Cross-selling Members for Long-term Growth

0:02 You're listening to Leaders and Lending from Upstart, a podcast dedicated to helping consumer lenders grow their programs and improve their product offerings. Each week, here decision makers in the finance industry offer insights into the future of the lending industry, best practices around digital transformation, and more. Let's get into the show. Welcome to Leaders in Lending. I'm your host Jeff Keltner. This week our episode features a webinar conversation between Janel Christensen, who's been a previous podcast guest, so welcome back, Janel, and Upstarts Drew Megre. They really dive into what is going on at Commonwealth see you, the current state of personal lending, how that's changing, how you can use AI and mL to improve the lending experience and the lending process for your customers, Strategies for creating high quality member experiences, specifically in personal lending. They also delve a little bit into auto lending, kind of what are the new things there, how do you streamline what can be a cumbersome process in the auto lending space, and how you can diversify your portfolio and the value of diversifying your portfolio into shorter duration higher yield assets which can be pretty useful in economic situations like the current one. So please enjoy this conversation Withdrew and most specifically Janel Christensen. Thanks for joining us again. I'm Mike Krakowski. I'm the moderator for today's program.

1:25 Today, we're fortunate to have with us three expert speakers who are going to engage in a fireside chat of sorts talking about the key issues here, as well as answering questions from our audience at the back end of our program as well. Our speakers today include Really Turo, President and CEO of Reading Cooperative Than. Julie Thurlow is the president and CEO at Reading, and she is responsible for the bank strategic direction and management. Julie also serves as president of the RB Charitable Foundation and as vice chair of the American Banking Association. She's a past chair of the ABA's Core Platform Council, and she currently serves as a member of the Government Relations, Administrative Committee and Membership Council. Who is joined today by Phil Bryant, Executive vice president and Chief Banking Officer at Reading Cooperative Bank. Prior to joining our CB, Bill spent five years as President and CEO of the Cooperative Bank and was the EVP and Chief Lending Officer at Georgetown Bank. Over the course of his extensive lending career, full of served as Senior Vice president of Retail and Lending at Metro Credit Union, Senior Vice president and Small Business State Manager at TD Bank, vice President of Retail Banking at Metro West Bank, and Vice President Business Development Officer at Citizens Bank.

2:52 Finally, we're pleased to have with us Ed Walters. Ed is vice president of account Management for Lending Partnerships at Upstart. He is over twenty five years of financial experience, of financial services and management consulting experience, and it has held various leadership roles, driving consumer lending growth and establishing fintech partnerships, building pmos to support bank transformations and acquisitions, improving business resiliency, and leading technology development. It's all among Julie, Phil and Ed. They have a lot of ground to cover, but they have a lot of great ideas. So I'm going to turn the program over to our host here and that is Ed Walters at Upstart. Ed the floor is now yours. Great. Thank you, Mike Into American Banker for hosting us today. So we'll plan for about thirty minutes of content and then we'll leave fifteen minutes for Q and A.

3:44 Today it is Mike said, it's gonna be a fireside chat, so we want this to be interactive. So as we're having dialogue and asking questions, is if you have questions throughout, please add them in the chat and we're applicable. We'll try to answer them within the flow. But again and we'll leave time at the end. Julie Phil and I really appreciate you just taking the time out of your day to be with us, and we hope that you find our discussion valuable and relatable to the environment that we're all operating in today. So when I begin these, when I do these conversations, these fireside chats, what I'd like to do first is for the audience is give them an overview of our organization. So the our two organizations that are speaking today. So Julian Phil, let me let me ask you guys, could you go first and let's share who is Writing Cooperative Bank, and let's describe a little bit about the markets you serve for the for the audience.

4:33 If you went mount sure, So Writing Cooperative Bank has been in business since eighteen eighty six. We're a mutual organization and for the last ten to fifteen years, we've been thinking differently or probably the same about our markets. We actually were founded for the working man, and we have really focused ourselves on a couple of gateway cities that are in our area, identifying where there is need and using a human centered design approach to hear from the customer what their challenges are. And their challenge is access to credit and even banking. When there are check hashers on every corner in these communities, clearly folks don't have access to the full array of financial services that are other markets benefit from.

5:19 So we've really been focused and identified the underserved customer and that's when we started working with you, folks. And just to add on to that that, I think that as a community bank, pretty much all community banks they have that focus on exceptional customer service. But we really tried to take a look at what are the needs, what's the competition like out there today, how can we how can we combine tremendous or great technology along with customer service to create noble hoals efficiencies that you can get from technology, and we are we are willing to embrace technology and use technology to improve the consumer outcome. Great, well, thank you guys for taking a little bit to give the audience an overview. Let me take just a couple of slides and promise this this is the extent of our slide presentation today, and it's really just going to be about the dialogue. But let me talk about just Upstart for a moment.

