What happened

Shares of fintech lending platform Upstart Holdings (UPST -0.94%) were falling in today's trading, down 5% as of 12:09 p.m. ET.

There wasn't any company-specific news today, but the decline was likely attributable to two other factors: increased loan loss reserves taken at other large banks during this earnings season, as well as the continued rise in Treasury bond yields.

So what

Upstart was likely falling in sympathy with bank stock peers that reported third-quarter earnings today, including Silicon Valley Bank and American Express. Silicon Valley Bank plunged roughly 20%, due to its catering heavily to the technology and start-up world, which has seen valuations come down and financial activity grind to a halt. Meanwhile, while American Express delivered earnings that beat expectations, it increased its provision for credit losses by about 90% quarter over quarter.

As Upstart is a tech-enabled lending platform, Silicon Valley Bank's plunge likely affected Upstart, as they may trade in the same group of companies at many asset managers. Meanwhile, if a prime-consumer-oriented financial company like American Express is girding its portfolio for potential loan losses next year, investors may fear what's in store for Upstart, which tends to cater to less creditworthy borrowers.

In addition, interest rates continue to rise, as inflation remains sticky, and the Federal Reserve continues to raise rates and let more Treasury and mortgage securities roll off its balance sheet. That could be a problem for Upstart, which depends on outside funding for its loans. If interest rates go up across the board quickly, loan buyers may begin pulling back and demanding a higher rate.

This actually happened to Upstart earlier in the year, when it had to slow originations and even hold some of its loans on its own balance sheet, which was not its original business model. That question over its business model fueled a lot of the large declines in the stock this year.

Now what

Upstart will report earnings on Nov. 8, and remains a fintech stock to watch this season. The stock has been absolutely hammered this year, down some 95% from its all-time high. So, it could be a candidate for big upside if its fortunes turn around. 

In fact, this former growth stock now trades at just 14 times next year's expected earnings. On the other hand, there's a great deal of uncertainty around those earnings, especially if there is a recession. Upstart's model is to use artificial intelligence and technology to underwrite personal and auto loans to borrowers who may be more creditworthy than their FICO score may indicate.

That seems like a risky proposition these days, as inflation for necessities like shelter, food, and gas have caused charge-offs to rise this year. With both the credit and the funding sides of its platform in question, Upstart remains a high-risk stock compared with other more established financials. However, if inflation comes down and management figures out a more stable and long-term source of funding, the stock may rise once again -- perhaps materially. 

Interested investors should monitor the Nov. 8 earnings release and conference call for more color on all these fronts.