Q3 2021 Upstart Holdings Inc Earnings Call
Okay.
Good day and welcome to the upstart Q3, FY 2021 earnings call. Today's conference is being recorded at this time I would like to turn the conference over to Jason Smith, Vice President of Investor Relations. Please go ahead Sir.
Good afternoon, and thank you for joining us on today's conference call to discuss third quarter 2021 financial results.
With us on today's call are Dave Gerard Upstarts, Chief Executive Officer, and Sanjay <unk>, our Chief Financial Officer.
Before we begin I wonder if I do that shortly after the market close today upstart issued a press release announcing its third quarter 2021 financial results.
And published an Investor relations presentation.
Both are available on our Investor Relations website IR.
<unk> dot upstart dot com.
During the call we will make forward looking statements such as guidance for the fourth quarter related to our business and our plans to expand our platform in the future. These statements are based on our current expectations and information available as of today.
And are subject to a variety of risks uncertainties and assumptions.
Actual results may differ materially as a result of various risk factors that have been described in our filings with the SEC.
As a result, we caution you against placing undue reliance on these forward looking statements. We assume no obligation to update any forward looking statements as a result of new information or future events, except as required by law.
In addition, during today's call unless otherwise stated references to our results are provided as non-GAAP financial measures.
It can sell to our GAAP results, which can be found in the earnings release and supplemental tables.
To ensure that we have as many analyst questions as possible during the call. We request that you limit yourself to one initial question and one follow up.
Later this quarter upstart will be participating in cities 2021, Fintech conference on November 16th and 17th.
Now I'd like to turn it over to Steve Girard CEO of upstart.
Good afternoon, everyone. Thank you for joining us on our quarterly earnings call covering our third quarter 2021 results.
I'm, Dave Gerard co founder and CEO of upstart.
<unk> marks our fourth earnings report as a publicly traded company and I continue to be amazed and delighted with the progress of the upstart team has made this isn't entirely unique time in our history and executing as a newly public company. In this environment is not without challenges four out of five upstart has joined our company during the pandemic.
And many have neither seen the inside of an upstart office met their new colleagues in person yet collectively they continue to knock down walls and make amazing things happen.
Artificial intelligence is perhaps the most transformational technology. The world has yet to see that start is at the forefront of applying AI to the multi trillion dollar financial services industry. So the scale of the opportunity is not lost on us.
Q3 was another strong quarter of triple digit growth and profits and we will get to that shortly but it's worth pausing for a moment to reflect on what our team has accomplished in the year since we went public.
In the six years, leading up to our IPO 620000 loans were originated on the upstart platform a year later, our bank and credit Union partners have originated more than one 5 million onstar powered loans totaling more than $16 billion in originations.
While there were 80 893 loans originated on our platform in Q3, 2020, which was the quarter prior to our IPO. We facilitated 362780 upstart powered loans in Q3 2021, that's a growth rate of 348%.
As you could read an upstart S. One filing our AI platform had experienced $9 million repayment events and was trained on 15 billion cells of training data as of a year ago.
Today, our platform has processed 17 million repayment events and is trained on 28 billion cells of training data.
A year ago, we had 10 bank and credit Union partners on our platform today, we have 31 partners and we're adding one faster than ever we're also making progress and how rapidly. We can onboard. These partners in fact, our most recent bank partner went live on the platform and less than 50 days.
A year ago, a handful of auto loans had been refinanced in a single state today more than 4000 upstart powered auto loans Havent been originated in 47 different states.
We also became a digital first company. This year in Q3 of 2019, 100% of our new hires were located in either California or Ohio.
Q3, 2021, we hired new starters in 25 different states as well as the district of Columbia.
Now I'd like to shift and talk about the products on our platform today personal lending and auto lending and the progress, we're making with each and then I'd like to touch on a few new product areas that are important to our future and that we're beginning to invest in today.
Personal loans continue to drive the growth in profitable economics of upstart post pandemic the demand for the simple installment products as reaccelerate. It I like to refer to personal loans is the duct tape of credit a fast and simple solution that consumers love for their usefulness affordability and accessibility.
