Upstart Holdings (UPST +4.80%), the fintech company that operates an artificial intelligence-powered lending platform, has already produced ten-bagger returns (and then some) in just nine months as a publicly traded company. However, in this Fool Live video clip, recorded on Aug. 12, Fool.com contributor Matt Frankel, CFP, explains why Upstart has barely scratched the surface of its massive opportunity.
Matt Frankel: Right now, up until this point, Upstart's business has mostly been in the personal lending space. You can see right in front of you that that is an $84 billion market in terms of U.S. origination volume. It's also a very crowded space. A lot of companies have figured out how to do personal lending very well. Think of like Marcus by Goldman Sachs, think of LendingClub. There's a lot of players and all the legacy banks now have personal lending operations that operate pretty much online. I know Citi has one, I know [JPMorgan] Chase has one, Wells Fargo has personal loans. It's getting to be a crowded space.
No one has figured out how to tackle the auto loan space from the sub-prime alternative credit angle. Upstart has, they've got this giant AI machine learning platform that has over a million people's loan data to work from. Now, they're starting to apply it to this $635 billion auto loan space. If you look right here, in the second quarter alone, they've expanded their auto refinancing capabilities from 33 to 47 states, now, 95% of the population can get an auto loan through Upstart. The big problem with sub-prime auto lending is there's not a really good way to underwrite those borrowers. Remember, this is a secured loan, it's secured by the value of a car. It's not uncommon for sub-prime borrowers to get interest rates of 20% or more on a car loan.
Upstart is allowing them to refinance their loans, save a lot of money. Upstart's loans, they're not cheap, they're not what prime borrowers will get, but 9% or 10% is a lot better than 20%. They're in a lot more dealerships now than they were, they acquired the Prodigy auto shopping platform that facilitated over $1 billion of auto sales in the second quarter alone, they now own that platform. That gets them in new car dealerships, so not just for refinancing.
I mentioned they partner with a little over 12 banks, I think the exact number is 15 right now, but don't quote me on that, they seem to be adding them very frequently lately. Five of them have now signed up for their auto lending platform. This is still a work in progress, but a giant market opportunity. This is really why everyone is so excited about Upstart. They've done a great job of building out this platform and showing that it works with the personal lending market, and now, they're going to translate it into other types of lending, specifically auto lending first. That's why everyone is so excited about this business. Not just the incredible growth and the margins that are getting better faster than people thought they would, but this auto lending space is really a huge opportunity that they have to capitalize on in the next few years.
