In an exclusive interview with Auto Finance News, Sam Ellis, Sierra’s chief executive, explained that DriverUp, an online auto lending platform for investors and dealers, was built to disintermediate not just Wall Street, but also the credit application management systems. To do so, DriverUp uses a twist on the marketplace model deployed by such lending ventures as Lending Club, Prosper, and Funding Circle. Put simply, dealers can use DriverUp to post loan applications to Sierra, while accredited investors — hedge funds, endowments, family offices, etc. — can pick and choose the loans in which they want to invest. Sierra handles the servicing.
“We looked around and no one is really doing this in auto,” Ellis told us. “Our initial research showed there would be significant demand. … We can really transform the entire auto finance process.”
How? Because DriverUp creates an alternative source of funding for Sierra while giving investors more transparency and control and allowing dealers to avoid the credit application management platforms, which some, according to Sierra, dislike. The challenge will be getting a critical mass of investors and dealers to use the platform. Sierra officials indicated that they expect DriverUp to get up and running quickly.
“Right off the bat, there will be some degree of liquidity through the platform next week,” Ellis said.
Sierra, which launched in 2012 and has 140 employees today, sees DriverUp as an investor alternative to securitizations, which offer a block of prepackaged loans and must be purchased through expensive investment banks. With the caveat that investors are expected to put a minimum of a few hundred thousand dollars into Sierra loans, DriverUp allows investors to buy as many or as few loans as they want, to pick and choose the loans they want in their investment portfolio.
Unlike Lending Club, Prosper or Funding Circle, only accredited investors can buy loans on the DriverUp marketplace.
Dealers, meanwhile, are not obligated to use the DriverUp system. They can still submit applications through DealerTrack and RouteOne, for example.
How much volume Dallas-based Sierra will get through DriverUp is tough to pin down. Sierra maintains an existing warehousing facility that will fund whatever production is not facilitated through DriverUp.
In the official release on DriverUp, Ellis framed the new platform as a vehicle for “democratizing” the auto lending industry and, indeed, DriverUp seems to create an opportunity for Sierra to bypass some of the industry’s legacy arteries. That certainly doesn’t happen everyday.