Banks are beginning to realize that offering instant all digital personal loans makes sense unless they want their customers to find them elsewhere.
Last quarter I told you that for the first time, an upstart bank partner decided to eliminate any and all FICO requirements for their borrowers.
Today I can happily report that of those who are approved for upstart powered loans because of this change 59% were black Hispanic or have low to moderate income.
And even better I'm also pleased to tell you that for upstart Bank partners have now dropped their FICO requirement.
And just a few months what was perhaps a canary in the coal mine has now become a trend.
We applaud any and all lenders that eliminate credit score requirements. These trailblazers are building businesses that are more inclusive more equitable and yet more profitable their commitments represent a small step to the future, but provide a major boost to the financial inclusion that our country desperately needs.
While this is just the beginning of a trend we anticipate a day when lenders will struggle to explain why they rely on a three digit number invented 30 years ago to make a credit decision.
While a lot of our energy goes towards serving quote unquote future Prime consumers currently left out of the financial system. We're also launching initiatives to better serve those with no shortage of credit options.
This makes sense, because borrowers who use upstart often see rapid improvements in their credit score and become suddenly very interesting to the entire consumer finance industry.
Our bank partners want to serve these customers over their lifetime, rather than seeing them. The fact that competitors, who constantly pursue them and if it is important for our bank partners then it's important for upstart.
It turns out it's important for upstart for other reasons as well only by serving consumers across the entire credit spectrum can we reach our full potential even if your credit score begins with a seven or an eight you are more than your credit score by working with our bank partners. We are beginning to deliver instant loan offers with no origination fees.
And with rates that are as attractive as any on the market.
Full spectrum competitiveness unlocks broader branding opportunities for upstart such as TV.
These are marketing channels that might not have made economic sense to us previously.
Our efforts in auto lending continued to make progress as well as a reminder, the auto lending market is at least six times the size of personal loan market and our view is at least as inefficient millions of Americans pay too much for their car loans every month and I'm sure each would prefer to spend that money on something else or even better.
To save it for a rainy day.
If you don't believe me just Google consumer reports auto loans and Youll see an interesting article published just a few weeks ago.
On the auto refinance front, we continue to make fast progress to eliminate the time and effort required to refinance our carload wild.
While the complexities of leans in titles as well as a bewildering array of state by state processes fees and regulations conspired to keep Americans trapped in their mispriced car loans were on track to repeat the funnel gains we experienced over the years and our personal loan product.
And their auto insurance commercials Geico delivers a message that resonates with me 15 minutes can save you 15%.
We can't use Geico's tagline my goal as an upstart and our bank partners will emulate that value proposition to consumers, who are paying too much on their car loans.
We're also making rapid progress on our auto purchase product in the third quarter, we rebranded the company and the product, formerly known as prodigy to upstart auto retail.
But our progress in auto retail went far beyond rebranding in fact, we've now tripled the number of dealers on our platform compared to a year ago and in Q3, we added an average of more than one rooftop a day.
I'm also excited to tell you about a major new milestone for our company just last week. The first upstart powered loan was originated through our auto retail software with one of our long standing dealership partners right here in the Bay area.
Our early experience is showing us how powerful it can be to offer instant decisioning high approval rates, a broad selection of terms and payments all integrated into a digital process.
This is a big deal not just for upstart, but for the entire auto industry. It represents the first step towards leveraging AI to rewire and revamp the entire car buying process.
And finally.
We hear a lot of questions about where upstart plans to go next we've been clear with our lending partners and with the Investor community that we intend to expand our AI platform beyond the personal and auto lending categories and today, we want to share more about those plans.
First we're working toward a small dollar loan product.
And to help consumers with unexpected and immediate cash need.
I think a few hundred dollars repaid in just a few months, but importantly, we're building a bank ready product at bank friendly Apr's always operating within the 36% rate cap prescribed to nationally chartered banks and to those who serve U S. Military service members in short with better technology Superior.
