Leaders in Lending
Leaders in Lending

Episode 53 · 5 months ago

How Apple Bank Launched an Unsecured Consumer Lending with Upstart

ABOUT THIS EPISODE

As a long-standing financial institution on the east coast, Apple Bank has weathered the many waves of innovation in the financial sector.

Now that they have rapid digital transformation on their hands, they’re focusing their energy on standing up a best-in-class consumer lending experience.

On this week’s episode, Gordon Levy, Senior Vice President of Risk and Analytics at Apple Bank, joins the show to talk about Apple Bank’s decision to partner with Upstart to launch and scale a successful unsecured consumer lending program.

You’ll learn about…

  • Why Apple Bank chose to partner with Upstart
  • The benefit of partnering with a third-party provider
  • How to get the stakeholders on board
  • Expanding lending capacity prudently 

To hear more from Leaders in Lending, check us out on Apple Podcasts, Spotify, or on our website.

Listening on a desktop & can’t see the links? Just search for Leaders in Lending on your favorite podcast player.

And work with upstart has allowed us to understand that there are ways that a non traditional borrower or borrow or a non traditional credit profile can still receive below you are 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. In more let's get into the show. Welcome to leaders and lending. I'm your host, Jeff Keltner. This week we wanted to dive into a topic that we get asked about quite a bit, which is exactly how upstart works with lenders. I don't want to make this an add but we really get a lot of questions about how the details work, how it differs from loan purchase programs, and so we wanted to bring one of our customers on and while we talk about sometimes upstart lending partnerships a little bit on the show, we wanted a deep dive in that topic specifically today. So I'm very happy to be featuring my conversation with Gordon Levy from Apple Bank. Apple Bank has been a customer bars for a while and he really dives into both why they decided to move into the categories of lending. We're working with them on how that process, both decisionmaking, diligence implementation, went and the results they've seen so far. So for those were interested in what a partnership with upstart and a bank or Credit Union looks like, I think this is a great conversation that we'll really give you a lot more detail and I promise we won't do this off and but I thought it was worthwhile so people can understand that context. So now further ado. Please enjoy this conversation with Gordon Levy. Thanks for taking the time to join us, Gordon. Welcome to the PODCAST. Thank you, Jeff. My pleasure to be here. It's you're in the office in New York. I've been in that office, but it's nice to see people back in person in offices again. Yeah, we've been back since, you know, the middle of last year and most of our people now come in two or three days a week and it's worked out well and we've also adopted to or adopted our work from...

...home practices and our digital practices and quite frankly, that surprised us. That one better than we had originally expected and and we now have a nice blend of in office working comfortably, as well as working at home and in a productive way and our view well, I look forward to joining you back in your office at some point and then not to distant future. We look forward to that as well. I wanted to really dive today into the partnership between Apple Bank and upstart and just kind of go through the history of how it happened and how it's working. But before we dive into that specifically, would love for you to just give a little bit of background on the Bank for the audience. Sure. So, Apple Bank has been doing business in the New York City and surrounding county area since one thousand eight hundred and sixty three. I knew, Jeff, you were going to ask me that question, so I calculated earlier how many years that is. It's a hundred and fifty nine years and, as I said, we've been serving the communities of New York City and the surrounding counties. Obviously, when you're in business that long you have ups and downs and you have exciting periods and periods which are or more routine or mundane. But we're at a at a point now where we are just about completing our digital transformation and although we've been in business a hundred fifty nine years, many of them very we did very well. We are very much looking forward to the next three to five years with the completion or of our digital transformation, and a big part of that, of course, is is up start on the consumer lending side. So we're in a very good position. We obviously compete each and every day with the biggest banks in the world, quite literally right in your backyard. Yeah, we're eager to continue the fight, if you will. So I love it, Yuys, that means you got a big birthday coming up next year. Hundreds, that's right, hundred sixty. Yes, absolutely the digit. So let's talk a little about I mean, obviously the primary relationship with upstart kind of focuses on unsecurity lending. Was that a business you were in prior to the relationship? Not, kind of what? Why was that important to you as an area of possible investment? Yes, I've been with the bank now about four and...

