Leaders in Lending
Leaders in Lending

Episode 91 · 3 weeks ago

A Fireside Chat with Upstart’s CEO, Dave Girouard


Dave Girouard, Co-Founder & CEO at Upstart , believed that young people were "potential rich yet cash poor"—and that dynamic caused them to make poor financial decisions for themselves and the economy as a whole.

There had to be a better way to provide people with affordable access to credit, on reasonable terms, when they needed it.

Using AI and machine learning provided that new way forward.

In this episode, Dave shares how the company came to be and how Upstart provides transformative access to credit for all.

We discuss:

  • The problem statement for Upstart and the choice to venture into unsecured consumer loans
  • The application of AI in the credit process
  • The choice to partner with financial institutions
  • Adding value in auto, small business, and mortgage loan spaces

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 and Lending. I'm your host Jeff Keltner. This week we're going to re air one of our previous episodes from in fact, our most popular episode this year, which is my conversation with Upstart founder and CEO Dave Gerard. Dave and I dive into promise you stall in the financial space that caused him to leave Google and found up Start. Why really the big bed of up Start is the belief that AI is going to transform the entire AI lending experience, the really the entire industry, and what that looks like where it's headed. We dive a little bit into where up starts come, where we start, and how we got here, But I think equally importantly what the future holds and why the big bet I think really is still on the possibility of a I completely transforming the entire lending ecosystem. I think we believe that it now is as much as we ever have, and so this conversation retains all of its relevance. So please enjoy my conversation with Dave Gerard. Dave, thanks for joining us on the podcast today. I appreciate you're making the time great to be here. Jeff. This will be an interesting one for me because you and I know each other pretty well versus many of my guests that I don't know as well. But I really wanted to start the conversation with you know, your life pre upstart and like walk me a little bit through how you ended up in you know, it feels like it two interesting places at interesting transition points and cloud computing at Google back in the early two thousands, and then in fintech right now you kind of find good points in the wave to ride them. It feels like, Yeah, I mean, I guess to go back to the beginning a little bit. I mean, I grew up outside of Boston in a suburb, you know. I born in the sixties, grew up in the seventies and eighties, so I'm a lot older than most of the founders in Silicon Valley for sure, But you know, my parents for like first and their families to go to college. They had that sort of you know, moved to the suburbs is the greatest thing you can do, and get a job and work your way, etcetera. So like the whole emotion of entrepreneurism that's a word, wasn't really honestly in my vocabulary or family or DNA at whatsoever. It was really about just sort of that more traditional path of a career. And you know, went to a great college, and you know, I ended up coming out to California in the early to mid nineties, and of course landed in technology. And I've been here ever since twenty eight issue years out here, so I quickly gravitated. I mean, I studied computer science computer engineering in college. I wasn't destined to be a programmer for my life, but I was certainly kind of enamored with the potential for technology and and and and so you know, that's what got me out to Silicon Valley. I had a stint at Apple like way back when, um, you know, another startup that wasn't my startup, but you know, had had some start up experience and then and then landed you know, quite a few years now because two thousand four at Google, and that was a little fortuitous. It wasn't yet public, so nobody quite knew what to make of Google until they saw the numbers and they knew what to make of it. It's hard to think back to when Google was an unknown quantity of like is this a good call to joint or not? But that's that's what it felt like back then. Yeah, I remember like driving there to go to an interview and and and thinking, wow, these people work for Google. I'd never met someone who works for Google because it was quite small and it was just this really search engine that was getting to be famous, but still wasn't really clear, you know what exactly what was going on in those buildings and um So anyway, I was very fortunate to have landed there, just at the right place at the right time, and and uh, you know, spent eight years they're building what is now called Google Cloud. You know, it didn't call that then, but it was it. It was the cloud applications like Gmail in Google Docs, et cetera. As you know. Well, um and so that was kind of like a nice pioneering thing with some of the challenges being that Google had this crazy runaway business advertising business that in such sense as you know, so we always had to compete with in terms of resources and attention and hard to be the little brother, little sister to one of the greatest financial innovations in the history of mankind, which would be the Google advertising system. That is maybe the greatest business innovation in history. Just the way that thing Prince and earnings call, uh, it seemed to continue to go well for yeah, it just doesn't even stop. So now tell me about the decision to leave, because I remember, I mean, I left, and I used to tell the joke that my mother in law, uh, you know, you hired me into Google, you hired me out, and she thanked you for one of the two because it was kind of like the place you can leave, right It was the thing we wander over on the up Start. But you know, and I remember when I left, you had already started started up Start. You had some you know, sense of where you're going, and that felt like like maybe a crazy decision, but you were you were leaving. You know, maybe the greatest place in the world to work is people like to point out to me with like nothing but an idea and some hope that somebody would give you some money like that seems like it's hugely...