Risk models and a dramatic reduction in the cost of origination we hope to welcome millions of Americans into the mainstream financial system, who would otherwise be left with far less attractive options.
I'll start stands to benefit from the small dollar product as well it can significantly accelerate the pace with which we can bring the underbanked into the financial system and it can likewise accelerate the pace of learning I'm sorry, It's AI models, we aimed to bring millions of marginalized consumers onto our platform in the coming years. So there.
Lending partners can serve them with a host of affordable financial products over time.
Our bank partners right detailed pressured to better serve low to moderate income Americans and we want to help them do that right. The.
The interest in this small dollar product from our bank and credit Union partners is off the charts and we hope to bring it to market before the end of 2022.
Second.
We believe there is an unmet need to provide fast easy access to affordable installment loans to business owners across the country every small business is different and they operate across a crazy wide spectrum of industries. So there are significant challenges to delivering a compelling loan product that it's useful to business owners.
Reliable performance and efficient enough for lenders. This challenge is tailor made for upstart.
While there is no shortage of credit options to business owners, we aim to deliver at the zero latency affordable credit solution that modern businesses require.
This is another product in high demand from our bank and credit Union partners, and we hope to bring it to market during 2022 as well.
And finally I would be remiss, if I didn't mention what the late great sportscaster, Keith Jackson would call the granddaddy of them all.
All the home mortgage market its by far the largest consumer lending category and top start it represents a proportionately large opportunity to improve the financial lives of Americans.
We're all familiar with the financial crisis of 2008, 2010 triggered by irresponsible mortgage lending among other things.
Well, one sad outcome of that crisis was a seemingly permanent reduction and access to affordable mortgages to the average American in fact, a study by the urban Institute found that if you compare the number of mortgages originated to Americans with FICO scores less than 700 in 2001, six or seven years before.
The crisis with the number originated to that same group in 2015, Youll find that there were more than 1 million fewer mortgages in 2015.
This is what we call the missing millions.
And from where we stand it's crystal clear that a huge fraction of these million would be homeowners are more than credit worthy and deserve access to affordable mortgage.
This is an opportunity that we're excited about and we'll begin to invest in significantly throughout 2022. While this initiative has a longer time horizon on it we felt it's important to share our intention right now.
Before I turn it over to Sanjay I wanted to say, thank you to the entire upstart team for once again, making the proud to be part of this company our team understands the impact, but upstart has already had in the world and the magnitude of the opportunity in front of us is that much larger but without the amazing talent and dedication of each team.
Remember upstart that incredible opportunity would go unrealized.
Thank you and now I would like to turn it over to Sanjay Our Chief Financial Officer to walk through our Q3 financial results and guidance Sanjay.
Thank you, Dave and thanks to everyone for joining today I hope all are well.
I will take us for a quick spin through the numbers.
Starting at the top of the P&L.
Revenues came in this quarter had $228 million.
250% from the third quarter of last year and.
And up 18% sequentially from last quarter.
Of that total revenue to $110 million or <unk>, 92%.
In the form of revenue from fees.
The volume of transactions across our platform. This quarter was approximately 363000 loans.
348% year over year.
Representing approximately 315000 new borrowers.
As Dave alluded to we are methodically expanding our footprint to serve more of the credit spectrum.
Both towards more traditionally prime borrowers.
The proliferation of bank deposit funding on our platform enables us to be more rate competitive in segments, where we have historically had limited presence.
As well as deeper into the millions of Americans, who support credit scores do not accurately reflect the true credit worthiness.
This increased breadth of borrower profiles in both directions has driven up the volume of applications at the top of our acquisition funnel.
A factor of three over the past year.
But it's also exerted downward pressure on the average platform conversion rate.
Which at 23.0% is.
780 basis points versus last year, but down sequentially from 24, 4% last quarter.
Borrower segments that are relatively newer to our models will initially tend to convert at a lower rate than those segments for which we have longer history.
The percentage of loans fully automated on our platform is also down slightly to 67% in Q3 from 71% last quarter for similar reasons.
Borrower profile will tend to have more conservative rates of instantaneous approval until we develop a longer history and greater loan volume for our models to train them.