...a half years. In those four and a half years we did not have a unsecurity consumer lending product. My understanding is that many years ago we did, but it is something that we just did not have experience in. There was demand from our customers. We wanted to get into the space for the benefit of our customers primarily, and we began speaking to third parties such as as upstart. We spoke to several of them and we ended up working with with upstart because of the quality and our view of not only underwriting model and other capabilities, but truly the quality of the people. The sales process we felt was very productive. The right level of engagement, the right tone, no pushing their people. The sales team was very, very patient with us and throughout the process of deciding which vendor we would use we became very comfortable with upstart and and upstarts people. Quite frankly, I'll have to pass that review along to our sales management team. Yes, I do want to ask you when you thought about you know, so you see demand from consumers. I think, given how rapidly unsecured lending is grown and how much that's been dominated by fintech lenders, that's not surprising to me that you would hear that. In tune with the customers it's something they want. How did you think about, you know, going to third parties or partnerships versus like building something on an existing loas or kind of building something in house? How did you think you know, decide to go down the partnership around? Did you look at the in house and what was that kind of decision criteria? Yeah, for us, for Apple Bank, we do not do a lot of inhouse software development. So we knew almost from as from deciding that we would want to offer such a product, that we would need a third party. So for us it's a fairly easy decision go straight to a third party, see what they could bring us. Hopefully we would find someone that we would be able to work with and, if not, potentially consider the investment and and...

...the work that would be necessary to start doing significant software development. Luckily for us, we didn't need to go that route and we decided obviously on other effective in tech and we appreciate that description. So when you were when you were looking at it possible partners or a routes to market for this, I'm curious. You know, you talked about the quality of the sales experience in the people where their technology considerations where they're kind of key criteria that you were looking at, that you thought these were things we really need. I love the idea of the right partner in terms of the people in the process, but from the product and technology and experience where they're where the things you said, Hey, this is what we've really got to have and how we're evaluating what we want offer to our customers. I mean, for us, the first thing was it must be a sensational user experience for our customers. Right, that was number one. There were certainly other aspects, such as, you know, underwriting capabilities and credit models and things like that, which we were interested in, but the first thing we looked at was what will be the customer experience? We want to deliver a product that really is able to satisfy all of our customer needs and we felt that the upstart customer experience could do that. We have cost. Wanted, as I said, to manage risk correctly make sure that we were not taking on on too much, finding the right balance the approach that up start took and sort of the capabilities, as I said, that that upstart brings allowed us to get come bull there and, of course, the integration right what our teams integrate well, more so than the technology, but what our people be able to work together and our view was on all of those fronts it would be a good, good fit for us. I love it. Now I want to ask you something a little different, which is like, what was the you know, the internal there's I always find that when I talk to financial institutions, there's the business team that says hey, this is a good partner, we want to do it, and then there's a whole bunch of other stakeholders and credit and...

...risk and compliance that are, you know, have input into any potential partnership decisions. What was that side of the process like, with there any any particular for others who might be listening, Lessons Learns? I feel like this is a process that every bank is trying to figure out how to optimize, you know, really the overall review. So how is that, with there any difficult points or more challenging elements and any lessons learned on what that process look like, for getting getting the whole partnership approved across all the various internal stakeholders? Yeah, so, luckily at Apple Bank we operate in a very cross functional way. We are good partners across all three lines of defense, whether it's the product teams, compliance, legal risk management, FCC, as you mentioned, the Second Line of Defense, if you will, and even our internal audit team, our third line of Defense. All were involved, all were aware of what we were trying to accomplish, certainly marshaling that the teams or the people that that are on all within all of those groups took some time to coordinate. We needed to to work with your team, some of whom reside three hours away from us in California. Are As far away as you could possibly be in the continental United States. So I suppose there were challenges there, but was really a matter of having a strong project management team make sure everyone understood what timelines were, with the milestones were, where documents were, where we could share, you know, feedback and and thoughts. So that was important. There was a lot of coordination within the bank to get everyone sort of speaking with the right people and up start thinking about the right, you know, decision points and really coming together to say what's necessary for us to make a decision. And I have to tell you all along the way the feeling from just about everyone was we should get this done. This is a really good company. We need to work with them. However, we need to do certain things to make sure we are dotting the eyes and crossing the tea's, which we ultimately did. I think, for...