...what got you to the point of saying, this is something I want to go do. Yeah, you know, I had been there for eight years. The apps business had grown into you know, about a about a billion dollar revenue run rate, and all the way along. As I said, it was kind of a a secondary, frankly business for Google. And I always thought, once you get two hundred million, once you get to two hundred million, once you get to a billion, you know, it's gonna all of a sudden be at the center of the universe there, And of course it was just you just keeping up with the advertising business. So anyway, it was a great success. I mean, it's actually heartwarming to me that it's so big today and they're carrying it for it's more than a twenty billion dollar run rate business, and so it's it's really it would have been very saddening if they had just sort of written it off after I left. So but in any case, you know, having been there eight years, uh, I kind of always wondered, you know, it went really well for me there, but was it was it Meting or was it Google you know, could could anyone have walked in there to those doors in March two thousand four, sat down and just started turning knobs and built a great business because Google just had much of course strength. So part of it was, you know, I wanted to prove it to myself. Part of it was like I was there for eight years. I could stuck around for another eight But you know, is this the last cool thing I'm going to do with my life for I'm going to take a shot at something different. And I'm not sure I ever imagined I could leave Google and do something cooler, better than what I had done there, But that's you know. I Fortunately I had made some money so I had the financial freedom to do it, and my wife was behind it. And so you know, when you're in Silicon Valley for twenty some odd years, at some point you decide you want to be a founder and you want to try that, and I I do recommend you don't wait until you're forty five years old to do that, generally speaking, but that's that's what I did. Well, if that's your advice for me, I'm running out of time. Well you're pretty much founder here, so close, um, so tell me about the initial like, what was the problem? I feel like most founders more than falling in love with the product that they have or and I did, it's like it's a problem in the world that is the thing that drives them to say, Hey, this is the thing I've got to fix. Right, what was that problems? You saw it when you were sitting at Google and you said, Hey, this is the thing I'm gonna go and as my shot as a founder to take to take a shot doing that's like, this is what I want to go try and fix. Yeah, you know, I'm not a purist to say, like the only way to be a founder is to have an idea that you're obsessed with and fix and you can't. You know, there's a lot of people that say this is the only way to do it. That's the only way to do it. I guess for me, like I got the idea of starting a company would be cool, and ideas were coming night and day to think about. I just I just had an open mind to look for things that could be interesting companies for a period of time. You know, I literally started thinking about the notion I had a really nice Canon SLR camera. I really hated how I had to like take it home and connect it to my computer to get the photos out. And I was like, maybe I could have like a SD storage that was actually a Bluetooth sort of device that could stick it instantly on my phone. I literally wrote this down in a in like a Gmail draft and said, you know something about a bluetooth you know, s SD card for for a nice camera, and and and then the next thing after aboute it it is like letting people borrow from their future income. And it was just randomly through some series of conversations where it just kind of became clear that young people are kind of potential rich in cash poor, and that sort of potential rich in cash poor situation made them sort of make decisions that ultimately weren't awesome for them, weren't awesome for the economy. And so it really was this fascination with access to capital and access to credit. How it worked and um, you know, didn't immediately lead to what Upstart has become, but that was really the threat I started to pull away back then. Interesting, and how did you go from you know, young people with potentially you know, I like that phrase, more potential than than access to credit is an interesting concept, but how do you go from that? Too? Unsecured lending? I mean that's like, you know, there's a lot of things you could do that almost feels like student lending in some way is the thing that you're going, Hey, how do I like enable people to pursue their dreams? Education seems like the thing, or you know, certificate programs of boot camps are in that kind of space. And you ended up over series of times on like unsecured consumer debt, which is just not the obvious place talking about how you got there. Yeah, you know, I think when a lot of times when you start a company, you have this thing drawn up in the white board that you're fascinated with and you love and and in our case, it was what became to be known as income share agreements. It was similar to alone, except you could you would essentially pay back as a fractional what you earned instead of by a defined interest rate. And so it was this very novel concept. I mean, it had been kicked around sort of in the University of Chicago School of Economics kind of thing for for for a long time, but we were I think the first company to really make a go of it as a platform and but the reality, of course is, you know, that white board meets the cold reality of the world, and it's the out kind of not always pretty and effectively. We chased this kind of business model for about a year a bit more than a year, and you know, kept trying to turn the knobs and see what we could do to make it work. But ultimately it wasn't kind of scale, wasn't going to be a successful company.