As a compounding factor this past quarter, we experienced a large coordinated effort to obtain loans fraudulent me from our platform.
We bought no meaningful financial impact from this activity.
But are increasingly public profile as a company leads us to expect that episodes of this type will become increasingly common.
This new reality has motivated us to implement additional protections to our origination processes and these defensive measures have contributed modestly to lower automation rates.
Vince fraudulent applications also inflate the denominator of our conversion ratios.
We have begun removing those rate inquiries identified by our platform is likely fraudulent.
Our conversion rate calculation.
Such fraudulent applications had an immaterial impact to the conversion rate in prior quarters.
Our contribution profit a non-GAAP metric, which we define as revenue from fees minus variable costs for borrower acquisition verification and servicing.
Was $95 9 million in Q3 up 184% year over year and.
And representing a 46% contribution margin.
Down from a margin of 54% in the year prior.
And slightly above our guided level of 45%.
As discussed on past earnings calls this margin was expected to moderate concurrent with the scaling up of our acquisition programs as well as from the margin impact of our growing auto loan volumes.
Q3 operating expenses were $200 million.
Up 276% year over year.
For 239% when netting out the impact of stock based compensation.
Investment in engineering, and R&D remains our priority growing.
<unk>, 272% to $37 million in Q3.
We plan to continue investing heavily in our technical workforce as we ramp investments in machine learning auto retail.
Fraud, and as we scrambled new teams to begin tackling opportunities.
Segments, such as the small dollar lending small business lending and mortgage initiatives discussed by Dave.
General and administered administrative spend grew slower than revenue in Q3, increasing 241% year over year to $34 million.
The other expense categories of sales and marketing and customer operations were largely driven by variable cost increases supporting revenue growth.
Our Q3 GAAP net income was $29 1 million up 201% from the same quarter of the prior year.
Adjusted EBITDA came in at $59 1 million in Q3.
283% from Q3 of 2020.
Adjusted earnings per share for Q3 was 60.
Based on a diluted weighted average share count of $96 1 million.
Turning our attention to the balance sheet, we ended the quarter with $1 2 billion in <unk>.
Strict at an unrestricted cash.
Up from $618 million at the end of last quarter.
This balance reflects the proceeds from the convertible senior note offering completed on August 20th which resulted in an additional $587 million of.
Proceeds net of debt issuance costs and purchase of capped calls.
In terms of loan assets, we carried an aggregate balance of loans notes and residuals of $140 million.
Up from $95 3 million in Q3 and down from $145 million at the end of the same quarter in the prior year.
While the fraction of overall platform loan volume funded through our own balance sheet remains low at sub 3%.
The absolute dollar volume of loans, we carry is edging upwards as we use our balance sheet to support the scaling of our growing auto product as well as our expansion into the lower credit scores segments of personal lending.
In terms of macro outlook, we are seeing the early signs of a return to the pre COVID-19 consumer profile with personal savings rates in the economy now having fallen back to pre COVID-19 levels.
Credit card balances steadily at drilling edging upwards to within 90% of pre COVID-19 levels.
We expect the continuation of this trend to eventually lead to an increase in consumer default rates consistent with pre COVID-19 levels.
And we believe that any issuer, who is not price decision is likely to experience a deterioration in the performance of their returns.
We also expect these macro dynamics to ultimately lead to an increase in borrower loan demand.
Though this has yet to manifest in our results and remains upside to our forecast as the exact timing is unclear.
With this backdrop in mind for Q4 of 2021, we are expecting.
Revenues of $255 million to $265 million.
Representing a year over year growth rate of 200% at the midpoint.
And bringing our full year 2021 revenue guidance up to $803 million versus the previous Lee guided number of $750 million.
Contribution margin of approximately 47%.
Net income of 16 million to $20 million.
Adjusted net income of $48 million to $50 million.
Adjusted EBITDA of $51 million to $53 million.
And the diluted weighted average share count of approximately $96 7 million shares.
I would like to reiterate Dave's gratitude to all of the talented teams at upstart, whose hard work makes all of these results a reality.
