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Expanding Access to Affordable Credit with Jeff Keltner of Upstart

Access to credit unlocks opportunities for so many people, but it isn’t always the easiest process. In this episode, we sat down with Jeff Keltner, the Senior Vice President of Business Development at Upstart to talk about utilizing technology to expand access across the credit spectrum.

Payments & Fintech Insights In This Episode

  • How to reduce the burden of the credit application process.
  • Why digitizing is necessary, but not always efficient.
  • The common use cases for unsecured loans.
  • The power of automating small-dollar, short-duration lending processes.
  • And so much more!

Featured on the Show

Episode Transcript

Heather: Hi, everyone. Welcome to PayPod. I’m your host, Heather Bodie. And today, we are going to be talking about expanding access to affordable credit. And joining me is Jeff Keltner, senior vice president of business development at Upstart, a leading AI lending marketplace, enabling access to effortless credit based on true risk. Jeff, welcome to the show.

Jeff: Thank you for having me. It’s great to be here.

Heather: Absolutely. I gotta tell you, your LinkedIn profile is my favorite kind. It gives us that sort of immediate window into all of you. And maybe because you’re a fellow podcast host, but fintech exec, dad, podcast host, fly fisherman, tennis and pickle ball fan, scout leader. Tell us a little bit about yourself and what brought you to a career in fintech.

Jeff: Yeah, great question. You know, I reformed, but I trained as a computer engineer in college and then promptly went into the business side of technology. And so kind of spent my career at IBM selling mainframe computers, at Google kind of working on what was at the time had some funky names but has become Google Cloud as kind of the first non-technical person on that team, and now at a fintech kind of at the application of new technologies to the businesses and markets that they can serve. And then most of my interests outside of work, it must be admitted or driven by my children. They have that influence, so scout leader, tennis, and pickleball. Most of that’s playing with my kids, which is a lot of fun, but it’s fun to share interest with them.

Heather: So talk to us about Upstart for folks who maybe aren’t familiar with the company. Give us a quick overview of the goal and what makes Upstart different or special in that area.

Jeff: Yeah. I always like to start talking about Upstart with the consumers and the problem we saw and the lives of consumers that we wanted to solve. That was really the belief that many more consumers are credit-worthy than are understood to be credit-worthy by traditional metrics like credit scores. And we actually did a study with TransUnion that looked and said, “More than 80% of the American public has never defaulted on a credit obligation and yet less than half have a credit score that would qualify for a traditional bank or prime type loan.” So we kinda looked into that. That’s kind of crazy.

Heather: Yeah, that’s amazing.

Jeff: There has to be a way to better identify who all these people are that deserve credit or deserve lower priced credit and don’t have access to it. And I think along the way, we also determined that not only was the credit underwriting maybe not perfected yet, but that the process was also quite cumbersome. And we thought that was another place where advanced technology, whether it’s how you validate your identity or your income or your assets, those were things that could also reduce the friction in the process. So we really focus on those two things, like, how do we get more consumers approved at lower rates and how do we reduce the burden of going through a credit application process? And, yes, what the magic is, and I’d say it’s really the application of enhanced data sets and sophisticated artificial intelligence models to solving those two problems for consumers.

Heather: Incredible. I can tell you I am one of those consumers. I did not have a proper education on how to establish credit, and in my early 20s found that having no credit at all made you not a candidate for credit and really spent nearly a decade trying to establish a credit score for myself that allowed me to function. So there are companies like Upstart I’ve actually been a client of in order to move through some of those spaces and to navigate, for example, paying down high-interest credit cards because when you don’t have any credit, they’ll give you a credit line for $300 at 26% APR, and then you get into a weird debt cycle. So it’s incredible. What you do is very personal to me, so…

Jeff: Thank you.

Heather: …I’m grateful you’re here chatting with us today and doing the work that you’re doing. As someone who’s in charge of business development and new product areas, strategic partnerships, what is one of the newest product areas Upstart is exploring?