We didn't have that much cash left, and so we, you know, towards the end of decided to move toward a much a product that existed in large scale, which is a consumer loan. The real insight that ended up making it a success was, you know, Paul, my co founder, had built a model to predict what somebody was likely to earn over their career. That was the how you priced an income share, right, You have to figure out like, yeah, yeah, I think I price on that thing. So we had a model that would predict, you know, given everything it knew about you, what you're likely to earned over the next decade or so. Well, we sent over a very short period of time, Paul transformed that into a model that said, what's the likelihood they're going to pay back this alone. And so it's sort of like asking different questions of a model and lo and behold. Starting we had what became a very unique credit origination model that used data, both traditional data and data that you know, traditional indust weren't using. It was very simple, simplistic back and then time. But I'll just say that the day we sort of pulled the lever and moved from income shares to loans, it started accelerating very very quickly. So suddenly dawned on us that creating a bespoke market from scratch is no small task. Um, it's no small task to step into a giant, heavily competed industry like lending. But in the end, for us, it was obviously the better, the better step. Yeah. The thing I remember most about that that those months was how risky the decision felt in advance and how obvious it felt in retrospect. I mean, you turn it on, you watch it, Slory should go. How did we ever think this was a was a questionable call, but it did not feel obvious at the time that we were the first call. I mean, it's hard to let to us something even if it's not working. I mean, you put so much into it. It always felt like maybe the next turn around the corner it was going to start working. So it is hard to work away. And you know that the chapter of the Upstart book that we will omit is the one where we did hedge and we did look for a period of time. I'm sure you recall to actually have both of these products in parallel, just just to sort of have a loan if you want to loan, or an income share if you want to do an income share, and that sort of thing, which we invested in for a few months. We shut off in about a week because it became clear when everybody wanted and it wasn't the income share agreement. Now it became obvious. It took a little bit about like the unsecure like you could have We could have asked Paul to kind of predict student loan repayments other things. We kind of set it on unsecured consumer debt in the kind of small arrange and student loans shorter duration of three or five years versus a student loan what's off in ten or fifteen. Talk to me about the parts of that market that make that a more compelling place to start from your point of view, or why why you didn't go somewhere else? Yeah, I think, um, it's really a question of what as a non bank technology company, you know, what can you play? What can you prove? And um secured loans, whether therese are cars or homes or what have you, it's just a lot to those a lot to prove. Credit cards. The funding structure of a credit card is fairly sophisticated, you know, a an unsecured personal loan. First of all, I'm aslee. The fin techs were largely creating the category, the lending clubs and prospers at the time we're kind of essentially had had been creating this category out of almost out of thin air. So it was clearly doable. Um, you know, even if you had even if you were selling loans to hedge funds at fairly high returns, if you had a strong enough edge and your model, you could get started. So in some sense it was doable. And that's probably the first thing. But the second thing also is it's really kind of the purest form of credit, right You're just underwriting an individual. There's no collateral, and in some sense it's process. Why is the easiest and its model wise the hardest. So that was a good fit for us because we had real modeling advantages. We we believe and I think we're proven to be true. Um, but we of course, you know, the idea of trying to like all suddenly build a mortgage origination product out of scratch, you know, certainly felt beyond us at that time. Yeah, it's really interesting to think about where your strengths make the biggest difference in the market and focusing on that, which felt like the right decision for the company at the time. So we've used the word model a bunch and I upstart is maybe at the forefront of what we what we termed AI lending and applying a I was AI or machine learning always kind of central to the thesis and central to how how you were thinking about what would differentiate the company, because it's very much center of what we do today. But I'm curious that that was always in your mind the thing that was going to be the differentiator of the focus. Well, you know, in the early days, we certainly didn't use those words. Um. We definitely thought more data and better math, right, so and they kind of go together. The more data you have the more you need more sophisticated math to make any sense of it. But we we really, you know, it was like in the beginning, it was Monte Carlo simulations and a few other things that we're probably better than what's out there, but not dramatically. And we started with two or three dozen variables assembled together to create the first version of the model. So I definitely think we saw the road ahead. We knew what we were aheaded. I don't think we would have been stabled to call it AI in those days, probably would have been a stretch of the term. But you know, over time, certainly...

...is the amount of data in the sophistication of the models grew. It became obvious that that's what it really is. It's it's a using AI and or machine learning to sort of predict the future to make credit decisions in a bunch of other things as well. And but again I think we knew the path. We didn't quite have the vernacular, nor do I think it would have made sense back then. Yeah, the initial models were not sophisticated enough to probably earn the time term AI. That's right, I think they are now. I'd like to explore a little to the how the usage of AI evolved, because there's both the sophistication of the initial model that kind of income prediction and turned into some version of can you repay? And then there's all other sorts of parts of the lending process to which Upstart is now applying AI. So talk a little bit about the journey of like, how do we think of AI and the process and how do we go from the one problem who deserves access to credit? How do we think about likelihood to repay to applying that more broadly to the problem of getting a consumer alone. Yeah, when when you think about lending, the life cycle of lending, there are risks all along the path, you know, all the way from the very beginning. If you if you're gonna spend some money to send direct mail to a bunch of people, you're risking that no one's going to respond to that thing, and you just do some money down the toilet. Obviously, um writing, the core of it is is the decision about who you lend to. And there's a lot more, But in the very beginning, the only thing we really tried to do was say will this person default or not? What's the likelihood for this product that they're applying for. And so it was a very binary, you know sort of thing, what's the percent likelihood of default? That's simple, And there was a lot of room for improvement just in that and and so that's where we got started. But over time, of course, you start to look through the whole process and you say, wow, all along this path there's ways to be better modeling and better predicting the future, de risking the process. So you know, for example, the credit decision itself, it's not just important whether or not they default. It actually really matters when you know, someone who defaults in the tenth month alan is very different from someone who defaults in the third month or a loan. And so we over time, you know, probably over a period of years, turned a model with a sort of binary prediction into one that literally predicts the likelihood of default and or pre payment for that matter, each month of a loan. And that switch, which we flipped I think in two thousand eighteen something like that, was the single biggest upgrade to our model we've done. Now. Of course, in online lending, there's a lot, a lot of risk and ball a lot of potential fraud, a lot of misrepresentation of credentials. So we also began to apply you know, what we do to the problem of verification, where essentially you wanted to do is little, make the borrow or do as little work as possible, but verify everything you can. In the early days, we just had a hard rule. We were trying to build that credit decision model. So we just verified every input to the tenth degree. And it's my hand was that by hand we're talking to everybody looking at everything. Yeah, it was just really a but you know, the average applicant would probably upload four ish ivish documents um and they'd be reviewed that the phone calls to be everything. And over time we began to build more automated ways to do it, and we also began to build models too. If you knew four things about somebody, what was the likelihood the fifth thing was true or not true? So began to apply machine learning to that part of the equation. And you know, if you fast forward to today, you know, vast majority, more than two thirds of our loans, there's no human involved on any side, there's no documents to upload, there's no human involved, And that's a sort of degree of sophistication. You know, we're able, We've been able to get to you over time. M hmm, yeah, I think that's fast night to see both the increase in sophistication and the core problem that you started with, and then they're like, hey, there's there's lots of other problems we could take the same concept applied to and improve the process. Um, that's kind of how I guess growth works in a business. Talk to me now about the you know you you made this decision. Um, you know, somewhere down the path he started with, you know, a going a bank partner route where all the loans were really originated by by a bank, um, and not by you apply for charter state licenses and become a lender the way the way some FinTechs have pursued. And then later on the decision to partner with more than one bank to make this kind of a technology that you were making available to banks to crush your too, banks and credit unions and other lenders. But why that decision, why the why the path of working with existing financial institutions versus the kind of disruptor we don't we're gonna throw out the banks. The bank is the old way. We don't we don't need them. I think a lot of FinTechs take that approach. This is very different, and I'm curious why you thought of that as a right approach for upstart. So in the first few years, I think we just wanted to make a product that worked. We we weren't in position to go, you know, work with two hundred banks or five hundred banks. We we really just wanted to prove we could build a better product, and we worked with one single bank in those days to make it work. I think we reached a point in the history where it felt to us that this sort of notion of being a brand with a hidden bank behind it and sort of selling moans to hedge funds or whomever, maybe through to secured as stations wasn't ultimately the best business model.