...us, the biggest challenge we started this work in late two thousand and nineteen. I remember, of course, we ran into the pandemic in early two thousand and twenty and that caused us to pause, as you would expect, for about six months. So for us that was the biggest challenge, you know, overcoming the pandemic, making sure that sort of the credit environment would still be positive to launch a new product and then regrouping and revisiting what we had a comp lish and then continuing the dialog with with upstart, which is which is what we did. I remember a meeting in your board room where we talked about barring any major geopolitical events or disruption. Right. I think we ran into in the middle of that. Yeah, right, so I do want to ask, like what was the from? Hey, this makes sense. You mean, obviously you took a little pause, you came back as things kind of had settled in the pandemic, and I think we'll talk about performance later. I just kind of want to follow the flow of the conversation through. What was the you know from the hey, this really makes sense, we decided to do it to the hey, we're going live. What was that implementation? Technical Integration? Talk to me through, like what the investments are and how that kind of look for you. Yeah, so, same as during due diligence, once we signed the agreement, we needed to make sure all of the stakeholders, all of the cross functional stakeholders, we're at the table as we built the product with your team. We needed to make sure that everyone was comfortable with disclosures and sort of, you know, customer screening and and truly the economics and the loss rates and things like that. So same thing, really getting the people together, all on the same page, organizing meetings, getting documents in the hands of the right people and then coming together and talking about okay, what else do we need to be able to move forward? This case, instead of it, the decision to sign an agreement was replaced with the decision to launch a product. But I must say the sales team that was fantastic. The implementation and builting was...

...even better. Yeah, I agree with that. They're definitely bad and I don't tell my sales team. I say, I guess this is record, it's not in trouble. Are Pretty Good. No, no, this is gonna go be Bey online. So we have to watch out here. I want to be careful. The sales team was excellent, the implementation team was also was also excellent and we felt we built a very good product. And then I just want to highly one thing I think that you said that I think is so critical and in my experience and these things being successful, which is bringing the cross functional stakeholders to the table early in the process. I feel like the partners I've talked to you that have struggle with these projects tend to like view their risk partners like hey, when it's all sudden done, I'm going to like puttered in front of you for a twenty four hour review, and that just doesn't work. That would I could tell you that would never work here. It would never nothing would ever be approved and it's not the approach we took. We started early and, as you said, you came and visited with us. And who'd you mean with but our model risk management team, if I remember correctly, and all those who are deep in sort of the operations of of the bank and that's just the way we do business and that's the way I would recommend any bank, you know, think about a partnership such as this one. Yeah, it's certainly what I've seen be successful for the banks that I've worked with incredit US and partnerships. Just to lay it out so so the audience is really clear. You had talked about using this for your customers. What is the so what is the experience the partnership provides? I know are you using it for customers? What does that look like to your customers? Are you using it for new customer acquisition? Just talking me through the kind of nuts and bolts of what the actual product offering looks like and who it's working with. At first and foremost, we wanted to, as I said, to provide a unsecured consumer lending solution for our customers. So we have actually marketed the posters and flyers and other information within our eighty one branches across downstate New York and we've trained our brand staff on the product and how to speak to customers about it. But we've...

...also, you know, put information on our wit, on the bank's website. We've also done a little bit of digital marketing on our own to try and acquire new customers and downstate New York. So it's really been a combination of let's try and cater and communicate to exist in customers, but let's, as you say, try and make this a way to acquire new customers. So we've tried both. We've been successful and in certain areas we need to do a little bit more in others, but by and large it's it's given us and a vehicle to communicate more with existing customers and a vehicle to try and acquire new customers. Interesting and so this is like, I mean I know so many fintech partnerships are fintag branded or I see people compare what we do with our partners alone sales, but this is really a very different thing for you. This is an offering your providing in your existing branches to your customers and really serving their needs, first and foremost for the the existing supper base you have in and about the New York area. And secondly, is the kind of new customer acquisition that's exactly right. And you know we advertise this as personal loans by Apple Bank, powered by upstart. So we view it as a truly a partnership internally, but when we go to market we make it clear that this is a loan from from Apple Bank and they, the customer, will receive the Apple Bank, you know, care and customer service that many of them are aware of. I said we could compete with the biggest banks in the world and we do. However, we've been in some of these these markets for a hundred and fifty nine years providing reliable service at reasonable price, and people have come to expect that and they know us and this is a nice way to continue the relationship and the delivery. Is there anything? This wasn't all my questions, lest you in advanced, so I apologize. But is there anything you've learned in the kind of training branch employees going to market? I mean, one of the things I always see...