And to also wish everyone a happy upcoming Veteran's day.
On behalf of upstart, we want to express our gratitude to the women and men, who serve our country and to those who have sacrificed to keep us all safe.
With that.
Dave and I are now happy to open the call to any questions.
Operator.
Thank you if you would like to ask a question. Please signal by pressing star one on your telephone keypad.
You're using a speaker phone. Please make sure your mute function is turned off to allow your signal to reach our equipment.
That is star one if you would like to ask a question, we'll pause for just a moment to allow everyone an opportunity to signal for questions.
Okay.
Yeah.
And once again that is star one if you would like to ask a question.
Okay.
And we'll take our first question from Arvin Rahmani with private from a private investor.
Okay.
Hello.
Your line is now lies.
Great. Thank you sorry, I was on mute.
Yeah I wanted to ask a question about.
About the quarter.
When I go back to last Brent you had raised revenue guidance by $150 million.
And this is Brendan.
The answers is smaller.
About $60 million.
And.
Suddenly now you have two quarters to play out as opposed to last last quarter, we had three quarters to kind of play with but still the magnitude of the of the beat has.
Diminished.
You kind of entering a phase where.
Sort of wondering what youre guiding to and what's your Delaware.
Do you expect that that sort of accuracy to increase and thereby that magna.
Magnitude of beat two to be lower as a result.
Yeah, Adam this is Dave.
Yes, I would certainly expect that I mean, our goal is to provide accurate guidance and.
So so for sure.
We can understand about the out quarters in our business to more I would expect us to be.
Reasonably conservative, but I'm trying to provide real transparency into what we know and expect about our business. So.
I would just.
Attribute that to us having a good sense I mean, our business is growing at a phenomenal rate by any measure being triple digit.
Some revenue growth while being profitable.
Quite unique in the Fintech world. So we're quite pleased with that and to the extent, we can reasonably predict that in the future we would view that as a positive.
Okay, Great and then on the.
You talked about.
Certainly the auto business and these these essentially kind of.
Kind of flat a.
Planting the flag on the.
Jason businesses within within lending.
Buying in.
A couple of those how should we think of.
Unit Economics of these you know what I'm, just trying to kind of really kind of size up the financial impact because I would assume like personal loan is very different than auto which is very different than that.
Are you able to kind of provide some.
Almost by definition different the nature of each product Buddy I think very we're very confident we will continue to drive top line and bottom line growth, maybe let uhm Sanjay add to that.
Yeah sure hair then.
[noise], Hi, I guess I would say auto auto is the sort of the product. That's inflate right now and you can sort of think of it into two different categories. One is auto refi and the unit economics.
On that productivity analogous to what we have in our personal loan category, meaning the banks that originate the loans will pay us a fee and Willie Green acquisition costs and operations cost.
And that'll lead to a contribution margin uhm and look the contribution margin as with personal loans will be a function of how strong a conversion tunnel is so it'll be something that.
<unk> improves overtime and it'll probably be on some journey similar to what we've seen in personal loans, but with.
Yeah, a few years behind.
And then what do you think about the other category of auto that we're getting into now with auto retail earnings purchase auto at the point of sale dealership and we expect those economics to look better uhm, because there's less acquisition cost involved because you're at the point of sale and frankly some of the operations required.
Two encourage any colonna are handled by the dealer. So uhm, we do that to be a higher emergent product.
And then once you get beyond auto frankly, it's just way too early to tell you know I think we're in a very preliminary stages of thinking about business lending and and home lending. So I don't think you have anything that much to truly report on that front, but uhm I think as we get into those.
Those areas as they've said you know, we're really looking for the opportunity to create.
Value and and and profit so that that that would be the expectation.
Perfect <unk> just a quick follow up on that you know I'd like to think of you know I'm not looking for guidance on 22, and 23, but I just need to start to think of those yours. How should we think of kind of revenue contribution from from auto is it too early to ask that question, but you know suddenly starting to think about 22 and 22 numbers.
