Upstart auto secured loans plummet 71%

Artificial intelligence (AI)-based lending marketplace Upstart recorded a sequential decrease in auto secured refinance loans amid reduced originations from the fintech’s lending partners due to high interest rates and macroeconomic uncertainty . San Mateo, Calif.-based Upstart’s auto secured loans clocked in at 2,856 in Q3, totaling $57 million, a decrease of 70.9% quarter over quarter but an increase of 18.8% year over year , according to the earnings presentation. Bank partners in Q3 originated 188,519 auto and personal loans totaling $1.9 billion through Upstart’s platform, a decline of 43.5% from Q2 and 40.9% YoY. “Many of our lending partners have reduced their originations, raised their rates, or both,” Upstart Chief Executive David Girouard said Tuesday during the company’s Q3 earnings call. “Contraction in lending volume in a time of rising rates and elevated consumer risk is a feature of our platform, not a bug. In fact, it's required in order to generate the returns lenders and investors expect.” [caption id="attachment_57332091" align="alignnone" width="2560"] © Can Stock Photo / mtoome [/caption] 40% fewer applicants Still, auto loans held on Upstart’s balance sheet in Q3 increased 3.4% YoY to $398 million. Revenue clocked in at $157.2 million, a sequential decrease of 31.1% and a decline of 31.2% YoY. “Our revenue is down primarily because loan volume in our platform is down, and secondarily because credit markets are extremely cautious and even dislocated,” Girouard said, noting most of the reduction in volume is due to the company approving 40% fewer applicants than a year ago due to high interest rates and elevated risk. Upstart eliminated 140 hourly positions within its loan operations team, representing about 7% of the company, as a result of reduction in loan volume on the platform, Girouard said. The lending platform expects revenue for Q4 to total between $125 million and $145 million, Chief Financial Officer Sanjay Datta said during the call. The company made three improvements to its auto refinance product during the quarter, Girouard said. “ We launched a new model to more accurately identify loan payoff amounts. We fine-tuned our income verification models. And finally, we improved the process of reviewing registration cards. These upgrades collectively led to a 20% improvement to our auto refi conversion funnel,” he said. Upstart reached a 75% rate of loans instantly approved and fully automated as of the third quarter, an increase compared with 67% of automated loans in Q3 2021, according to the earnings presentation. Retail product expansion Upstart continued to make improvements to its software during Q3 to grow its retail product and expand its footprint. The company now allows buyers to build and price vehicles before the consumer arrives on dealer lots, marking the largest update to its retail loan offering this year, Girouard said. The company launched its auto retail product , separate from its refinance product, in October 2021 after the acquisition of Prodigy Software . Upstart Auto Retail went live in three dealer groups across four states as of the end of Q3, representing 25% of the U.S. auto market by population, according to the earnings presentation. The software is now in 702 dealerships across the U.S., up from 640 at the end of Q2. Shares of Upstart [ Nasdaq: UPST ] were trading at $17.06 as of market close today, up 12.2% from market open. Upstart has a market capitalization of $1.44 billion.

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