Upstart Holdings, Inc., together with its subsidiaries (Upstart), applies artificial intelligence models and cloud applications to the process of underwriting consumer credit. The company helps originate credit by providing lending partners with access to a proprietary, cloud-based, artificial intelligence lending marketplace. As the company’s technology continues to improve and additional lending partners adopt the Upstart platform, consumers benefit from improved access to affordable and frict...
Upstart Holdings, Inc., together with its subsidiaries (Upstart), applies artificial intelligence models and cloud applications to the process of underwriting consumer credit. The company helps originate credit by providing lending partners with access to a proprietary, cloud-based, artificial intelligence lending marketplace. As the company’s technology continues to improve and additional lending partners adopt the Upstart platform, consumers benefit from improved access to affordable and frictionless credit.
Upstart is the artificial intelligence (AI) lending marketplace, connecting millions of consumers to more than 100 banks and credit unions that leverage Upstart’s AI models and cloud applications to deliver superior credit products. Upstart’s platform includes unsecured and secured credit products, such as personal loans, automotive retail and refinance loans, and home equity lines of credit (HELOCs).
The company leverages AI to more accurately quantify the true risk of a loan. The company’s AI models have been continuously upgraded, trained and refined for more than ten years. The company applies AI models to income and identity fraud, acquisition targeting, loan stacking, time-delimited default and prepayment prediction, and servicing.
The company’s AI marketplace connects consumers with its lending partners. Consumers can access Upstart-powered loans via Upstart.com, through a lender-branded product on the company’s lending partners’ own websites, and through auto dealerships that use its products.
Loans issued through the company’s marketplace are retained by its lending partners, purchased by its network of institutional investors, or funded by Upstart’s balance sheet.
AI Lending Models
The company’s AI models are central to its value proposition and unique position in the industry. They are central to the efficacy of the Upstart marketplace experience the company provides to consumers and the value it delivers to lending partners and institutional investors. The key aspects of the company’s AI models include:
Variables and Training Data
The volume of data utilized by Upstart’s AI models has grown significantly over time. The company’s personal loan underwriting model included 23 variables at the end of 2014; as of December 31, 2024, it included over 2,500. These include variables related to credit experience, employment, educational history, bank account transactions, cost of living and loan application interactions. As of December 31, 2024, the company’s personal loan underwriting model was trained on nearly 82 million repayment events, and it is only one of approximately 30 machine learning models that it uses across its business.
The number of variables and volume of training data used in the company’s models are co-dependent; the use of hundreds or thousands of variables is impractical without sophisticated machine learning algorithms to tease out the interactions among them, and sophisticated machine learning depends on large volumes of training data. Over time, the company has been able to deploy and blend more sophisticated modeling techniques, leading to a more accurate system.
Modeling Techniques
Growth in the company’s training data has enabled the development of increasingly sophisticated modeling techniques. For example, while earlier versions of its models were centered on logistic regression and Monte Carlo simulations, its more recent models incorporate neural networks, Bayesian hyperparameter optimization, and gradient boosting.
Model Applications
While its first model focused on predicting the likelihood of loan default, the company has since applied models throughout the process of credit origination. The active AI models within the Upstart platform—shared by and available to all Upstart’s lending partners—include:
Acquisition targeting—identifies consumers likely to qualify for and have need for a loan;
Loan stacking—identifies consumers likely to take out multiple loans in a short period of time;
Time-delimited prepayment prediction—quantifies the likelihood that a consumer will fully prepay a loan earlier than originally scheduled;
Income fraud—quantifies the risk of potential misrepresentation of borrower income;
Identity fraud—quantifies the risk that an applicant is misrepresenting their identity;
Time-delimited default prediction—quantifies the likelihood of default for each period of the loan term; and
Servicing—identifies borrowers to prioritize for servicing outreach, allowing for customized intervention and improved servicing efficiency.
Despite their sophistication, the company’s AI models are delivered to lending partners in the form of a simple cloud application that shields borrowers from the underlying complexity. Additionally, the company’s platform allows lending partners to tailor lending applications based on their policies and business needs. Within the construct of each lender’s self-defined lending program, the company’s platform enables the origination of conforming and compliant loans.
Ecosystem
The company’s ecosystem includes consumers, banks, credit unions and auto dealers, as well as institutional investors who purchase Upstart-powered loans directly or invest in securities issued by its pass-through and securitization programs. This broad ecosystem allows participants to access and benefit from the company’s products in a variety of ways, which leads to broader adoption of its AI lending solutions.