And so we kind of saw fork in the road where you know, either you become a chartered bank of one type or another, you take deposits and all sudden, that improves your your cost of funding, it improves your liquidity, It centers a lot of great reasons to do that, or you just say we're not a bank. We really want to be a technology company. And partner with banks, and you know, there's a lot of us being like you and I are ex Google people. Becoming a bank didn't feel natural to us. It just felt like, look, we're building great technology here. I don't know if we have the DNA of being a bank ourselves, but there's a lot of banks out there, and and I don't think it makes sense for most of them trying to replicate the kind of things we're doing here. So I think we took what ended up being a unique path. I don't I don't. I don't think others in our peer group or industries really decided this path. But for us it made a lot of sense, and it kind of main all sudden, we can't just work with one bank. We have to with lots of banks, and that opened up a whole bunch of new sets of capabilities and functionality we needed. But I think, uh, several years later now it's it's been proven to be a great path for us. Yeah. The interesting part of that path to me is that it introduces a number of people producing oversight or or looking at what you're doing and wanting to do diligence, and particularly with the utilization of AI in an environment where that is from a regulatory point of view not as well understood. How to think about how regulations apply, How do you think about working with your partners to make sure, hey, what you're doing in this space, it's kind of on the cutting edge and maybe where the legislation and regulation has kind of thought about how to how to engage, Like, how do you work with them to get them comfortable and feel like you're supporting those partners to that journey, because in some ways it's easier not to have them on board. Everybody going, hey, I'm sorry, what do you think about this over here? And you know got from the c FPP said something, so you know it's comes with the downside. I'm curious how you think about engaging with those partners to make sure they're comfortable and you know, in supportive of what we're doing. Yeah, I mean, I I think very early on, we knew that banks are heavily regulated in conservative nature and they should be, so working with them. Building a product that banks would adopt really meant kind of seeing the world from their position and providing the types of controls and visibility and data that that meant they could do this responsibly. They could do this with their own policy, with their own risk appetite, with their own business objectives, in ways that they just had a lot of degrees of control. This is an upstart originating wounds for you. It's a tool set that allows you to originate moans better than you could yourself. And you know, so also in the company is both a consumer facing company but also really enterprise company selling the most sophisticated of technologies into one of the largest and most important industries that we have in the US. And so pulling those both office no small thing. Also, you know, it became obvious this is not a you know, do things wrong and apologize later, you know, move fast and break things type of industry. So we began to engage with regulators really from the inception of the company to say, hey, we think what we're trying to do is going to be very good for the American consumer. It's actually going to be very good for lenders. And so I think literally back in two thousand twelve, before we even got started, we marched up and met with a CFPB and and kind of open book showed them what we're doing. And then you know, over time, as we started to look to working with banks. Took some of a similar approach with fd i C, the o c C, the Federal Reserve, etcetera. And I think, perhaps little naively, you know, Silicon Valley Company just saying hey, here's what we're gonna do. We're kind of open in the kimono to you. What do you think? But I think it's paid off, and you know, it's never perfect. I view it as an area that we will need to invest in along with our bank partners for a long time because it is cutting edge technology. There's a lot of suspicion about AI and what it could do and couldn't introduce, bias, Is it explainable, all these myriad of issues. So we have needed to proactively work with regulators both directly and with our bank and credit union partners because it's a whole new area of technology and you just can't expect the world to just embrace it overnight. It's going to take a lot of proofpoints that this is a good thing. It's it's it's helpful to banks. One of the most important things is it's going to allow more banks to be competitive. Right, That's our belief is is you're going to have a success of more banks, regional banks, community banks, and and the largest of banks. Uh, despite the onslaught of technology and fin techs and everything else going on out there. But you know, it's a journey, and it's a journey will never be done with. But those are what I would say of the two big pillars that we had to sort of take on when we made this move, which one is having a product that works for banks gives them degrees of control they want. And number two, of course, is sort of a constant effort to work with to work with regulators. It's a it's a fascinating space to be in, very different than the pure sass space that's a little a little simpler. The challenges are, I don't know, it make strong companies, I think in the end.