6:26 So Upstart is a leading artificial intelligence lending marketplace really that's designed to improve access to affordable credit while reducing the risk and cost of lending for our learning partners. And so what does that mean? And so, so the thing about Start is we're this, we're a marketplace that enables our lending partners to acquire new customers that align with the bank's risk appetite, which is which is very important. And what it does is we're able to provide our lending partners a means to diversify and expand their learning portfolios by growing with asset classes such as personal and auto loans. And in particular, we're personal loans are attractive right now to our letting partners because they accomplished two things. They're a high yield and they're short duration asset, which is which is really important in a very volatile environment with with with the rate environment. And then you talk about providing access to credit and be able to approve more borrowers, and so how we're able to do that is through upstarts AI credit decisioning model, So we use over a thousand data points and advanced and machine learning algorithms really to find the credit whether credit worthy borrowers that fit into a bank's risk appetite. Right, So really the bank themselves defines that that that credit policy and the Upstart model is able to fit borrowers into that fine borrowers that meet that expectation,

7:57 and all of it is delivered in a fully modern, all digital experience, which which really is is what the consumers is expecting today. So let me explain the last size really okay, like how does that? How does that work? And so banks can partner with Upstart really on two fronts. There's there's the Upstart referral network and then also within a bank's digital infrastructure sometimes referred to as ours our white label solution, and there's two sset classes currently that Upstart supports. So there's there's a personal loan as well as they're the auto loans. So now the referral network, what that does is it allows our bank partners to subscribe to our marketplace and really they define on a monthly basis what's the desired volume target that they'd like to get as well as kind of the core underwriting criteria and economic criteria. And then so then as borrowers are coming into upstart dot com, as we're driving kind of as a national marketing effort, those borrowers are the match to a single lender that is providing them the best rate based upon the capital that's available of where they meet that lending partner's criteria. So it's really matching up a benefit to the consumer and a benefit to the lending partner right making that connection, and then that borrower becomes a customer of the bank, So it's originating on that bank's paper and it's becoming a customer, and so it's really an effective tool for driving growth all

9:28 within a bank's economic and risk tolerances. Now, the white label solution that is something that's integrated within banks fully branded experience within a banks kind of a digital website, and so it's really what that intent is for is to serve kind of existing clients or any prospects that are coming to your website, are coming into your branches. And with the upstart program, banks have the flexibility to either leverage one or both of those solutions. It really depends on what your business need is, what are you trying to accomplish Writing, for example, actually uses both and we'll be able to talk a little bit about that today. So before we go into the discussion, I think everyone's acknowledging that the lending environment has changed right a lot over the past eighteen months. Banks are monitoring the macro impact on their customers. We're going through a rising rate environment. But what hasn't changed is that consumer still has expectations for digital improved digital experiences and lending needs exist. And so what's critical right now is for a bank is how do you provide that digital experience and support those lending needs but really be confident that you're originating loans within the risk tolerance right with just a lot of moving pieces. So what we like to do is is before we start getting to some of our questions, let's get to know you a little bit. And let's start with two polling questions. So let me pull up our first polling questions. So this is the audience participation be great.

11:00 So the first question we have is what is the sediment in your organization right now? I'm consumer personal lending. This gives us a chance to get a sense of or do you have do you offer personal loans today? Did you offer how is how is that change your your perspective over the over the past year. Okay, I'll give it just a couple more seconds. We're getting some It is one more second, all right. I always, I always, you know, I was either go too fast right or I take too much time. But well, I think we've got enough. Let's switch this one. Okay, So interesting, pretty pretty even distribution kind of across the categories. Any anything here that surprises any of my fellow panels kind of what you would expect. So I actually I'm not surprised, especially at the very first first question. When I think about our markets, most people use their credit card to day instead of getting a personal loan, even though a personal loan is probably easier for them, or what about by now pay later?

12:28 So what is actually replacing the consumer loan? I'm about it, but I also think about it, what's what's in the consumer's best interest and we can talk about that more later. Yeah, no, that's great. Surprised. So the next is is about the digital approach. So what is your organization's digital approach to consumer personal ending? Get a sense of you know, your consumers still required to come to your to a branch, to to close or have you built a digital experience and and that digital experience have you have you built on your own or have you looked to partner with with a fintech to to provide that experience. Let me pause here for a moment. Okay, one more second. All right, let's go to the answers. Okay, so so interesting, almost almost fifty percent still required to come into a branch.

13:39 Yeah what any any reaction there? Uh, Julian phil Well, I think this is a great opportunity for you to talk about up start. Yeah well good, that's when we were too, so it's not surprising at all. Not surprising. Yeah, well great, So let's let's actually here. Let me do this. I'm gonna just let me just move to this slide because really I'm doing more slides, but I'll just leave this up so you guys can get everyone can see more of our faces, which is really what people want to see. All right, So let's let's jump into the really the first question. So I had the audience kind of give us their feedback. Could you talk a little bit about reading as far as what are your goals? Is it relates to kind of consumer lending and both you can relate to personal but just overall consumer lending. How do you look at it from from your business goals? So maybe I'll talk about it from more of a macro perspective. Community banks have been losing the personal loan business that we've lost the auto loan business, we're quickly losing the mortgage business, just because everything has become more and more automated. Consumers have their credit card access to so many other options as far as credit is concerned. So the reason why we looked at the ability to automate is and of course regulators right now are very concerned about equable access to credit and financing. However, the consumer loan is probably the most expensive to originate as it relates to the return that you're actually