Jeff: Yeah, that’s a good question. We began really in personal unsecured loans for any number of reasons, but the core among them being it is the product that is the most true underwriting of risk in the credit world because most other products are secured, meaning there’s something to get back if the person doesn’t pay you, but in unsecured, there’s not. Your ability to understand creditworthiness really greatly changes the credit offers you can make to consumers, where a highly secured auto loan, or even more so a mortgage in many ways is underwritten by the house or the car as much as the person. So we started there, but we’re really focused now on, I’d say, expansion in two areas. One is new kinds of credit products that we can offer to consumers. So we now have auto refinancing loans. We actually bought software that helps power commerce at auto dealers.

So you can now get auto purchase loans powered by Upstart. We have teams working on very small dollars kind of taking aim at payday at SMB lending and looking at other things as well. So I’d say number one, how do we start taking the magic that we developed in the context of unsecured lending and bring it to the whole variety of consumer lending that exists in the world. And the second is we really go to market through bank and credit union partnerships. And so bringing on more banks and credit unions who can partner with us and power their experiences and help consumers with their products powered by Upstart is probably the other area we’re really focused on.

Heather: When you talk about this effortless nature of applying for the credit, obviously, there’s some effort involved, but as you mentioned, legacy systems are historically speaking. The process of applying for credit can be incredibly cumbersome and can in some ways be prohibitive for some individuals.

Jeff: Sure.

Heather: What does it mean to be effortless and how does Upstart break down those traditional barriers of entry?

Jeff: It’s a great question, and I’d say it’s this really interesting topic right now because so much effort is being spent on digitizing financial service processes. So often digitizing is necessary but not sufficient, if you will, because I’ve talked to a bank who had digitized a process and it still was the same process as opposed to bringing 15 pages of documentation to the branch, you uploaded a 15-page PDF. But when we look at things like effortless, we’re really saying, “How simple can we make that process?” So a simple example for an unsecured loan, typically, we’re looking at some sort of validation of your identity, right? Are you really who you say you are? And income, do you really make the amount of money that you claim to make on the application? And in a traditional world, you probably present an ID, upload a bank statement, maybe a W-2 or a 1099, right?

In old, old world, you take it into a branch. In the digitized world, maybe you upload a PDF. But we wanted to say, “How can we actually get out of uploading documents and use digitally unique signals to validate those things with lower effort for the borrower?” So, for instance, most of our borrowers validate a bank account using an online credential system that allows us to look at some transactions. And now, over 70% of the loans that come through our platform for all of our banking and credit union partners have no uploading of documents by the user and then no waiting by the borrower for somebody to look at those so those transactions can complete in less than half an hour on average. So it really speeds up the process because you’re looking at how do we remove that friction from the process as opposed to just digitizing the old thing. How do we build a better way that has the same kind of fraud prevention, the same kind of income validation effectiveness, but doesn’t require as much effort and therefore friction from the part of the borrower?

And here’s a shocking thing. We found that when we can go from even one photo of your ID to upload or whatever it might be to no documents to upload, like, to a really what we call instant experience where in the first session you can fully close a loan, we see more than a 2X uplift in people completing the process. So it really drives a dramatic, not only a better experience for the customer, but a better program for the banking institution, right? Double the volume on the same marketing dollar is a pretty good thing.

Heather: It’s incredible and it absolutely increases accessibility for that experience. Can you take me through, sort of, an ideal customer or a use case? I mean, you mentioned just a minute ago that as far as the new product areas are concerned, you’re talking about auto refinancing, auto purchase, even referred to, like, payday loans. And I think traditionally in that industry, there can be some predatory actions in that space. So can you talk to me a little bit about the ideal customer and what protections are in place to ensure that Upstart’s model doesn’t accidentally fall into a predatory style?

Jeff: Yeah, absolutely. So I think the ideal customer, we’d like to say that we have partners and technology that’s good for every customer. Obviously, the most common use case for an unsecured loan is exactly what you mentioned earlier, which is refinancing of high-interest rate credit card debt, right? You got a credit card, you racked it up a little bit, then you realize that the interest rate is high, the minimum payment doesn’t really seem to correlate to paying off the credit card in something like a timely manner and you want a path forward that says, “How do I know how much I pay to be done in two or three or five years and out of debt?” And that’s probably the primary use case for the unsecured loan. There’s lots of people who are maybe furnishing an apartment, moving across the country, taking a vacation, paying for a wedding, things like that, but the bulk of it is really refinancing higher interest rate debt.