Yeah, probably a bit early to ask that question with any specificity of and I mean, I think we believe that they will be uhm meaningful will we believe auto will be a meaningful contributor for financial as next year, but we don't have specifics on on what exactly that means.
Perfect. Thank you very much.
Thank you.
And our next question comes from Randy L. I saw with Barclays.
Hi, gentlemen, thanks for taking my questions evening, I wanted to ask about guidance and it seemed like the.
The fourth quarter guidance came in you know well more than a Q3 beat it almost feels as if there was a little maybe a pocket of little sort of lower performance in Q3, but it seems like your building momentum into Q4 can you kind of you know elaborate on what's giving you confidence to to raise the guidance so much.
More than the beat in queue for.
Hey, Ramsey this is Sanjay uhm, yeah <unk> good.
Oh go ahead Sanjay.
Okay, Yeah look I would say, it's sort of something we said more generally overtime that you know, what's really driving our performances improvement over time, and the underlying models and and that doesn't happen in a smooth way. It it's sort of happens in fits and starts and so.
If you look at where we sort of focused our time in Q3, we've had some good wins, but frankly that there was a lot of.
Effort and focus we put into areas like fraud mitigation, just because that became an interesting topic for us in Q3, but you know we see the progress we've made so far in the quarter and what we have remaining in the roadmap for this quarter and I think we're very optimistic about it. So thank you see that play out in our guidance and you'll see that played and whoever you revenue patterns over time as well.
Okay, and could you give us more color or any detail on the fraud issue you're faced and it is it contained it ongoing should we expect any impact next quarter anything at any details you can provide there would be would be helpful.
[noise] sure Ramsey. This is day, so I mean, just to be clear, we we sort of deal with fraud constantly and pretty much since the beginning I'm in <unk> in the third quarter, we saw a pretty significant and that scale organized effort, which in the end didn't have any you know.
Material financial impact on us and we were able to successfully defend against it but it didn't require us to put some resources against it and you know.
We sort of came out of it with more defenses. Then we went into it but so so we just leave that says you know buy everything we can learn just a result of being a higher profile company and something we can pretty much expect going forward, but you know in the end of it it it's not have a financial impact on us and we we just it it sort of I guess.
We would just say an ongoing cost of doing business and we're pretty happy that we have not suffered significant losses from fraud in our history and feel very good about where our fraud rates that are and have been so so no I don't think it's it's it's really anything worth thinking about our building until model or anything else that's really just.
Part of naturally than a consumer facing financial technology company.
Got it alright, thank you very much.
And our next question comes from Mike Nene with Goldman Sachs.
Hey, good afternoon. Thanks for the question I just have to first I was just wondering if you could talk a little bit more about the small dollar loan product you know how does that fit into the broader strategy does it have helped you accelerate.
Market share gains within the personal loan market or do you see some other opportunity and then second Uhm I was just wondering if you could talk a little bit about [noise].
The the loan sizes of average long sizes in the corner and how we should think about that going forward into four Q and then into Twenty-twenty too. Thank you.
Sure. Mike This is Dave I'll cover the the small dollar question that maybe Sanjay can speak to lone sizes.
You know, we we just see it as.
An opportunity for a win across the board and and first of all for consumers. It's just an area that is not particularly well served with an affordable product that's not exploitive of the consumer. So you know loans for a few hundred dollars for a few months or just it's just an area are rife with extra vacation and we can do it right. We can do it better in a way that's not exploit isn't.
Provides a finance into a consumer for short term when they need it and we can do it under the envelope that banks operate meeting under the 36 per cent rate limit and and with much more affordable products that don't create that cycles that are harmful to consumers. So first and foremost it's a huge step forward for the consumer which is.
Very well aligned with upstart commission, and and frankly very central to it.
Secondly, banks themselves have a lot of pressure to better serve low and moderate income Americans I mean, there's literally been you know messages sent from regulators to banks that they really need to better serve consumers with a small dollar loans for when immediate financing is needed and and most banks have just struggled to be able to do that and.