One of the other interesting decisions that up Start made that I think is very different than many FinTechs in this space was to focus almost exclusively on a single product for what feels like an extraordinarily long period of time compared to many who are coming out there. And I'm gonna have all the products, lots of stuff in two or three years. Why that focus on on one product? And then obviously auto lending is kind of phase two, and there's more stuff coming down the pipe. So I'm curious why why the focus on keeping really really focused on a singular product for that long, And then what made this the moment to say, hey, it's it's time to go and really start putting a lot of beds in different areas. You know a little bit, I would say the DNA of the company and the founders, you know, a lot of Silicon Valley is extremely good at raising a lot of money. I mean, you have a lot of money, You've become very good at spending a lot of money usually needs to hire a lot of people, and a lot of people. You're just actually gonna want to put a lot of products out there, and and it all sounds good and you're kind of hoping it works out. Sometimes it does. But I think we were a little more are wanting to really prove we had something. We wanted the product to work for banks, for consumers, We wanted the unit of economics to work, and we just didn't really see a place to start of replicate what we were doing until we really had the confidence was working. And that took quite a few years, and I think we will have you know, we're hopeful that this will prove to be the right path in the long haul. We're now moving pretty quickly into auto lending on the platform and to us for a variety of reasons, that was a logical next step, but it took us years to get started, and now we're finally really beginning to see progress on that front. Um, so we will go broader, we we, but we really felt the base had to be exceptionally strong. Um, we're gonna do more work to do auto, more work to do a small business product, more work to do a mortgage product. Eventually, they all require a lot of work. But the stronger the base is, the more proven it is, more confident you can feel with dealing with the differences between these products which are not not small. Yeah, I think it's it was really it's so interesting that you focus on really getting too positive economics, like a business that works before you expand, because so often the startups they don't do that. Uh, and so often I think in fin tech they're focused on solving the business problems. The next product will just like it'll fix all of our all of our you know, I can almos get fixed, and we just have two more things to put out the door. It's like the change man, right, we volume, we make it up in volume, but anyway, sometimes that doesn't can't make up losses with more losses exactly. Um So I think those and those are really the key focus areas now for new products is kind of auto, small business, mortgage. What do you find as a unifying thread for how you see up start improving outcomes or like adding value in those spaces because it's you know, it's easy to go to a bunch of places, and I think many institutions feel like their goal of having those products is to have them so when they have a customer, they have all the things a customer might want are available. And I feel like I've starts ethos is a little more like we're gonna go into a space if we think we can make it better or in some meaningful way if we can if we can add value to the consumer of the bank, but but improve the outcomes. How do you see that thread between those as far as like how the how you know up Start adds value to the the ecosystem of those spaces. Yeah, I think that the sort of common thread is we look for inefficiencies in the existing market, existing products, and in ways that mean that consumers aren't being particularly well served, and maybe banks aren't doing as well as they could in a category. If there's no inefficiency, then you're just going toe to toe and and there's no margins and and and there's just no win in it. You know, you just kind of it's just a fight, a zero sum fight for market share, and we're not necessarily interested in that. We're looking for fairly transformative opportunities to make the product way better from from both parties construct and you know, so auto for example. Clearly, UM also say we're trying to be increasingly meaningful both to the consumer into our lending partners, meaning personal lending. You know, it's a fairly new product. We think it's incredibly useful. I like to call it the duct tape of credit. Consumers love it, banks love it less but they're warming up and um, but it's a useful product. But of course it's not the centerpiece. It's hard to say everybody in the country needs a personal loan, but most people do need auto loans. Most people, eventually if they want to be homeowners, need mortgages. Um, most small businesses need to tap credit, so we look for very large categories that it really in our view underserved, not really great solutions or offerings from the borrower perspective or from the lender perspective. And you know, I guess it's a little Amazon Like, I mean, Amazon always says like your your margins are opportunity and I just inefficiency right where there's just a room where better models, more sophisticated elimination of friction um can lead to better outcomes for all parties involved. And that's what I think is the real opportunity. If we talk about auto lending, for example, you know we're getting involved now. We're in a business where there are consumers involved, there are lenders, banks and lenders involved, there are car dealerships involved, so you also have yet another party in this thing. But in our view, the market works so poorly today that there's a chance to build...

