Upstart pairs AI loan decision tech with auto retail platform
The artificial intelligence lending platform Upstart has launched an omnichannel dealership tool derived from the Prodigy platform that features immediate approval of auto loans. The debut of Upstart Auto Retail was announced by the company Wednesday.
“Buying a car is an iconic and memorable experience for most Americans, but the financing step is where things often unravel,” Upstart CEO Dave Girouard said in a statement. “Upstart Auto Retail will provide millions of consumers with a car buying experience worthy of 2021, including that all-important financing step.”
Founded by former Google employees, the publicly traded Upstart says its technology enables the automatic approval of more than two-thirds of consumer loans placed before the software. The startup, whose scope includes financing such as personal loans and credit card consolidation, entered the auto lending space in September 2020 with a focus on refinancing. It purchased Prodigy in April for about $89 million in cash, stock and other consideration.
Now, Upstart will support original auto loans as well as the car-buying process itself. A dealership opting to use the system will have access to both the sales platform and a network of lenders that support its automated decisioning.
The Prodigy platform at the heart of Upstart Auto Retail offers an omnichannel experience for dealers and their customers. Omnichannel typically describes a seamless buying experience whether consumers are shopping from their computer, mobile device or in the store.
With Upstart Auto Retail, consumers can alternate between the dealership and the digital platform throughout the car-buying process or purchase a vehicle completely online. The software was involved with more than $1 billion in auto sales during the second quarter, and the number of rooftops using the tool has “nearly tripled” this year, according to Upstart.
Upstart said it was introducing the AI-evaluated auto loans to a limited pool of dealerships and expanding it to all users in early 2022.
“The auto selling solution we’ve been using from Upstart has empowered our salespeople to make the buying process more transparent and helped sell more vehicles at a higher profit,” Tony Corini, finance vice president of Del Grande Dealer Group, said in a statement Wednesday. “Now, by adding the Upstart-powered financing, we look forward to approving more borrowers and continuing to develop our ‘No Brainer’ checkout experience.”
Del Grande, of San Jose, Calif., ranks No. 76 on Automotive News‘ list of the top 150 dealership groups based in the U.S., with retail sales of 12,368 new vehicles in 2020.
Upstart’s software can consider more than 1,000 variables and lessons from millions of prior “repayment events” in making an instant decision about a loan application, according to the company. It can do so not only faster but potentially more accurately than a human; one test found the startup would produce 75 percent fewer defaults while approving the same proportion of loans as a bank.
Prodigy co-founder Michia Rohrssen, now vice president and general manager of Upstart Auto Retail, told Automotive News on Tuesday that the AI goes beyond simply evaluating FICO scores. The software might recognize that a hypothetical customer with a 600 credit score actually presents the risk of a 680-score buyer based on other factors, he said. The consumer could qualify for a reduced rate, and the dealership could win the business.
Asked whether the technology’s value lay more in flagging credit risks who looked good on paper or recognizing buyers who are a safer bet than they appear, Upstart spokesman Mike Nelson said Tuesday, “I think it really depends. … It works on both ends.”
For now, Upstart Auto Retail features two lenders, Cross River Bank and one undisclosed finance company Prodigy had signed before the Upstart acquisition. Nelson said his company’s AI could work with the legacy lender as well as finance companies Upstart has brought to the platform.
The system also will show the dealership’s existing lender partners as well as those working directly with Upstart, Rohrssen said. The retailer isn’t bound to send the loan to one of Upstart’s partners; the company’s challenge will be to provide a better offer than the dealership’s traditional lenders, according to Rohrssen.
But in addition to the faster and potentially broader approvals, Rohrssen said Upstart Auto Retail could offer “fairly substantial” loan-to-value ratios, and its bank partners could handle “fairly significant volume.”
Upstart also seeks to fund loans “roughly next business day,” a boon to dealers dependent on daily cash flow, according to Rohrssen.
“That would be a big upgrade from what a lot of dealers are seeing from their lending partners,” he said.
Upstart Auto Retail plans to beef up its preapproval capabilities with this artificial intelligence as well. Rohrssen said the platform already delivers basic soft pulls based on a dealer’s chosen metric, such as credit score. That allows the customer to be preapproved, and vehicles can be filtered using their estimated payment. But the company would like to incorporate the Upstart AI into these evaluations, which Rohrssen said would do a better job of pairing customers with vehicles.