...from financial institutions is this is a kind of a new kind of product and a kind of a new muscle for how I talk about reach out to engage my customers. Any lessons you've learned or things you've kind of noticed from that experience and really kind of going to market with it, with a pretty different product than what the bank had pertucierally been offering to to your customers. Yeah, so what, quite frankly, what we've learned is there is truly not only demand from the supply and Tomaticonomics, you know, concept, there's a need for this type of product in the communities that we serve. There's a profound need and I think, you know, the pandemic probably been mate made that need more profound and we are very pleased to be able to be in our markets providing this this service, you know, at, in my opinion, a perfect time for our customers and for for the bank. Quite frankly, yeah, sometimes it's interesting. I know all institutions get a little nervous when times are tough, but it's also, in many ways, at times when our customers most need the availability of funds and lending products, when things are a little more challenging. So it's it's always I think we're very rewarding to be there in those moments to support those customers for their through their journey. Yeah, I mean, as you know, after each loan is originated, a customer get to survey and and some customers fill out the survey and I read all the comments and there's a lot of them say, you know, nobody gave me a chance. I had this problem or that problem, but Apple Bank and upstart did and I won't let you down. I've read several of those and that is a rewarding feeling and that means a lot to us. Certainly there's economic reasons why we entered into this product as a bank and as a business, but being able to really help the people of our community, and we see that from the responses, is very rewarding. Jeff, we actually keep reviews from bar worth. We go through them every week with the with the whole company. I think it keeps you grounded in why we're in the business and why we're trying to do what we're trying to do. Is Is that review. I think the comment no one else would would...

...take a chance on me is really interesting and I know that probably stems from the kind of different approach we take together in terms of underwriting, in the use of Ai to kind of better understand credit risk, which I think helps us broad in the pool of who we can find that's credit worthy and offer a loans to talk to me a little bit about about how important that is to the program and how you got internally as an institution, comfortable with a different approach to analyzing and assessing risk, because that's I know it can be difficult for conservative organizations to get to a place where they're comfortable with that. But so talking a little bit through like how that's worked for you and how the institution got comfortable with that approach. I mean first and foremost, as a regulate and entity, we have a responsibility to be prudent with our balance sheet and customer deposits. We take that extremely seriously. We are obviously not in the business of making loans that you know, aren't managed in from a risk perspective correctly. Aren't reckless right. We are prudent institution that takes sort of the commitment to the balance sheet very seriously. However, the upstart model and work with upstart has allowed us to understand that there are ways that a non traditional borrower or a borrow or the non traditional credit profile can still receive a loan. Right. We do loans from three thousand to Fiftyzero. So if someone has a background, where are you know there was a blemish a few years ago or there's something that happened is and as explainable. We could still make a loan, you know, in the lower amounts, at a reasonable price, and sort of the dynamic nature of the upstart model and the upstart methodology allows us to do that without being reckless and in our view we have opened up, you know, the ability to receive a loan to people who elsewhere because they are using, you know, tools and techniques that don't have that dynamic element such as the the upstart model does. It allows us...