...product that least a better outcomes for all three of those parties simultaneously. And that's actually, in our view, ultimately, what you want to achieve. You're not you're not here to like put them out of business or them out of business. You here to really do something that can be a win all around, and I think we have that opportunity. Yeah, that's the thing that I always come back to for for the business is kind of that core insight that like, many more Americans are credit worthy than we understand to be so, and if you can close that gap, then there's there's wins in that for everybody. The consumer can win, the lender can make more money, lower losses, that the dealer can serve more consumers. So it's that that core ins that really has a lot of legs. Yeah. One of the one of the you know, main message I really feel like we need to deliver better to the market is you know, credit score ico was invented in and it clearly was a very novel notion, sort of a universal number you could look up not for everybody, but for increasing fraction of Americans to have a basis by which you could aside if you could make a loan or not. And of course before that, God only knows, you had people sitting across the desk from each other, asking questions and more problems than you can count in that process. Um, so it was an advancement. But but frankly, if you look between nineteen eighty nine, or ninety and today, have we really made strives forward in terms of inclusiveness in terms of access to credit on affordable terms. I'm not really sure that we have. I don't think the world looks much different in terms of who can get a loan at what price. So we really feel this sort of use of technology AI, machine learning applied to this very large segment, which is such a big part of our economy, is long overdue. I mean it's it's wonderful. Cloud computing and a I have all sort of come to the forefront in the last decade, and it's unlocking this thing. But the real bright future we see is where the vast majority of people have access to affordable credit on reasonable terms, in the blink of an eye, not through an elongated process or painful process, but when you need it. Because you know someone who grew up as a product of really high quality access to credit, I'm almost like a testament for when it works well. I grew up in a family, you know, with effectively no net worth. I was able to go to a great college and finance that. I went to a great grad school and finance that moved to the West Coast, I bought my first car, bought my first home, fund my way to Google, I found it up Start, and you know, all along the way, if I did not have access to affordable credit, there's just none of it would have happened. So I'm sort of an example when the system works well, and I'm very uh grateful for that, but there's just many, many millions of people who never would have had the chances I had, and that's what we're here to fix. How do you think about it? Up Start? As as the company grows, keeping people's focused on that. I mean, I feel like all of financial services, when I talked to people in banks and credit unions have an obvious kind of affinity to helping consumers and saying, hey, we want to get watch the George Bailey It's a wonderful life like going out and using credit to enable and then you read the stories in other words, one of out some the credit card banks where for so many people in the institution it becomes a game and they're like optimizing outstanding balances and like revolving credit because that's where the money comes from. And you're you're turning knobs and you lose sight of like what you're in it for and you kind of start making choices that aren't as good for the consumer because they're a little bit better for the business. How do you think about driving the organization as it grows, and it grows very rapidly to maintain that focus on kind of the true north being, how do we help people have more access to credit and not turn the knob to optimize the gross profit margin or something like that. Yeah, I mean, let's say, first of all, you have to start with alignment, meaning what you hope is success with of your business. Growth of your business is well aligned with this mission you theoretically are pursuing. If there's misalignment there, it's really hard so just take I mean, I don't want to pick on any particular social media companies, but if the social media company's goal is to keep you using the product as much as you can, ultimately you have misalignment between what the consumer wants and what you need as a business. And that misalignment is really hard to address because I don't think any of us believe being on our phones all day long is a good thing. I'm not frankly sure if the metaverse and in immersing ourselves further in a fake world instead of the real one is a good thing. But so but from our point of view, I think we have really good alignment. When we grow, when we enter new categories, when we bring more banks and lending partners on board, when we serve more consumers, it's generally because we're giving them better than they had available elsewhere. So that alignment is funny, only it's really hard to change. I mean, if we didn't have it, we wouldn't have it. We fortunately do, so so that's a good starting point from there. You know, I would say, you know, being a mission oriented company means not having to say you're a mission oriented company. You should just feel it. And everything you do, everything you talk about naturally, is about how do we improve the product for the consumer. How do we make it easy and better for for lenders to serve the consumer, And uh, it becomes obvious like why are doing this? So, you know, at...

Google, Jonathan Rosenberg always said, you know, repetition doesn't spoil the prayer. He didn't make that up, of course, but you know, and and as a leader and companies like this, you just have to, you know, day in day out, keep reinforcing why we're doing what we're doing, challenging anything that seems to run in the face of it or in the wrong direction, and we kind of know our success is the world's success and in a way that we feel inherently, and so that that alignment and then just that you know, sort of constantly reinforcement of where we're going and how we make decisions, how it drives what we do, sort of keeps you on the right path. Yeah. I think that's an interesting point that it's not about missions out about talking about the mission. Missions about how you ask questions in the product, in the business and the day to day execution and does it align with what you want or not. Ultimately, you could put the every company's got these mission statements on the wall, and it doesn't feel that way when I'm here, And that's, uh, that's the wrong with capturing things in words, because they become amountable and repeatable. So I'm not against missions statements, amount against value statements. We have those both of those things. Yeah, yeah, but but ultimately they don't certainly don't make the company. Uh, they don't make them more real than what is already real in the company. And I think, um, we live it every day we have free founders that have been here since day one, and that really helps us stay true to emission m CREED. And one last area I want to delvet is clearly AI transforming the consumer finance and probably the business finance. A learning space is something you know you see coming. Uh, what are the other interesting trends you see in fintech or finance in general. Where's kind of like the BNPL the embedded payments. There's all sorts of like stuff going on. Crypto. Are there other areas you're going, Hey, this is the this is the thing I think has has really got some legs. What do you what do you focus on over the next couple of years? Yeah, I think, um, you know, I certainly am a student of crypto and and I think it could be one of the most overwhelming changes that any of us will experience in our lives. Um spending where it goes and it's a little unclear, I mean I think, um, you know, I love to watch what Square now called Block is doing because you know, they're really building an incredible ecosystem both of consumers meeting. They have a huge consumer presence but also merchants and um so if there's anybody that was going to flip a bit and suddenly, um, you're using a bitcoin and pay for something, and instead of visa, MasterCard rails, it would probably be you know, Square or again now called block. But so I think that area of technology is um. I mean, there's a lot of other things that are good and helpful, important that that I think are just making business more efficient, making things easier for consumers. But when I think it's something truly potentially transformative, certainly it's it's sort of Web three and what could go on there, And it's certainly an area that we are gonna be involved in over time, and I think at the right time we'll we want to make sure our partners have a foot in this as well, because if it is that transformative of if you are a financial institution of any type, it's going to be part of your future. And I think we can be an ally for our our partners out there to make sure that they're on the right side of things if and when as as as crypto plays out, so to speak, Yeah, I certainly have I think students a good word. I don't feel like an expert, but it's there's there's too much interesting stuff, and that the amount of talent pouring into that space really seems to indicate that like that doesn't typically happen. Less. Yeah, this you may still be a little unclear in the value prop of crypto, and I certainly question it in certain areas. Um, But as you say, yeah, when the technology when, when when the talent sort of moves so quickly in one in one direction, it's almost inevitable. I mean that something very big is going to come of that. There's not really a history of of technical talent wholesale moving towards something so quickly where it didn't become you know, enormous fairly soon. So so I I think it's inevitable. I think there'll be a lot of flame apps. Of course, not everything's gonna work, not every coin is to work, and some of the propositions I find a little dubious. But I think there's going to be some very very big, transformative winds and we certainly want to be a part of that. Absolutely today, was there anything else I got my kind of closing three questions that I asked everybody that I've got for you, But was there anything else you thought we should cover that I say this is more like a performance review. When I asked this question out there but to get us a little different, like was there anything else you felt like we ought to cover or topics you wanted to talk about that I didn't ask about. I guess maybe I would just ask back to you, Jeff, like when when did you know you made a good decision to come to upstart? That's a hard question. I would just say, you know, there's the question like did you make a good financial decision? Like was was giving up some salary prequit? Was that? That's of course? Like that, I think I'd made a good call and did I convinced my mother in law and made a good call the second one probably it took a while longer. But to me, the amount I learned coming in day one, And this is for anybody listening, like joining a startup, I was a...