Reasonable and affordable and responsible manner. So it was just isn't out there, but we've heard a ton from our bank partners and credit Union partners about wanting to have a simple low dollar product that can help them do the right thing by their customers. So it's a win there and find me for I'll start it's a huge win for us as well it's much less about direct profits on this product than it is.
[noise] about the ability to have our models learn much more quickly and to bring people who are at the margins of our models might not be able to approve today for a larger loan, but could've could approve them for them as much mall alone and that gets them to a pack of being you know in the mainstream financial system more quick.
<unk> and it helps our model learn more quickly and so suddenly down the road one of our bank partners could offer them, a car loan or a mortgage or some other product and and that to us is an enormous when if we can bring millions of people who are currently outside the mainstream bank oriented financial system and bring it inside of it and and it helped away and that's exactly what we were.
To do with the small dollar product.
Oh, that's funny I might go to the question about loan sizes.
Sure Hey, Michael Yeah, with reset the loan size, there's really maybe two main things going on one of them is optical and one of them is real the optical one really has to do with the mix of our portfolio and in particular, you know as Dave describes more and more banks are eliminating their their cycle guardrails and what that is allowing us to do is go down spectrum.
In terms of what we can originate in and underwrite uhm.
Uhm and as we do that obviously, where I'm working with a borrower that is receiving uhm smaller dollar sizes, just because they are at the riskier end of the spectrum.
Uhm, so as we do that the sort of the nicks of the of the portfolio is shifting uhm and so that is having an impact on average loan size. So that's something we would call optical the real effect is that uhm loan sizes in real terms has been coming down pretty consistently since pretty much the end of last spring.
And that has been true pretty much through the end of the this past quarter and we attribute that uhm or I guess, we call that deserve to suppress blown demand, we largely attributed to the stimulus in the economy.
Uhm and so we don't have a crystal ball as to how this is going to propagate going forward, but I I do think that as I called out you know in in my in my in my remarks, I I do think we are starting to see the signs in terms of the the macroeconomy of a normalization in the economy with respect to savings rates with respect to credit.
Balances and so if that is really accurate what we would expect to see as a stabilization alone size and then ultimately a gradual return to.
Uhm large alone sizes as savings rates go down and credit balances come come back up so that is I wouldn't call that a prediction that's maybe more of a thesis, but that's sort of where we stand right now with respect to loan size.
Great. Thanks, Dave Thanks Sandra.
Thanks for coming home.
And our next question comes from John Hacked with Jeffries.
Hey, guys. Thanks, very much for taking my questions. The first one is just about about the funnel maybe can you talk about kind of the channels of sources of new customers. Yeah. I I believe you have some good momentum and recurring customers coming directly to your site. So at any any comment or characteristics with the development of the.
The nicks on the front end.
You know John we have very fast growth and I would generally say it was across all our channels. So it it wasn't channel specific which we do is a good thing.
For certain you know, having some of our banks drop FICO scores suddenly means their partner, sending us traffic that they wouldn't have sent us before it that doesn't always convert as much. So there's no effects like that but generally speaking you know the partner traffic has been great. We've seen great progress in digital we are without question growing quicker.
<unk> and repeat loans are kind of lifecycle marketing is which is what we call. It internally mm mm. So so there's a lot of those dynamics direct mail continues to be a very productive channel for us. So.
So when I finally gets better and and you know our aperture of who we can learn to or who are bank partners are lending too gets better than than it. Just you know typically goes across channel and that that is definitely what we've seen is this cross channel improvements.
Okay. That's that's helpful. Thanks, and then maybe talk about the Investor side I know there's been a dramatic.
At a global scale, an increase in an investor demand.
Yeah. It is that still the case in terms of kind of capital allocation and then maybe any commentary on the pipeline of banks and credit unions that that we should expect over the near term.
Sure, maybe I can start with getting a high level.
But.
Oh, sorry sounds good maybe I'll just do the high level first yeah. You you know you as I think you know John we have a lot of banks, who originating loans for their own balance sheets. We have some banks that are selling to to you know 100, plus 150, plus capital markets partners and that creates this very liquid environment that would work in you know.