Consumers
On the consumer side, the company has built a mobile app and a mobile-responsive website application to aggregate demand on Upstart.com, where consumers are presented with offers from its lending partners. Consumers can quickly and easily inquire about a rate, evaluate and choose a loan offer, provide necessary information for verification and review required disclosures before final acceptance of the loan. A similar experience is also offered as a branded product on lending partners’ websites. The company has also made significant investments in Upstart Auto Retail, a front-end software-as-a-service application that modernizes the auto sales process for both the consumer and the dealer. Similar to Upstart.com, the company expects Upstart Auto Retail to become an important aggregator of consumer demand.
Consumers on the company’s platform are generally offered unsecured personal loans, secured auto loans, and HELOCs. Personal loans typically range from $200 to $50,000 in size, at APRs up to 35.99%, with terms typically ranging from three months to five years. Auto loans range from $3,000 to $60,000 in size, at APRs up to 29.99%, with terms ranging from two to seven years. HELOCs range from $26,000 to $250,000, at APRs up to 18.0%, with terms of 10 or 15 years. All loans feature a monthly repayment schedule and no prepayment penalty.
Lending Partners and Institutional Investors
On the loan funding side, the company targets a wide range of small, medium, and large lending partners with an appetite to invest in improved underwriting and digital originations. Because AI is a new and disruptive technology, and lending is a traditionally conservative industry, the company has brought its technology to the market in a way that allows it to grow responsibly and improve its AI models, while allowing lenders to take a prudent approach to assessing and adopting its platform. As of December 31, 2024, the company had more than 100 lending partners. The company’s lending partners retain loans that align with their business and risk objectives. The company also performs fairness testing on its models to help satisfy lending partners’ regulatory obligations.
The company’s lending partners control their programs when originating loans through its platform. Each lending partner sets and approves its own underwriting policy that establishes certain credit underwriting requirements determined by the lending partner.
The company’s network of institutional investors includes investors that buy whole loans originated via Upstart’s platform, as well as investors that buy securities, such as pass-through certificates. The company is typically retained by participating institutional investors to service the loans it helps originate. In the case of whole loan purchasers, the company typically enters into loan purchase agreements and loan servicing agreements with such purchasers. Institutional investors may also purchase interests in loans originated via Upstart’s platform in the form of pass-through certificates. The company has pass-through certificate programs sponsored by certain financial institutions under which institutional investors can purchase securities collateralized by Upstart-powered loans from an issuer trust.
While there are minimal differences between whole loan sales and sales of pass-through certificates from Upstart’s perspective, both programs are offered to provide flexibility to institutional investors in the company’s marketplace.
For its asset-backed securitizations, the company engages with investment banks to structure transactions under which it and/or certain of the purchasers of whole loans or pass-through certificates described in the preceding paragraphs sell pools of whole loans to a bankruptcy-remote special purpose entity. The special purpose entities, through one or more intermediate transfers and entities, create and sell tranched asset-backed notes and subordinated certificates, in each case, backed by the collective pools of Upstart-powered loans sold into the investment structure.
Value Proposition to Lending Partners and Institutional Investors
The company provides banks and credit unions with a way to compete with the technology budgets of their competitors.
The company refers customers that apply for loans through Upstart.com to its lending partners, helping them grow both loan volumes and number of customers.
Once it aggregates consumer demand on its website, the company passes those customers to its lending partners.
The company builds a configurable lending solution designed to meet the needs of its lending partners. Because the company’s lending partners have complete authority and control over their lending programs, they predetermine many aspects of their loan offering, including interest rate and loan size ranges, target returns for various risk profiles, minimum credit score, maximum debt-to-income ratio, fee structures and disclosures.
Servicing—While most lending partners and institutional investors choose to have the company services their loans (through a branded servicing portal), each has the option of directly servicing loans itself. The company’s servicing platform manages all communication with borrowers, credit reporting agencies, and when necessary, collections agencies.
New Product Offerings—While the company continues to iterate and improve on its core Upstart-powered products, it has launched new credit products over the last several years to serve the auto and home lending markets and to provide a small dollar personal loan offering. Personal loans are one of the fastest-growing segments of credit in the U.S. and auto financing is the second largest segment of consumer lending. The company’s platform helps lenders provide a product their customers want, rather than letting customers seek loans from competitors. The company continues to invest in expansion of its product offerings.
Access to Capital Markets—The company has built a broad network of institutional investors who provide loan funding through purchases of whole loans, pass-through certificates and asset-backed securitizations. The company has secured multiple committed capital and co-investment arrangements with institutional investors, which deliver a significant amount of loan funding to the Upstart marketplace. In these arrangements, the company shares some of the risk and upside in loan performance relative to its expectations. The company continues its work on expanding its relationships with institutional investors to deliver capital to its marketplace.
Continuous engagement with rating agencies—Upstart-powered personal loans are analyzed by credit rating agencies and are subject to significant and constant scrutiny from experts. Credit ratings are often publicly available, which help institutional investors and lending partners gain confidence in Upstart-powered loans.