...fourth or fifth person in the door, depending on whether you get Allison or right on the podcast to talk about it. I get the microphone, so I got But you know, just the amount you learn and that that experience is incredible. And I mean I joined you at Google in two thousand six, right at the beginning of the cloud wave. But it is a whole different thing. Google. The Google business card got you so many meetings that you couldn't have gotten, and it just kind of like it's like playing the game on the easy level, not that it's it's a hard game, but you're not on the hard level, and doing it on your own is is a whole different level. And I that learning was invaluable, So I knew I made a good choice from the very beginning from that point of view, and then you know, I think I think one of the one of the other points, and you can talk to this, is that you never the success people see from the outside. At any startup or new venture. It can look like, oh my god, you guys just killed it. And there were points along the way until very recently where you went, man, maybe maybe we're not gonna get there. It never feels nearly as certain from the inside as it looks from the outside. And so I think from that point of view, it's been a It truly is a roller coaster. I think people who haven't been through the real company starting experience don't appreciate how on the edge it can feel for how long even when the outside work and I'm like, God, just raised a ton of money you're looking so successfully on. I think even in the best years of the company, if you looked at them day by day, each day would would look like a struggle. It would look like work. They only tend to look really nice in retrospect when you're pass something and you see the aggregate of what you've achieved, and hopefully it's a good thing. Um, But but it's it's it's an experience. I would never give up. It's not for everybody, for sure. And I think, um, you know, even if you're not going to be in a startup, not going to do a startup, uh, there's things you can take away into your own job and and you know, being a leader of innovation, being the person that's going to stick their neck out a little bit and and and push things forward. You know, to me, it's always about that. It's just how do you make steps forward, how do you uh, you know, move a little behind your comfort zone and say I have this idea, this vision of where things are going for my company, and and I'm going to really, um, you know, do something new and different to get there. And you don't have to do a startup. It's not again, not for everybody, and and and so many of them don't work out. So it's not it's not given everybody to do that. But I think there's something almost anybody can learn from you how startups work and what makes them special. Yeah, I guess that when I get asked for my career advice and ascar you for your soon Like one of the things I always tell people's like I've always looked for jobs where I felt a little bit like like I can't quite believe that I'm qualified for the thing and that you offered it to me, but like I feel like maybe I could figure it out. And that's always felt like the place where you're to your point, where you're learning, where you going, Hey, I'm there's something here for me to learn and contribute to. But if it feels comfortable, it's probably not. Maybe I quote ted Lass right, challenges like riding a horse. If you're comfortable while you're doing it, you're probably not doing it right. The last time, I love time, But like, I think that's always the way I've viewed an up start has has been that in spades, right from the one you kind of went I don't quite know how I'm doing or I'm supposed to do it or what it's supposed to be. But like I think, with a little bit of hard work, in a little bit of luck, we can figure it out and make it form point A to point B. So let me let me start with these kind of three closing questions for you. Number one, what's the most valuable leadership lesson you've learned during the course though starting and growing up? Starting? It's been it's been quite the journey from you know, your wife and kids in a T shirt to say congrats for leaving Google and nobody nobody's with you, but we are to you know, you know over a thousand and I think people in the company now and an I p O. But like, what if, what's the most valuable kind of leadership lessons you've learned along that journey? You know? I think maybe the first starting point is kind of self awareness of who you are while you're in it, what you think you're good at, and what you're not good at. So a real dose of self awareness to start with, because in building a company, you need first and foremost to surround yourself with people. That makes sense. I mean, you can share the mission with them, but hopefully they bring a lot of skills and capabilities that you don't have in your complementary and because ultimately, you know, we've been up and down and all around as you know. I mean, we usually could have failed them but out of business many years ago, but we you saw our way through it. And then I think we got to this point several years in where even when the worst thing hit us in the face, we really didn't flinch. We had huge confidence that this team could work its way through things. So you know that self awareness I think leads to having a team that if you if you do the right in terms of recruiting and you can get the right people in the boat, leads to a strength of team, and ultimately that's the key to success. It is the strength of the team itself. It's not choosing the right product or the right market. I mean, over time, you have to make good decisions and execute well, and the right team will help you do that more often than not. But it's that team, a core team that I think is ultimately the predictor of your success. I mean, I can happily say, as you know, so much of our leadership team has been together either from the very beginning or from many years, we have very little turnover, and it just kind of means when the next crazy thing in the road happens, like COVID for example, you know you're just in a place where you can navigate and execute do things well. Feel comfortable that this team is going to navigate...