15:13 going to achieve. So unless it's automated, it is actually costing you more than you're actually going to make an interest on that short term loan and small dollar loan for the bank. But it is what people need. So I mentioned earlier that we've actually opened a couple of branches in Gateway cities. And what we heard loud and clear as people want credit. They recognize that if they want to be successful financially, they need to use credits so that they can leverage and get the things that they need so that they can actually achieve the next goals and take that additional job, et cetera. So how do you actually get money into people's hands, but do it in a profitable way. It has to be through automation and in fact consumers And you know it's the thing that happens with your kids, right they turn a team, they want a loan, They come to you to cosign because they can't get alan on our own because they don't have a credit score. But you can't get a credit score without having a loan. It's a chicken or egg scenario.

16:06 So just hearing from the folks on the ground, why you know, what are your aspirations and what are your challenges you with your banking relationship. Access to credit is a huge friction point, So solving for that, and that's really what we liked about Upstarts. Your willingness to provide better access to borrowing that's not just driven off the credit score, helping us serve existing customers but also new customers. And even the fact that your model does adjust to the current economic condition and we're still in control of what the rate is, what markets we're lending into. We're not a large institution where I mentioned a mutual, so we can only leverage our capital so much so we can actually set the expectations and what size of a portfolio we want in making sure that we deliver for our consumers. First. No, that's so, but I will say this just want to add something to it, is that I grew up in consumer lending, even though when you look at my resume, I been kind of all over the lending world, and I grew up there. And I also spent some time at a credit union, and I couldn't understand.

17:17 Credit unions seem to do just a great job with auto lending and consumer lending and they figure it out, and why community banks don't play there, I never quite got. But certainly having a way to automate that there's a cost of doing it. There's a cost of collections as a cost of servicing. So trying to solve for those problems was our biggest issue. But it's alf solvable, so we just you just have to find the right partner to do it. No, great, thanks for your context there. So let's talk a little bit about that the consumer. You and you talked a little bit about about habits and and different products that that that the consumer is is looking at or have available. So is you look at your business, are you are you seeing like spending habit changes with your with your with your customers today or or even seeing the needs adjust say over the over the past you know, twelve to eighteen months. So I would say so during the pandemic, we actually saw that consumers had a build up of cash. They weren't actually looking for a tremendous amount of credit. Well, if you can't go anywhere, and you can't go out to dinner, and so this, but and and we offered skip payments for mortgages. So people did have have excess access funds in their account. While we are seeing those draw down and we haven't yet seen in increasing delinquencies, but we hear from from other areas that there are increases in credit card usage and by now pale later, we're seeing a

18:48 fair number of that payments are moving outside of the banking system with Benmo and balances our external any consumers have changed their behaviors board expectation of immediate satisfaction and so being able to get anything on your mobile device and to be able to act when you need to and get access to the things that you need. I think that's important to consumers. I mean, I grew up with layaway, not me myself. I remember my mom, That's how she saved for Christmas. We still offer Christmas clubs. But on the other side of the house there seems to be more of a lean towards more more predatory payday loans and and I am concerned about the whole buy now, pay later, when consumers don't necessarily have a one hundred percent control over their account anymore. I do like a personal loan because it is a way to level out monthly payments, to be able to plan and prepare so that the consumer is more in control, whereas right now it seems like the payment companies are in control and just a we are seeing I see it, you read about it in the Wall Street Journal, and you're loosing it here with some of our portfolio.

20:06 Is that your credit is being used more, most of its variable rate credit cards, as we mentioned, So now people are turning to what can I fix that out for three, three, seven years whatever that may be at a better rate than they're getting it with the credit card company. So we are seeing that credit consolidation starting to happen now as well. Yeah, the interest rate. So yeah, when you when you saw as you mentioned it right during during COVID, just spending habits. Really we're dictated because they're just folks weren't able to spend right, and and then there was just this kind of this build up, and I think you's is a lot of a lot of bank and credit unique executives I talked to, you know, talking about now you're you're seeing You're seeing that, You're seeing the usage go up, You're seeing people are out there taking vacations there there, they're all these things that was kind of you know, pend up for for a number of years.

21:00 Now is it's kind of it's kind of coming back, and at different stages it did different cycles. So definitely interesting times that we're in over these uh, these these past couple of years. So that then the leads to me to kind of my next question is as is the is the environment is changing, and you talked a little bit about you know, consumer expectations. We live in this this this Amazon world where you know, I want it now and speed, So how do you see the need for data and more automation and and and and just the digital experience really kind of impact your approach is you're is you're looking at seeing those components is almost almost table stakes, I think in some cases of getting into some of these areas. So if the consumer loan is your first loan product product or your first experience with with term financing, the small dollar consumer loan is hard to justify. I've alluded to it earlier. Takes the same amount of work as a home echoy loan, but there's no collateral underneath it, which makes it very expensive for the consumer but also expensive to originate, higher risk, presumably higher default rates.