Insights into changes in the economy—In 2023, the company introduced UMI, which estimates the impact of the macroeconomy on credit performance for Upstart-powered unsecured personal loans and helps its lending partners and institutional investors better understand and account for the effect that macroeconomic conditions have on its credit performance.
Technology Infrastructure
The company’s cloud-based software platform incorporates modern technologies and software development approaches to allow for rapid development of new features.
Cloud-Native Technologies
The company runs its technology platform as containerized services on the Amazon Web Services cloud. The company’s architecture is designed for high availability and horizontal scalability. The company’s primary development platforms are Ruby on Rails and Python, but its Kubernetes-based compute environment gives it the flexibility to run heterogeneous workloads with minimal operational overhead. The company deploys new software regularly without platform downtime, allowing borrowers and lenders to immediately benefit from the latest updates to its platform.
Data Integrity and Security
The company’s information security program governs how it safeguard the confidentiality, integrity, and availability of its consumer and lending partner data. The company’s environment is continuously monitored with a suite of tools designed to detect and respond to security events in both internal and user-facing systems. The company has a robust secure software development cycle and regularly engage with third parties to audit its security program and to perform regular penetration tests of its Web application and cloud environment.
Configurable Multi-Tenant Architecture
The company’s multi-tenant architecture enables multiple lending partners to use the same version of its application while securely segmenting their data. Though all tenants are using the same version of the company’s platform, its software is designed to be highly configurable to meet the needs of its diverse lending partners, allowing customizations to everything from the applicant user interface to the core rules governing credit decisioning.
Machine Learning Platform
In order to support innovation in its underwriting, fraud detection and acquisition models, the company has developed proprietary technologies to enable its machine learning team to develop, train, test and deploy new model updates with minimal engineering support. The comany’s backend systems are designed to flexibly integrate with multiple third-party data sources to feed these models and support real-time decisioning.
Responsive Web Design
The company’s user interface is responsive to ensure applicants and borrowers have a smooth experience regardless of whether they are accessing its website from a desktop, mobile device or tablet.
Robust Reporting and Integration Capabilities
The company’s reporting application programming interfaces (APIs) provide institutional investors and lending partners the ability to access data through a programmatic interface. The company’s integration capabilities with lending partners include an ability to pre-fill applicant information via API and provide loan details in real-time to facilitate a seamless process from application to origination. The company’s lending partner reporting portal provides its lending partners with a centralized console to view real time performance metrics of their lending program, view and verify their credit policy and program configuration, and on-demand access to operational reports and documents.
Consumer Marketing
The company’s growth and marketing approach is driven by the strength of its product and the interest rates it offers.
The company’s growth and marketing initiatives are primarily focused on bringing potential borrowers to Upstart.com, where they can learn if they qualify for a loan from one of its lending partners and the terms of the loan offer in only a few minutes. The company’s customer acquisition channels combine a mix of online and offline, as well as paid and unpaid, channels. While the company constantly experiments to expand and optimize its acquisition strategies, its largest channels include:
Marketing affiliates—A variety of online media partners, such as loan aggregators, send the company traffic on a cost per origination basis. Many loan aggregators also incorporate application data to provide online prescreened offers, which leads to highly targeted and interested referrals. For example, a significant number of consumers that apply for and obtain a loan on Upstart.com learn about and access Upstart.com through the website of one of the company’s partners, Credit Karma.
Direct mail—The company applies its strengths in data science to target individuals who both qualify for and may have a need for an Upstart-powered loan. The ability to analyze an individual’s credit data to target and mail prescreened offers of credit gives this channel a meaningful data advantage over other channels.
Organic Traffic—As the company’s brand recognition and reputation grow, an increasing number of potential borrowers come directly to Upstart.com.
Email Marketing—The company has an automated email program that sends customized messages and reminders to potential borrowers once they have created accounts to encourage them to complete their loan application.
Online Advertising—Search engines and social channels enable targeted outreach to potential borrowers with specific messages. In addition, the company advertises on streaming television services.
Operations
The company has developed sophisticated tools that its internal operations team uses to support the origination and servicing of credit. The company’s operations teams, including credit analysts, fraud specialists, customer support, payments specialists, and supporting services (like quality assurance and training) work to deliver a seamless user experience to consumers on behalf of its lending partners.
Loan Origination Operations
While verification is primarily and increasingly handled by its software and AI models, the company also offers Upstart-designed tools to guide credit analysts and fraud specialists in cases where its software is not yet able to sufficiently verify borrower information. By providing a prescriptive and unique path for each applicant, the company’s system helps its operations team provide a streamlined experience for as many borrowers as possible.