...get these these turbulent waters, whatever they might be, and if you can just get yourself to that position, everything feels much better. I almost feel like it it inverts it a little bit, like like the challenge becomes the opportunity to go, Hey, if it's hard for us, just imagine everybody else who doesn't have this group of people in the room to tackle it. Like it kinda I feel like, at least for that team, we almost lookt and go I know it's gonna suck, but it's probably good for us competitively because we feel like we can weather that storm better than most and we'll make better decisions because the quality of people. All right, this would be interesting. I usually ask bankers, like, what's the best piece of consumer banking or consumer lending advice you getting there? They're often come back to me twenty years ago when I was going through training, and you've come into the space a little more recently in your career then all the way back. What's the best advice you've gotten about, you know, entering the consumer lending or the consumer banking space. I think, uh, you know, ultimately it was the advice early on from some legal folks we knew even before Allison had joined, to say like, you should meet the regulators, you should take that path, because it was sort of a there's many people in Silicon Valley who I think would have said, you know, run under the radar as long as you can, and then eventually you'll talk to them. But we sort of took the counter advice to go uh and and really be as I said, open kimono early on, perhaps naively in certain ways, but I think the trusted engendered over time, not not purely. I mean there's still plenty of that don't know us. We is a very wide array of regulators and attorney generals and lawmakers and advocacy groups, and you can't win them all over it once. But but I think having that like we have nothing to hide attitude, We will share what we're doing with anybody. We're proud of it. Um we're dedicating our careers to you know, improving access to credit for people. So so I think when you have that, um, you know, go back to it is is, Yeah, if you're confident, proud of what you're doing. In the case of what we're doing, work closely with the regulators because they matter a lot. That was that was certainly fast saying advice and I got I certainly was given the counter advice off of like what are you crazy people do on talking the regulators? And I think it's paid off in spades. All right, last question for you, Dave, what's one bold prediction about the future. So, I mean, I guess usually I gotta bring up guests back on too to see if they were right right. Yeah, I got to see you more frequently. So what we're gonna check it on this one? More? No, no, no sort of context for that. Just a bold prediction about well, I've had another Brady super Bowl, which I guess who ever said that is losing their bet because that's not happening now. But you know, any any you can keep it in the banking space, you can put in the metaverse wherever you want. Yeah, I think we're going to start to see, uh, a lot of new banks being formed. I mean, I think the grounds, you know, we went many decades without really bank formation almost at all, and and suddenly we're seeing some some fintech pushing through, and there's some charter O c C charters and my ill C stuff happening. And I think that can only you know, go in the direction of more and and if there's if there's people that come together to these these businesses and and pursue chargers. I just don't see how I think it's good by the way. I mean, I think naturally any any market should be able to have new competitors and incumbents. And you know, it's been emerging of banks going on for a long time. But I think we're gonna start to see some real and new competitors in the industry. And I think in a helpful way, in a way that's gonna be good for the industry over all. It's really going to change things and drive change. But so I think we'll see a lot more vibrant industry looking forward that I think we've probably seen at recent times, more partners for up start. Let's hope. Let's hope, all right, Dave, I appreciate you're making the time. This is a great conversation and uh, it's really great to have you, thanks Jeff. Great to be here. Up Start 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 digitally savvy, it only makes sense that their bank does too. Up starts AI lending platform uses sophisticated machine learning moles to more accurately identify risk and approve more applicants than traditional credit models. With fraud rates near zero, up Starts all digital experience reduces manual processing for banks and offers a simple and convenient experience for consumers. Whether you're looking to grow and enhance your existing personal and auto lending programs or you're just getting started, Upstart can help. Upstart offers an end to end solution that can help you find more credit worthy borrowers within your risk profile. With all digital underwriting, onboarding, loan closing, and servicing, It's all possible with Upstart in your quarter. Learn more about finding new borrowers, enhancing your credit decisioning process, and growing your business by visiting upstart dot com Slash four dash banks That's upstart dot Com slash four dash banks. You've been listening to Leaders in Lending from upstart. Make sure you never miss an episode. Subscribe to Leaders in Lending in your favorite podcast player using Apple Podcasts. This a quick rating by tapping the number of stars...

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