22:11 So you need to make sure make sure that this is a prime customer that you're lending to, one that's not going to default because there's nothing backing it and it all gets written off of the payments don't get made. So scaling a product and building a portfolio that provides the return, it can't be ten loans and then you lose on one. It needs to be a lot of loans that actually drive down the costs. But those a whole host of loans requires that you have a department that actually can collect on the loans, that can process the loans, that can book the loans. It just is an expensive expensive to scale at the community bank level. And to add what you said about table stakes, I think from my perspective is if we couldn't do this quickly, we couldn't do it easily, app based and be able to get fun into them in a relatively short period of times, that I didn't want to do it at all, because that's what the experience is with larger institutions that they have across the country. Right, So that was really kind of a no starter for us. If we couldn't do that, then it just wasn't worth going down the road. Well, and that leads us to kind of the next question. I mean on just hey, you have expectations of how you want to deliver solutions, and it actually it bodes us.

23:26 Someone asked a question about evaluating partnerships, So so thank you for who asked the question, because you let into my question Number four is really can you talk about your approach to partnerships? And so I think a lot of people join these these types of calls to hear from other bank executives on how did you approach looking at fintech partnerships? How how you know? What were the things that you were evaluating and the processes that you go through as folks are thinking about, you know, how do I how do I do this in my organization? So for the FinTechs that are actually looking at trying to figure out how to make the connection with the bank, it is sometimes it is just you know, fortuitous conversations that that just happened. We are looking for FinTechs that provide a service that our customers are looking for and not some obscure, unrelatable service. It has to be within the banking bandwidth, and for us, it has to align with our organizational values. So it has to be providing something that is right for the customer. It is not taking advantage of the customer. It's fair, it's transparent, and we have to be mindful of our bandwidth, so we're not going to be doing ten projects every single year. We have to be very intentional about which ones we select.

24:48 Is itself contained? Is it easy to stand up and can it achieve our objectives and not just be a one off? Yeah, and the support is also helping. That support from from the fintech itself, and that we don't know how to stand up something like this, it's foreign to us. We need a lot of handholding in the process to be able to say, Okay, here's here's some other people to talk to that I've gone through it. Here's what other institutions are doing. Now here's you know, this is how you've got to deal with your auditors when they come in. Because Julie mentioned earlier a lot of appliance around consumer lending, so there's really a we need a lot of handholding from the from the fintech, from the partner to help us get through that process. But it doesn't just end after we've stood this up. Right now, it's going to be let's let's look at this on going. Is it performing the way we want to do? We need to make tweets with it because again this is our first time going down this road, so we need all that help we can get. So you've got to make sure that when you're talking to somebody else, if you're getting references, that you're digging deep into that support, not just in the beginning but after they close and after they stand up the product. Well to that point, we also well and to that point, we also need to know that we're not betting the bank on something that could actually harm the institutions. So the reporting that you actually provide, I know Fiel goes through on a monthly basis and reports out the performance of portfolio. We can make make tweaks to it.

26:19 We understand the impacts and and the fact that you do monitor the outcomes on an ongoing basis, so there aren't any surprises for us as an institution. So again going back to an evaluation, whatever we're doing, it is additive to the customer and it is not doesn't create any adverse risk to the financial institution. Well, and can you add that coaltry on like the process that you have, so when you do you have a standard approval process, so to get a fintech approved in your organization, can you can I get an described that the steps and there is there certain committees or hot what what step did you have to go through to say approve our partnership. Well, say, first of it was doing a lot of due diligence and someone the one we had to go do that. There's a lot of due diligence you had to you know, to talk about what the benefits were. And it's with anything you dually said it right before, which is it's gonna be hard to get someone's attention at a bank if you are from the fintech world, because there's got to be that perceived need from us first and which is which starts with our customers. But it really was doing a lot of homework on it, checking the references. Like I said before, making sure that check the boxes. I had a very clear idea of what, uh, this process should look like. What we did not want to do. We did not want to build a department, you know, we wanted to have we

27:52 didn't want to put extra stress on our on our loan servicing department. So we really tried to have it be as turnkey as well, do everything it needed for us and at the end of the day we get a net return. So it is making it easy, but we do the due diligence. We talk about it at our senior management meeting committees and our meetings. We run up by our Board of directors to say, this is what we're thinking about doing, and here's a breakdown of how this will all work. So that's it's it's a little bit informant, but we do have a vendor review process that that we do go through. But I think the bandwidth of the organization is also really important to us. This cannot be something that we stood up today and it's an MVP that tomorrow is didn't make sense or it didn't stand the test, so that that that we have to do it all over again. So that is I think the challenge from an innovation perspective is a fintech wants to make their first bank partnership, but the bank needs to make sure that the fintech actually has the glide path in front of them that's going to be there in the future. Because once this product is offered and there's an expectation from our consumer that it's there and available to them, we can't just pull it from the menu. Well, I think that's a great this is not when when we look at success and I've had the opportunity of being being sitting in your chairs, uh, you know, in the in the