The company’s operations team works closely with its engineering and machine learning teams to further increase its levels of automation.
Most prospective borrowers and applicants interact with Upstart via the company’s online platform and help center, but it also makes agent-based support readily available to all borrowers. For phone support, the company partners with external call center vendors and have a team of dedicated Upstart agents with specialized training.
Servicing Operations
Upstart-powered loans, with the exception of HELOCs, are serviced via the company’s homegrown platform. For borrowers who miss payments, the company focuses on early intervention and attempt to reach them via emails, calls, texts, and mail to help bring their account current or offer hardship options in accordance with the creditor’s servicing policies. Borrowers on its platform are supported via a combination of internal payments specialists and third-party service providers.
The company holds collections licenses in the majority of states and conduct first-party collections activities. The company also partners with third-party agencies for collections, especially for accounts more than 30 days past due. Debt collection calls and collection performance are reviewed regularly by the company’s quality assurance or vendor management teams. The company’s operations and compliance teams each also perform vendor onsite audits annually.
Government Regulation
The company is currently, and expects in the future, to be subject to laws and regulations administered by the Consumer Financial Protection Bureau (the CFPB). In addition to the CFPB, the Federal Trade Commission has jurisdiction to investigate aspects of the company’s business, including with respect to marketing practices. Other state and federal agencies, including prudential bank regulators, state departments of financial institutions, and state attorneys general have the ability to regulate aspects of the company’s business directly or through its lending partners. Further, the company is subject to inspections, examinations, supervision and regulation by applicable agencies in each state in which it is licensed to broker, purchase, and or service loans. Regulatory oversight of the company’s business may change over time. By way of example, in 2020, the California Consumer Financial Protection Law was enacted, which seeks to emulate the CFPB with respect to its enforcement and supervisory capabilities as well as require additional state registration for certain covered persons.
The company has also implemented an identity theft prevention program, as required by FCRA and its implementing regulations. In certain circumstances, GLBA requires financial institutions to limit the use and further disclosure of nonpublic personal information by non-affiliated third parties to whom they disclose such information and requires financial institutions to disclose certain privacy policies and practices with respect to information sharing with affiliated and non-affiliated entities. Further, the Federal Trade Commission’s Safeguards Rule requires the company to develop, implement and maintain a written comprehensive cybersecurity program containing safeguards that are appropriate for the size and complexity of its business. The company has a detailed privacy policy that addresses the GLBA and Safeguards Rule and is accessible from every page of its website. Under Section 5 of the Federal Trade Commission Act, the company and its lending partners are prohibited from engaging in unfair and deceptive acts and practices, or UDAP.
The company’s AML program is designed to prevent its platform from being used to facilitate business in countries, or with persons or entities, included on designated lists promulgated by the U.S. Department of the Treasury’s Office of Foreign Assets Controls, or OFAC, and equivalent foreign authorities. The company’s AML compliance program includes policies, procedures, reporting protocols, and internal controls, including the designation of an AML compliance officer, and is designed to address these legal and regulatory requirements and to assist in managing risk associated with money laundering and terrorist financing. With respect to new borrowers, the company applies the customer identification and verification program rules and screen names against the list of specially designated nationals maintained by OFAC, pursuant to the USA PATRIOT Act amendments to the Bank Secrecy Act and its implementing regulation.
The company’s policies are designed to support compliance with the Bankruptcy Code for both secured and unsecured loans as it services both.
The company is also subject to state privacy and security laws and regulations that apply to certain personal information that it collects or otherwise process, including the California Consumer Privacy Act, or CCPA, the Oregon Consumer Privacy Act and the New York Department of Financial Services Cybersecurity Regulation. In addition, various federal, state and local legislatures and regulators have enacted or otherwise implemented data security breach notification requirements that are applicable to the company.
The retail installment contracts the company purchases and HELOCs are subject to state laws and regulations that impose requirements on contract disclosures and terms, credit discrimination, credit reporting, debt collection and repossession, and unfair or deceptive business practices. The company’s ongoing compliance program seeks to comply with these requirements.
Upstart and certain of the company’s subsidiaries have relied on Section 4(a)(2) of the Securities Act for placement of asset-backed securities directly to investors or to investment bank initial purchasers, which have relied on Rule 144A and Regulation S exemptions from registration to place such asset-backed securities to qualified institutional buyers and non-U.S. investors, respectively.
Intellectual Property
As of December 31, 2024, the company had four patents issued and four patent applications in the United States related to its proprietary risk model and data engineering. The company has trademark rights in its name, its logo and other brand indicia, and has trademark registrations for select marks in the United States.
History
Upstart Holdings, Inc. was founded in 2012. The company was incorporated in Delaware in 2013.
