Revolutionising the credit score system
The Finterview - Fintech Exposed episode 14.
In episode 14 of The Finterview - Fintech Exposed, Jeff Keltner, SVP at Upstart, an AI-based lending platform based in California, shares his insights on the future of AI in the world of Fintech. In this interview, Jeff talks about his background, the challenges Upstart has faced, and the company's mission to make credit more accessible and affordable to creditworthy borrowers who lack access to traditional bank loans.
Read on to learn the key takeaways, and listen to the full episode below!
Upstart's mission: making credit more accessible and affordable
Upstart's original mission was to provide income share agreements to new borrowers, but the company eventually pivoted to underwriting loans using their innovative technology. Upstart aims to solve the inefficiencies and inaccuracies of the credit score system by using AI to evaluate over 2,000 data points on an individual application, providing a comprehensive evaluation of creditworthiness. This approach qualifies those typically seen as "high risk" as worthy of loans, thus increasing the accessibility and affordability of credit.
Challenges with the current credit score system
The credit score system has long been criticised for its inefficiency and lack of accuracy. One significant issue is the use of the same credit score for different types of loans, leading to an inaccurate evaluation of a borrower's creditworthiness. Upstart has addressed this issue by utilising data points such as income, employment history, and payment history. However, this approach was limited and often did not provide a complete picture of a borrower's financial situation.
Using AI to enhance the creditworthiness evaluation process
With advancements in technology, Upstart has upgraded the current credit score system by using AI models to evaluate over 2,000 data points on an individual application. This provides a more comprehensive evaluation of creditworthiness, increasing the accessibility of credit to those traditionally seen as "high risk." This technology enables lenders to make informed decisions regarding lending, taking into account various factors such as income stability, credit history, and payment behaviour.
Overcoming challenges with AI-based lending platforms
Despite the capabilities of AI-based lending platforms, lenders must be wary of drawing conclusions based solely on limited data points, such as a borrower's occupation or income. Instead, lenders must consider various factors to ensure that they have a complete understanding of a borrower's financial situation.
External factors can also impact the creditworthiness of borrowers. For example, during the COVID-19 pandemic, government stimulus checks helped unemployed people pay back their loans, leading to a counterintuitive result in Upstart's AI model. Therefore, lenders must take into account external factors that may impact a borrower's financial stability and adapt their lending practices accordingly.
AI and lending: the future of Fintech
As AI technology continues to evolve, the potential applications in Fintech and lending are becoming more apparent. AI can analyse vast amounts of data, identify patterns, and make predictions that were previously impossible. This is where Jeff believes the future of Upstart and lending lies - in creating a more comprehensive evaluation of creditworthiness and risk using AI models.
Upstart's AI technology is constantly learning and improving, making the lending process more efficient, cost-effective, and accessible to more people. By using AI to analyse borrower data, Upstart can provide more personalised loan terms that are tailored to individual needs and financial situations.
As we move further into the digital age, AI and machine learning will continue to play a crucial role in the future of lending. The ability to analyse vast amounts of data and make predictions in real-time can provide lenders with a competitive edge and help them identify new opportunities in the market. The potential for AI in lending is limitless, and it is exciting to see how startups like Upstart are utilising this technology to revolutionise the industry.
The importance of building difficult products
Jeff emphasised the importance of building difficult products when it comes to Fintech startups. Startups must be willing to take on the challenge of creating innovative products that address the problems that traditional banking and lending systems face. Jeff calls this a moat around your business, as it will be more difficult for competitors to replicate it because it is so difficult. This involves taking on the challenge of building complex systems that utilise AI, machine learning, and other advanced technologies.
Building difficult products requires a dedicated team of experts with a wide range of skills and knowledge. Startups must be willing to invest in the best talent and provide them with the resources they need to create innovative products that push the boundaries of what is possible.
By building difficult products, startups can create a competitive advantage in the market and differentiate themselves from traditional lenders. This approach allows them to address the unique needs of borrowers who may not have access to traditional lending options and provide more accessible and affordable lending solutions.
Conclusion
In conclusion, the use of AI in lending and Fintech is an exciting development that has the potential to revolutionise the industry. Upstart's innovative approach to evaluating creditworthiness and risk has already made a significant impact in the market. As AI technology continues to evolve, we can expect to see more startups like Upstart utilising this technology to create more personalised, accessible, and affordable lending solutions.
Furthermore, as the global economy recovers from the COVID-19 pandemic, lenders must remain vigilant in their lending practices and adapt to the changing macro environment. Lenders must utilise AI and other advanced technologies to identify new opportunities in the market and provide more comprehensive evaluations of creditworthiness and risk.
Lastly, building difficult products is essential for Fintech startups looking to create a competitive edge in the market. By investing in the best talent and utilising advanced technologies, startups like Upstart can create innovative products that address the unique needs of borrowers and provide more accessible and affordable lending solutions.