29:23 in the banking world, making the decisions and then now on now on the partner side, you know, we look at these partnerships of successes in one month, one quarter, you know, two quarters, right, You're you're you're building when you get in a relationship like this and we're we're integrating, we're integrating our two organizations together right to serve the needs of the community and the consumers that you you know that you're serving. You have to think about it, is we want to be celebrating two years, four years, five years, ten years, right of of of successful kind of partnership together and is there is there the right alignment right with the values of the organizations? Are we are we both kind of heading in the right direction of of how we're trying to serve the consumer. So it's it's it's it's it's great to hear of kind of how you guys, you know, how you guys are thinking about it and and and it leads me to kind of this follow up and you've you talked a little bit about it, but just pull a little more threads because I think it's it's it's it's a good one of just selecting the relationship, right that that doesn't end it right there, there's hey, there's there's there's high fives of of right, we've we've made a decision when you've selected a partner. But then there's there's the ongoing management. Right, So there's there's making your continuously working to oversee and and and manage this this relationship and to continue to evaluate is it still meeting the expectations, the expectations of why did you get in this business in the first place, as well as evaluating that are your business school still aligned? So can you talk about

30:56 I think how you are just I'll say that can tinuing monitoring of partnerships to just make sure they stay aligned with your expectations? Yeah, you know, and your poll question a little earlier, you had something like twenty five percent of the audience say that they're concerned about the current environment and that's why they're not doing consumer lending. And certainly was a real concern because we were going into this process while things were starting to go down Rachel going up, issues were starting to happen, and that was a big question for us. But we get through a dashboard and I get KPIs on a monthly basis, but I can go in anytime like I did before this call, and looked at the KPIs to see, Okay, what do we have for delinquency, what's our volume, what's our average rate yield? All those types of things, and I know we also have ongoing calls. We did one sixty eight weeks ago. We talked about, hey, you could be getting more yield fill for reading Cooperative Bank if we do some tweaking and still get the type of volume that you're looking for. So that was a proactive approach which I appreciated from up starts to come up to me and say there's opportunity here, because what bank doesn't want to get more yield? Right, So we work that out. I think we moved our yield up from a net of all expenses of five percent yield to to a seven percent yield, which is not bad in this environment. So we also get a slew of reports that I can look out on a daily basis to figure out what loans of command and if anyone are looking for extensions or modifications, so we can really pick and choose and look at this and break it down at a very micro level, which

32:29 gives me comfort. I know, it gives truly comfort to have that information. Yeah. I think the other piece that I like is that the option of actually just originating a portfolio and also using from a white label standpoint and going to market with individual products, maybe marketed in a different way depending on what the usage or the appetite might be based on the consumer group that you're marketing too, So having that ability to also launch other products in addition to making tweaks to the existing based on what you're actually seeing. I also like the fact that you're constantly evaluating what data is out there in the marketplace because times changed. Right now, we know that consumers belts are tightening, rates are rising, costs are rising, and making sure that we're always operating in a current environment, not on historic data. Yeah, and you in your model and probable mentioned that your model adjusts, uh and and adjust, but it's a learning model to incorporate an account for blink, what's these that are happening now based upon past approvals, And so because the model learns yours, it's current that it's ongoing and it's up to date as learning and making adjustments on the fly. Yeah, And I think one of the things I can I can add to that is the advantage of of of a of a partnership like Upstart to our partners is the scale, meaning that you're benefiting of what

34:05 the model is learning, not just from what you're originating, but you're you're getting the whole bandwidth of all the loans that we've originated on the platform. So now you start competing almost with the same data as you know what we'll say, starting to compete with the trillionaire banks of the amount of data that they're processing. All of our lending partners are getting similar scale because of just all the capital that's that's that's coming together. And so you're right, the model is continuously looking at and you're benefiting from loans other lending partners are originating and in the repayment events because the models absorbing all of that to build a very broad sense. There was a question here I'll go back to the when you're talking about the diligence. Is someone who's asking when you were like looking for partnerships, like how did you go to identify who was who was available in the marketplace? Was it was? It? Was it conferences you went to, was it sites that you went to to do your research? Kind of like how did you how did you build I'll say your short list of Hey, these are some of the companies we should talk to for the answer to the first part, Yes, that's good, it's true. I mean the conferences and colleagues. We ended up having a list of I think ten companies that we looked at in total. And in fact, the first time