...to do business with with borrowers that others can't, and our customers know that and recognize that and, like I said, they appreciate and, believe me, I keep an eye on every loan, but I certainly keep an eye on the loans where, Hey, you know, this fight go scores a little bit lower than you some borrowers might want, and there's not a lot of them, but by and large the majority of those loans are performing, they are current. The borrower who told us, Hey, I'm not going to let you down. You gave me a chance, I'm going to take this seriously. By and large, that commitment from the customer we are seeing fulfilled and I think that's not just a commitment on the loan, but I'm going to bet that that turns into a loyalty to the institution that took the chance over time that I hope you see play out. But it's great to hear that the loans are are performing as expected. Certainly we don't want a data to show that, but it's always interesting. I mean that institutions tend to view historical loans on other people's books underwritten with similar which is as differently than things on their own, and so it's always nice. But you go from the theory of I know there's a bunch of data here, to a portfolio that's performing and customers that are that are paying, and I know that feels quite different. So I also want to talk about your kind of efforts at new customer acquisition. So, you know, serving the current customer base kind of the core of where you were coming from. How have you leverage the partnership to reach out to new customers and maybe expand the customer footprint of the Bank? Yes, so, as I said, we're doing marketing in many different places, many types of physical marketing and posters and, you know, flyers in branch and close to branches. We are trying to make you know consumers, quite frankly, in the neighborhoods and and cities and towns that we serve, that we are in this business. If they are in need of alone, they should come to meet with us, because we do believe, you know, the product is unique and the product can can help serve serve their needs with without question, and we're trying to get that message to...

...our customers but also to consumers for the most part, within the communities that we serve. I know some of the institutions I talk to look at things like a underwriting or a pure digital product and and worry about the risk. And I'm curious if you perceived the size of the portfolio and the ability to grow up more slowly over time as a significant mitigator and how big that risk was, because I think there's kind of the inherent can I get rid of the risk? And there's a little and to your point, if I've got five million on the portfolio out of fifteen billion, like the first month, I don't really have a ton of risk. Yeah, right. Is that something you guys thought about consciously, how you were going to grow the portfolio and get more and more comfortable with the the performance before you had a large portion of the balance sheet committed to this kind of product. Our approach has always been to manage this or enter the product, enter the space in a prudent fashion, be diligent, be methodical, make sure before we take on more we're seeing the results. When there's only certain we can all do a certain amount about the macro economic environment, but we believe today, even with all of the headwinds the two thousand and twenty two is presenting, that it's still prudent to be in this business. But we are continuing to be prudent and and methodical on managing carefully. You mentioned artificial intelligence. Right, that's sort of a new space for for the bank and for a lot of people within it, as it is for the market place. However, we believe in it. So what do you see on the horizon's what's next? Yes, the very nice things, but I'm curious where do you see this going or what are other areas of investment you're looking forward to? So yeah, we recently, you know, signed an s sow with statement of work with upstart to launch later this year and auto refinance product. So we're certainly looking forward to that. Another sort of fresh product that we don't have a lot of experience and within the bank, and we've been we've been very clear when we were speaking with your sales team. We said the experience that we have...

...within the bank relative to auto refinances, we know how to drive cars right and that that's about it. But we want to learn and we want a partner who will teach us and help us make good decisions. Now we're going to take training and we have already. We've read every document, and there were thousands that you sent over. We've learned on our own and independently. We've spoken to others in the business. So we're in a much better place today in terms of knowledge and the ability to be able to manage a product like this. But it was the same experience of okay, it's new, we get it, but let's learn together, let's find a good partner. We have and then we're looking by the end of the year we'd like to, you know, decide upon what the next product is in the consumer space for two thousand and twenty three. I don't know what the answer is yet. I'm listening to you know a lot of different thoughts and ideas, but but we are open, you know, for business. Yeah, we certainly excited to be going to market with you guys, not only in the personal loan space but in the autorefi space. I think to me they're they're very similar products and that they were very different products, because lean perfection is a very different thing than you have an unsecured but but the idea that they were small, difficult to underwrite, a difficult to make profitable because of traditional approaches. It involved manual review, but can be made effective for consumers and lenders through digital technologies, more sophisticated underwriting, automated processes. I think they're both in that world of like we would like to do the more, but we just can't make them profitable without these capabilities and those capabilities are here now. So they're they're very similar in that way. Absolutely are. Anything else you want to share? Anything I missed about your journey, good or bad? You know, it's it's really been, you know, and sometimes I will get criticized for hey, you've been you know, Stockholm Syndrome and you're been bedazzled. But all these great charts and you know, I don't think I have. I think I'm as objective today, as I was, you know,...

