Fresh off its IPO in mid-December, AI fintech Upstart has announced a new partnership with Oriental Bank, a subsidiary of OFG Bancorp, beefing up its footprint in the auto lending industry.
The Puerto Rico-based Oriental Bank will utilize Upstart’s credit decision API, which targets gaps in the digital auto loan application process and expedites acceptance rates.
Oriental Bank specifically looks forward to utilizing features from Upstart’s software platform that “increase the speed of lending decisions, better price applicants and more accurately assess risk,” according to OFG Chief Operating Officer Ganesh Kumar. Specific elements of Oriental’s package are still under negotiation, Michael Lock, Upstart’s senior vice president of banking partnerships, told Auto Finance News.
Digital expansion in the indirect auto lending sector is a growing trend and still fairly new territory, Lock said. Fintechs like eOriginal, for one, reported increases in digital auto retail installment contracts in September as the COVID-19 pandemic ushered in a new need for technology services industrywide.
San Mateo, Calif.-based Upstart first broke into auto lending in June 2020, when the fintech announced it would integrate auto retail and refinancing applications into its platform in August last year. Even though the fintech provides indirect lending technologies for its banking partners like Oriental, Upstart is also funneling auto refinancing into its services, a space with plenty of potential, Lock said.
While mortgage refinancing is common in the banking world, vehicle refinancing is significantly less common and makes up less than 5% of the market, Lock said. AI technology could maximize the potential for refinanced vehicle originations, bringing it up to a minimum of 25% of the market, according to his calculations.
As AI technologies gather steam in the lending market, financial institutions can also use API-enabled auto loans to refinance existing non-API-enabled auto loans, Lock said, making the refi process cheaper and faster.
API-enabled auto loans are originations that have been digitally configured with API integrations and automation-based technologies. The refi sector is held back, Lock explained, by loans not originated with an API software, thereby hindering their potential refinancing. However, financial institutions can accelerate the refi process by utilizing APIs, even if the loan was not digitally originated.
The back-end banking for Upstart is currently provided by several financial institutions, including Cross River Bank, Customers Bank, First National Bank of Omaha, KEMBA Financial Credit Union and TCF Bank. Despite plans last year to add leasing to its stack of options in early 2021, Upstart is now looking to introduce leasing closer to September of this year, Lock said.
Shares of Upstart [NASDAQ: UPST] were trading at $55.24 at 2:53 p.m. ET, up 1.77% from market open. Upstart has a market capitalization of $4.04 billion. Shares have since increased from the fintech’s IPO on Dec. 18, 2020 when they were priced at $20.
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