35:36 we looked at Upstart at writing, we actually loved your model, loved what you were doing, but it was very early on in up Starts tenure, and so we ended up coming back a little bit later when we were ready and we could get comfortable. So there's a lot of vendor due diligence, finding out who the other institutions that are writing, looking at the behaviors that are actually happening. And then just again as I mentioned it, because I know there's a few FinTechs that are actually on this call is it might not be you, it might be us when when we actually don't engage with the fintech because sometimes our bandwidth is what it is you have turnover in your organization, you need to bring on even the right leader, or maybe you don't have the innovation appetite in your area of the bank at that point in time, and bringing on the right chief banking officer that actually has an appetite for more innovation might actually be the right spot. Or there it might be, as I said, the institution that actually needs to learn how to be more innovative. Good good, good dialogue. Let me let me ask about stakeholders, because this is something that that I see now. It's it's it's it's awesome, you know, having having the CEO so engage that that's a that's a that's a that's a pretty important stake or for fill to have working so closely. But but can you guys talk a little b about you is your organization and is people are looking at these partnerships the kind of the stakeholder committee

37:10 of folks that you need to make sure stay engaged with, you know, during the selection process, and then not that they have to be involved on a day to day basis, but that that you're keeping i'll say involved, whether it's it's quarterly or or monthly and various reviews, and what are some of the tactics that you're using to keep your your extended stakeholders engaged. So I'd start with saying that when we first started, we had a lot of stakeholders. Even though up start manages the bulk of the program for it's getting it up and running, making sure that the fund transfers happened. We had accounting involved, we had it involved. We had just hired a new what they call it they not a product manager, but the project manager, Trevor, thank you, project manager who kept us all on track because there were a lot of moving pieces and you folks were moving pretty quickly and kept us on track. And so we had all those you have to meet on a regular basis in the beginning, on a weekly basis, make sure you're hitting all your road your stops in the road, and making sure you're you're you're on track. And so that was a big part of it. Getting the board is involved, you know, having those reports to the board as we start getting to launch and what we're hoping to do and here's the the KPIs we're looking to attain, and then having to keep them informed on a going

38:44 a quarterly basis. We just started doing this because this relatively new program for us is showing them the KPIs here's the growth, here's the delinquency that we're seeing. Here's here's you know, a lack of delinquency that we're seeing. So we keep them involved with quarterly reporting there as well and tying that back to what what we presumed at the very beginning when we actually went to the board for approval of the product. So this is the return when we're expecting. This is a return we're getting. This is what we anticipated the deliquency we're great to be and here it is at this you know, and just you know, confirming that what we expected to happen and and setting that threshold for how much you're going to originate per month and then seeing that the things that you expected to happen did happen is the thing that gives you the competence to continue to move forward. And it is truly a partnership. Yeah.

39:35 And what's good for him to remember is when you when you launch a product, particularly say say personal loan that that say bank may not be offering today or is offering very small, you may think, oh, this is this is a, this is a small product in our in our total asset class, I don't need all the stakeholders. And I think that's where some folks sometimes I see get upside down we're because then they end up maybe having more challenges throughout their program because not getting the right in people engaged at the very beginning and they don't have to be involved in at all the time. And I think Bill, as you talked about, you start with you cast a good net, You get the right people there that are helping make a decision, and then you determine who's got to be part of it to run the day to day, and then keep those those those ancillary stakeholders updated on a regular basis so that just they're seeing that the program is growing, it's being managed, it being oversight because then you know that comes back to the regulators and as you're as you're presenting the regulators about partnerships, you're able to describe, Hey, here's how the organization is staying engaged. So let's let's go.

40:45 Actually, when you're talking about our existing portfolio, we were writing very few consumer loans, and we were writing them that eighteen percent interest rate. So the only person that took them is a person that was desperate, and so we actually understand so that we had losses in that portfolio because we were providing these high rate loans to people that were desperate, because they clearly they would have used their credit card if they could. So in this situation, we're instead writing loans to people that are using personal loans for a purpose and they're paying them back, and so we have better performance of the portfolio, but the consumers also getting a better experience because the rate is more beneficial to them. O. Great, So you mentioned a little bit about the partnership that you use both the earn the Upstart referral network for new new customers as well as you use the white label to stand alone, you know, off your website for your your your existing customer base. So can you talk a little bit about the decision of like how are you, how are you looking and leveraging both products and the perspective to kind of kind of leverage both versus to the other. Well, I think that we wanted to have something to offer to our customers because as truly mentioned, we didn't really have anything in the consumer lending area. We priced it at such a point where it really wasn't competitive, and so we want to be able to have a link on

42:17 our website where we hite label this it looks like our product. It shows up with the Reading logo on it when you go into the app, when you click through, and experience for the customer that it seems like us. It seems like reading. They can get approved and seconds, they get their money next day, and so it's a really good experience. And we wanted that, but we didn't think there was going to be enough volume there. But we did want that customer experience. And so we also did the marketplace so that we would be able to define an area that we wanted to do business in and then I'll start with would market in that area, and if loans came up that fit our criteria, our credit criteria which we developed from the beginning, then we would get those wells. So you know, at the end of the day, we do we do about a million dollars a month only because that's our choice. That's the limit. That's how much we want to do. We could certainly do more if need be. Yeah, and I think actually you answered you answered one of the one of the questions.

