a fintech partnership. Some past partnerships did not deliver the expected benefits, but leaders knew Upstart was different.
As a community-based credit union, WPCCU sought a partner that could help it acquire new loans and put excess liquidity to work while creating an exceptional digital experience for the different segments within its credit union. The credit union also prioritized having a symbiotic relationship and partner with expertise in consumer loans.
When evaluating Upstart, WPCCU saw differentiation in Upstart’s use of artificial intelligence for its underwriting models to predict risk and the simplicity of its onboarding process. The application process was straightforward to understand. The use of these models reduced the bias associated with traditional credit scoring. The models were constantly learning to profitably grow the portfolio while reducing risk.
WPCCU saw that Upstart came from a place of true partnership and worked to ensure the economics were aligned between both parties. After a six- to eight-week evaluation period, WPCCU decision-makers knew they wanted to move forward.
Exceeding loan volume goals while mitigating risk
WPCCU went live with Upstart in only 86 days and funded its first loan Dec. 15, 2021. Upstart provided WPCCU guidance and support throughout the implementation process, including setting up agreements with credit reporting agencies such as Transunion and Equifax. WPCCU completely automated new member onboarding, with architectural guidance and data from Upstart, and automated internal reporting using Upstart’s standardized reports.
Upstart facilitated detailed requirements and strategy sessions to ensure WPCCU met its critical business objectives at launch, allowing the credit union to go live with quality and ease.
Since partnering with Upstart, WPCCU has achieved its loan volume goals and funded $6.5 million in loans in just over two months. Seeing this early success, WPCCU has doubled its monthly loan volume target from $3 million to $6 million per month.
Best of all, WPCCU has complete control over its credit risk and loan volume limits. “Here’s the cool thing with Upstart — we can raise or lower that Limit. They're very amenable to the changes as our needs shift. They’re not pressuring us to take on more than we’re willing to,” Roach said.
New loans and members 'tied up in a bow'
Another positive outcome of the partnership has been new member acquisition. In only three months of partnership with Upstart, WPCCU has acquired over 700 new members, leading to an annualized growth rate of 7 percent. Through the Upstart Referral Network, Upstart is facilitating the entire process on WPCCU’s behalf — including online loan application and credit decisioning, field of membership qualification, closing and funding.
“When Upstart has a borrower prospect, Upstart can look at that prospect and ask, ‘Do they fit the criteria for WPCCU’s membership requirements?’ And if it does, then that loan comes to us pretty much all tied up in
a bow,” Roach said.
In only three months of partnership with Upstart, WPCCU has acquired over 700 new members for an annualized growth rate of 7%.
“Our primary reason for partnering with Upstart was loans, but as an added benefit, we’re establishing new memberships with the opportunity to build long-term relationships with us,” Roach added.
Because Upstart's marketing targets consumers nationally, its costs to find potential new members
are lower than what WPCCU's marketing would have accomplished individually. This allows WPCCU to drive down its cost to find new members.
By leveraging Upstart’s AI and machine-learning models that safely employ thousands of data points, WPCCU has improved the accuracy of identifying credit risks and acquiring new members. Illustrating the power of this alternative underwriting approach, Roach said: “We’ve brought in new loans that we likely would have denied or priced in a way that would’ve turned people off.”
Looking ahead: Expanding membership relationships and lending footprint
WPCCU plans to continue its personalization journey to provide the best member experience possible. To cross-sell into additional products like deposit accounts and second loans, WPCCU is experimenting with A/B testing and varying messages and communication channels to find the best formula. Roach refers to these efforts as a “little laboratory” for testing how to market to these new Upstart-driven members. Seeing strong performance early, WPCCU has expanded its footprint outside of Los Angeles to San Bernardino County.
Ultimately, with Upstart, WPCCU quickly put excess deposits to work while expanding its reach to new members and territories. “Upstart has been able to give us opportunities in our targeted member segments that we would never have had before,” Roach said. “And now we’re turning those into not just new members, but into more profitable members.”