Uhm, maybe to the bank side I mean, we definitely have very rapidly growing interest frame from being partners for some of the reasons. We've said in the past, which is no banks tend to be very heavy and deposits and light and loans and that's an environment that works really well for us I I I would say, we just continue to.
See increased.
Interest our ability to get banks onto our platform quickly has definitely improved we we you know I mentioned.
In my remarks, we got a bank partner on in less than 50 days, which is a new record for us. So the demand is there I think the confidence our models from the bank partners is there the returns to the banks have actually been in excessive meeting higher than they would have expected on loans, principally because the <unk> the.
Macro environment has really suppressed default rates for us probably like a lot of other so ah that that the banking site is very very strong and we feel very confident we're gonna continue to add banks and credit Union partners at a at a rapid clip.
And let me, maybe Sanjay can speak to the investor side.
Sure Yeah, Thanks, Dave Yeah, what I'd say for those loans that flow you know through the banks in <unk> in the capital markets I would maybe point out a short term a dynamic and and maybe a longer term or more secular won the short term dynamic is you know is like loss rates are unnaturally low low right now in our opinion and the avs market.
I I believe I would call him a highly constructive and of course, there's a lot of capital right now chasing yield in combination of those three things has made.
It's such that there is a lot of demand for loans out there, we think that will change and normalize I think the the things that we think about in the more medium to long term, which are important to us or to one I do believe over this period of time.
A whole category of digital personal loans is really I think they have a lot of credibility as a legitimate source of yoga and you're starting to see institutions. There are much more conservative and traditional come into the space.
And so I think there's been a an increasing acceptance into the mainstream of of investment finance on the credit side and then the second more important one is you know how how do we look within that and I think that you know upstart continues to have a lot of credibility for the performance of the credit and our ability to underwrite the risk in a way that I think differentiates itself from from other.
[noise] product in the market. So we thank the combination of those couple of things will will be such that even when we're past the current.
Let's call it sort of distortions in the market will will be in pretty good shape with respect to demand.
Great. Thanks, very much for the commentary.
Thank you Jim.
And our next question comes from that Schindler with Bank of America.
Yes, hi, guys.
Just wanted to talk a little bit about where did you guys mentioned about longer term about an hour you could use your.
Platform on other alone types.
Obviously personal loan and auto loans are sold in C. B S market.
If you are better than you can prove your bedroom. If I go great you're gonna get a premium on you know to be able to tell you, what's better and everything that you can get funded well, but when you mentioned things like homes and mortgages.
Basically sold an entirely into G. S e's.
How could your system work in that World, where Fannie Mae is basically deciding who will get the mortgage.
And Ah This is Dave it's a good question and.
What what did you say mortgages are funded in lots of ways first of all and some or qualifying some are not qualifying the G. S. He's.
Rules can change over time, so there there's just a lot of there's a lot of ways to smart Kid could go but having said that if if people don't have access to a reasonably priced mortgage today at all we certainly think there's an opportunity to serve them better and again, whether you know funding as is.
From bank balance sheets, whether it's from securitization markets, whether it's from G. S Eve or whether it's some combination of those things you know it was certainly something will look at it over time, but we feel very confident given what we do and who we are that better underwriting somebody who wouldn't otherwise you know fit easily into a koala.
Hi, mortgage using the models that most mortgage originators used today, there's a very large number of people who aren't well served by that market and we think we can together with our our our bank partners or build a better product and that's that's what we expect to do.
Alright, great. Thank you.
Thanks, Matt.
And that concludes today's question and answer session I would now like to hand, it back over to our speakers for any additional or closing remarks.
I just want to say, thank you to everybody spend a great quarter for us and a great year since I P. O. We are really excited about what we've done but he's more excited about what's in front of US I think we've tried to lay out some of the framework of where we're going but uhm, we feel the company has never been strong.
<unk> and never more excited about our prospects and what we can do in the financial services industry in the years to come. So thanks, all for joining us this quarter and we'll see you in a few months.
This concludes today's call. Thank you for your participation you may now disconnect.
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