...when I worked in compliance or audit or or risk management at at large companies. You know I'm skeptical. I'm professionally skeptical. But this for the bank, for Apple Bank, has been a good partnership and we are very pleased with the results thus far. I have to be clear. This is month fourteen. I'm secure. Consumer could go bad very, very quickly. We saw that during the recession, right. So I'm very careful not to call the product of success within the bank because I don't have enough data to do that. But we are very pleased with what's occurred so far, encouraged by, you know, the early results, and we believe the trend is is very, very positive. What I don't need any more time to tell you is our customers, as I said, are by and large very pleased with with the products. Those who use it come away please. They feel like, you know, it's a fair price, they a good service. We filled in need and they are happy with the relationship and we are happy that they are happy. I like it. That's probably a pretty good place and everybody's happy. I like happy for me too. Yeah, God, I did. I do have three traditional questions I asked at the end of the podcast. I don't think we sit these over to you, but I love to love to ask you because they're kind of the things I ask everybody and they're pretty straightform, but they are. One, what's the best piece of career advice you've ever gotten? Yeah, I guess the bag it. Wow, I wasn't ready for this one, but the best career advice I, you know, I have ever got is probably don't quit whatever. quit you know and keep you know you re you'll obstacles will be in your way. Little emerge and from unsuspected places, such as a pandemic. Right, you know, I had heard about sort of the Spanish flu and sort of read about sort of Middle Age, you know, plagues and pandemics. I never expected one to get in the way of a pretty big product launch,...

...but it did. But I didn't quit. I don't think we quit as a bank. I know upstart didn't quit, and that's that was great career advice. Resistance is brilliant sometimes. Yeah, I like. What's the best piece of advice you've gotten about the consumer banking space and your you've had a decent career here. Yeah, you know, I think there are lots. It's and this is not a criticism of regulation. In fact I think regulation having people look at what you're doing and sort of opining and say, Gah, that's favorable, you should continue to do that. I think that's a positive thing. But yeah, the career advice I got was it's one of the most regulated industries in in the world, between banking and airlines in the US. I don't think there's any industries that are regulated more and that requires a level of rigor that probably doesn't exist in other industries and be prepared for that was the advice I received and I think that's right. But I have to tell you keeps us, it keeps us on our toes, rightfully so, and ultimately, for the most part, it benefits our customers and and I have zero in fact, I encourage it. You know, that was service we got when we headed into the financial service space and we always kind of viewed it as if you can do the hard things, well then that's a pretty good advantage in a market place. And then my last question is typically one bold prediction for the future, but I feel like you. You gave you one a few minutes ago. With five years until AI is the kind of have to have feature in lending. Do you want to stick with that or any other bold predictions you want to make? Yea. I think that's probably for this the benefit of this discussion. That the boldest prediction I can make. Without it's a ball preds it's one I use. So I appreciate it, but I do think I don't think everybody sees it that way, but it's certainly I would tend to agree that it's you know, it's a technology whose benefits are clear and it's going to be you know, it's kind of figure out how to make it worker or or be eaten by those who do. That's right, and so I don't want to any bolder than...

...that. I could only get in trouble by doing so. SIS, I said that part, not you. It's not I don't want you get any trouble. I'll get in trouble. Very good recording. I appreciate your making the time today. This is a great conversation and I appreciate your walking us through your journey and kind of personal lending and partnership with upstart. Thank you, Jeff closure beater. 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 digitally savvy, it only makes sense that their bank does too. UPSTARTS AI landing platform uses sophisticated machine learning models to more accurately identify risk and approve more applicants than traditional credit models. With fraud rates near zero, upstarts 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 learning programs or you're just getting started, upstart can help. Upstart offers an into in 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 corner. Learn more about finding new borrowers, enhancing your credit decisioning process and growing your business by visiting UPSTARTCOM Ford Banks. That's UPSTARTCOM forard banks. You've been listening to leaders and lending from upstart. Make sure you never miss an episode. Subscribe to leaders and lending in your favorite podcast player using apple podcast. Leave us a quick rating by tapping the number of stars you think the show deserves. Thanks for listening. Until next time. The views and opinions expressed by the host and guests on the leaders and lending podcast are their own and their participation in this podcast does not imply an endorsement of such views by their organization or themselves. The content provided is for informational purposes only and the discussion between the host and guests...

...should not be taken as financial advice by companies or individuals.

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