43:15 I think someone was asking the volume that you're looking to do on an annual basis, and then I think the other question I saw was and it kind of feeds into about the controls. So when we talk about your your footprint here, when you think about the controls you have to manage the program and so that you know what what you're able to define, what changes you're able to make to ensure that the program's staying within your your risk tolerance? Can you can you talk about that and even talked a little bit about the controls on from a from a footprint standpoint. Sure. So you know, when we started the setup of the program, one of the first things we do we had a worksheet and say, okay, what are we willing to do? Do you want to if they have a if they have a bankruptcy is an automatic note? What's your bottom line credit score that you're willing to accept, what's your bottom line debt to income that you're willing to have.

44:07 So there's controls. There is a number of questions we go through to determine just how deep and how much risk we want to take. And so we put that in place and then let's start works within that. You guys come in and you tell us be based upon based upon the controls you have in place in the market you define, which we define as Massachusetts in southern New Hampshire because we're in the northern we're between you know, New Hampshire and Boston, and so within that they'll say, well, there's a based upon carent volume, there is a nine million dollars a month market opportunity, and so we can and the tighter we make that criteria, the smaller that market opportunity would become for us. So we determined once we hit a million dollars, stop for us, stop doing it, stop marketing us. And the way it's worked, and I appreciate it's done this way, is that it's not a million dollars in the first five days. It's spread out basically evenly over the course of a month that we slowly work up to a million dollars.

45:10 And I think we have something like that seven or eight million dollars portfolio now from what was probably a two hundred and fifty thousand dollars portfolio. And I think I'll add to I think there was another question about you know, does does the does the does a borrower? One hundred percent, you know, get the get the lowest rate, and and and the and the answer is is the borrower gets the lowest rate based upon the capital that's available. And so that's kind of what what what Phil had shared is, you know, Phil happens to have the lowest rate in the on the platform. All of Phil's capital just doesn't get used up at at you know, at midnight or twelve oh one am on June first, Right, So so there's it is.

45:54 It is it is smoothed out throughout the month so that the lender can be paced and that also we're we're ensuring that that the best rates are available as as as much as possible throughout the month for for for all the concert company of the program. So hopefully that answered the question that we had in the in the chat. So let's talk a little about you know, if you're if you're we saw that fifty percent of the folks aren't doing personal lending today and it may not have a partnership today, So a lot of those folks are probably considering is now a good time to get in a fintech partnership or not? Like, how how would you why would you think now would be a good time or not. But too, why would you think it would be a good time to move forward and think about a partnership. Well, you just heard from Phil how how we've made our decision that will enter in and we'll do it slowly in a methodical way so that we're constantly investing, and so their short term loans they will pay off in short time.

46:58 So just like you, we we lived through cycles. But I would actually say right now, the consumer is going to have more demand than they did during the pandemic. During the pandemic they were flushed with cash. They didn't have an appetite or the trips or the travel for for other things. So I think there will be more appetite at this moment. But I also think the fact that the market constantly adjusts to the credit conditions that are there also mean that that a late, well later plan will actually mitigate risks. Right. I think everyone's finding it's a tough market to hire people, and so when you can find an end to end solution where you're not having to add staff and replace staff as they leave, it makes it much easier for us to manage. So the short answer your question, is it a good time to to partner with a fine definitely, particularly if you can streamline a process, make it very efficient and uh and not have to deal with those ongoing issues with staff and employees and building an apartment that may walk out a new proportions may walk out a new a period of time. So certainly from that perspective, it's it's key as well. Well. And I think we're if we look at what our goal is as an organization is you know, we're a technology company that that we feel we do what we do really well,

48:32 right is enabling access to credit and really helping define true risk and writing does what you do really well as far as is you know, being a financial institution, be able to be able to serve the needs of your community. And I think that partnership then allows us to bring the expertise from both our organizations into your right where Phil, it's it's you know, many organizations don't don't have the capacity to take on all these other abilities, right, all these other tasks, and so how do you how do you focus on what you do really well and then you find partnerships with folks that align with that with your goals and then together really provide those services that your consumers need well.

49:17 And I think that's one of the things that we liked about Upstart as compared to competitors is the fact that you are intentionally trying to get credit into more hands by recognizing that there are other values behind credit beyond credit score to determine some whether or not somebody has the attributes to pay a personal loan or an auto loan on a timely basis, and the fact that you have opened that up further recognizing that with a six eighty credit score there are a lot more people are that actually qualify or there are a lot less people that are going to default on the loan, and being able to figure out who the eighty percent are that will never never to fault and make sure we give broader access into the community so that alignment with what your organizational values end. Even what you're doing with the more than Fair initiative, I think is to be commended. No, thank you, thanks for bringing it up, and maybe I just get a comment on that for for folks and aren't familiar, is you know we're part of this more than Fair and if anyone's interested in googling and it's it's it's just the website is more than fair dot com and it's it's really it's a community of organizations both made up of technology organizations, our bank partners, other consumer advocacy groups that are all dedicated to improving access to you know, affordable credit and inclusive lending. And and really that the idea

