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Upstart announces small-dollar lending product for banks and credit unions

Upstart, a San Mateo-based fintech that partners with banks and credit unions to offer installment and auto loans, announced plans to offer a bank-ready small-dollar loan product, according to Upstart’s Q3 earnings call.

The loans will offer annual percentage rates (APR) below 36%, the rate cap for nationally chartered banks, according to co-founder and CEO Dave Girouard. The product is still in development, but the company expects banking partners to launch these consumer loans by the end of the year.

The new loans will utilize artificial intelligence-powered risk models to dramatically reduce the cost of origination and allow the company to meet bank partner’s demands.

“Our bank partners rightfully feel pressure to better serve low-to-moderate income Americans, and we want to help them do that right. The interest in this small-dollar product from our bank and credit union partners is off-the-charts and we hope to bring it to market before the end of 2022,” Girouard said during the call.

The high demand from banks isn’t unexpected, especially when you consider that federal regulators have been pushing safe small-loan offerings since last year. Last March, multiple federal agencies published principles for offering small-dollar loans in a responsible manner, and the CFPB released a template for banks to offer these loans without fear of regulatory intervention.

Upstart went public late last year (NASDAQ:UPST), and already partners with FIs to offer auto loans and personal loans over $1,000. The company’s software considers over 1,600 data points to determine prospective borrower’s creditworthiness, and is currently used at 31 financial institutions, according to News AKMI.

“It offers reasonable rates to people for short-term loans, and that’s something that almost doesn’t exist out there,” Girouard said. The product looks like a way banks can build relationships with subprime customers, who usually have to rely on expensive short-term loans.

Giroud says that while some consumers will still not qualify for APRs below the stated 36% rate, the company’s goal “is to bring as many of them inside as we can.”

In other recent fintech news, Starling Bank acquired specialist lender Kensington Mortgage for £1 billion to expand mortgage services and take on Barclays in the business banking market. Keyway also raised a $15 million seed round and came out of stealth to provide SMBs underwriting and lending services.

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