50:51 is is that a lot of us all are trying to solve this problem, and so how do we kind of scale our our interest together as far as everyone's trying to solve this And so it really makes it a much stronger i'll say, advocacy for creating change, working with regulators, all these types of things, of all these partners together, so not just an upstart thing, but all of these groups, all of our letting partners like yourselves that are that are advocates, advocates and participants of it. Of really how do we enable more in our communities to get access? And so the final question I have and we've got some time left for for some additional Q and A that I've seen the in the in the boxes, But so what's next, Like what are you looking forward to? What's what's exciting you over the next you know, twelve to twenty four months at Reading, So so we're looking forward to tailoring more products. So first of all, we actually need to and that's our next step is figuring out the new customers that are coming to us through this product and out how we can turn them into Reading depositors, turn them into expanded relationships at Reading Cooperative Bank. So that's that's the first thing.

52:07 Further automation of our processes again, figuring out what the customer needs next, and continuing our digital transformation. We actually mentioned before, we're now in two gateway cities in Massachusetts. There those two cities provide us about two hundred thousand more consumers, and so having this product on our menu and available to those consumers allows us to meet consumer needs in these in these broader markets. So we're excited what the future has for us and for YouTube and also right i'd love to one way that we can do a similar type product of what you have in the small business world. We can figure that one out, that would be nice, and that's something we're looking at certainly, and I think July alluded to it earlier. There's we have certain ideas on how we take this product, take take up start and maybe be able to to slice it and dice it to be more direct marketing towards certain groups out there versus just having it as a consumer loan created and package it differently. So we're looking forward to doing that as well. Well. We uh we we welcome the creativity in the in the idea generation and see what you know, what what what the future head holds. So let me we've got a little bit of time for questions, and there's there's there's kind of kind of like I think there's a there's a couple of questions that maybe we can answer together.

53:30 And I'll start off and then have you guys add is there's there's been a number of questions about like model, model governance, getting comfortable with with using a third party model in the in the queue and and I'll start with so one of the things that that Upstart does is is I mean we have we have our own internal risk management organization and and and and risk disciplines, we have model we have model governance team, and then we actually use a third party on top of our own internal testing, but we use a third party to do model validation and model testing and and those types of things are data and information that then we provide back to our lending partners as well as other model oversight docs and and other information that that we can share as part of our own oversight. But then it feeds into what the what the lending partner has available in their own kind of model oversight, and then when they're talking to the to the regulators, could you guys talk a little bit about just as you know, using a third party with a you know, with with a with a model, just what you did to get comfortable and the kind of the the oversight there. Well, I can tell you well, first we talked to a lot of several of your customers and did reference checks on that. But most importantly, shortly after starting the program, we had our external internal auditor I guess, do a review of the program and there was

55:02 a lot of questions and it's certainly the one I want to say it was challenging at first was they have all the questions, you have all the answers. So what was what worked out really nicely is we found and I wish I knew her name, a woman who works for you who had all the answers and she got on the phone directly with the person who was doing the review from our auditing company, and they got all their answers, they really didn't find anything. The couple of things I think, you know, maybe I sent you a while back that where just had to do with the signing. That was just amount of opinion. But it was nice. We did that intentionally because we wanted to make sure even though we had a good comporal level going in with partnership, we wanted to make sure that our auditors looked at it and that they were good with it as well. So we passed that audit. It just happened maybe forty five days ago. Well, and I think Upstart also did a lot of leg work as well, making sure that they went to the regulatory bodies and went over their model, and you were pretty transparent about that, and I think your willingness to be transparent with regulators and with us goes a long way to having having access to that data.

56:15 Someone else also had a question about APIs that this is not an API enabled products that connects to our core and so that also is what makes it easier to stand up for us as NFI. No great. Well, I know, coming up to the top of the hour, and I try to answer as many questions throughout the dialogue, and I know there's many we still didn't get a chance to get to. So if if folks have have further questions that we weren't able to get to, please reach out. There's some some contact information as well as is my email address, Ed Walters at upstart dot com. We've more than happy to have follow ups if there's if there's something we didn't answer, and what before I turn it back to Mike.

57:05 Just you know, thanking Julian Phil for the engaging dialogue. An hour goes by quick when when you're when we're when you're having fun, so I really appreciate the time and I feel hopefully folks learned a lot today from from talking with three of us. So Mike back to you. Okay, Thanks Ed, and thanks to Julian Phil for your insights and for being so generous with your ideas and recommendations. Ladies and gentlemen. That does conclude today's program. We're gled you could take time out of your day to learn more about this. We hope that you'll join us for future with seminars brought to you by American Banker and its partners and once again we do want to acknowledge and thank up Start for sponsoring today's program. We greatly appreciate their support. So on behalf of American Banker as well as Upstart and your presenters, Thank you all for joining us, ladies and gentlemen. Upstart partners with banks and credit unions to help grow their consumer loan portfolios and deliver a modern, all digital lending experience as the average consumer becomes more