Obviously, the same is more or less true for auto refinance loans, which is you have a loan on your car and you can lower your payment by working with us. So it varies a lot. I will say one of the most interesting to me is probably the small dollar loan where we’re really talking about, you know, what is it? I think the statistics, I’m gonna quote the number a little bit off, but 40% or 50% of Americans can’t put their hands on $500 in an emergency. So how do you make an easy process to enable small-dollar, short-duration lending to support those customers? A lot of the reasons that’s difficult to do is that the cost of operating a program if you’re doing a manual process and a manual review that you’re paying those staff and you can’t make money, right? You’re gonna lose money.

And if you can automate those processes, then you can really get to a world where you can actually serve that customer breakeven or slightly profitably. And so that’s something we really wanna do. We have been very clear with all of our partners, even those that operate in states that don’t have usury caps that we don’t support programs that go above the 36% APR range, that’s one of the key safeguards that we keep in place to make sure that we’re not getting into some of those super high interest rate, more predatory type loans.

Heather: You have an entire podcast exploring the future of financial services and consumer lending, and you’re always talking to executives and other leaders in that space. What about those conversations are you at least recently most excited about?

Jeff: I think what I’m most excited about is, there are two things that really struck me when I came from the technology world into, you know…now, I’m talking to banks about technology, which is pretty different than being at Google and talking about technology, right? It’s a very different infrastructure and space. And I think the two things that surprised me most were, one, how much bankers are really focused on consumers and doing right by their customers. Because I think for those who aren’t in financial services, you often have this kind of “Wolf of Wall Street” picture of what…you know, you think banker and you don’t think of a mortgage loan officer, right? Most people think of banker and they think of the character from “Wolf of Wall Street,” some shark out there to take advantage of people. And what’s been extremely heartening is how consumer-oriented most of the bankers I talk to are. And they’re really trying to get the best products in front of as many consumers as possible to help those people buy cars and fund educations and buy homes.

So that was maybe shouldn’t have been, but was surprising for me and heartwarming. And the second is, everybody sees this as the future, right? Digitization, automation, enhanced underwriting. There was a big question 7, 8, 9. We started, started this company 10 years ago where some people thought, “This wasn’t the thing that was going to come. You guys are crazy, nobody really needs this.” And I think now the most exciting thing is everybody is saying, “How do I do it? And how quickly can I get to the best possible future endpoint?” And there’s lots of challenges for banks, legacy, technology, infrastructure, staffing up the right kind of skill sets, but the question is shifted from if to when and how and how quickly, and I think that’s really exciting because there’s a lot of momentum to really fundamentally change and improve for consumers the experience of financial services, both in fintechs but also in traditional banking institutions as well.

Heather: That’s so exciting to hear that kind of customer-centric mentality is part of the conversation with larger banks because I do think that there is some evidence behind that stereotype that those traditional larger banks have, not necessarily predatory practices but more so that it’s about the bank’s bottom line rather than serving the customer. So it’s cool to hear that you’re having so many conversations like that.

Jeff: Yeah, one of the things we do internally to help us. You know, we came into the business with the help of the consumer as being our kind of [foreign language 00:12:59.033], if you will.

Heather: Ooh, what a fabulous accent, my friend. Do you speak French?

Jeff: I did at one point in time, although I’d be hard-pressed to carry on it. So because we really started with that consumer-oriented point of view, it’s been somewhat easy for us to maintain that, but we really do focus on that because I think it’s very easy for any financial services company to get caught up in the numbers and the metrics, and the returns, and the losses, and the funnel conversion metrics, and, you know, it can become like a spreadsheet game and you lose sight of the real people behind the numbers. So we try very hard to keep that focus. One of the things we do for that is every week in our all-hands meeting, we read reviews from real borrowers who’ve used the service and everybody gets to hear their take. And we actually feed the real-time reviews, all of them into various chat channels internally so we can keep a pulse on how customers feel because I think it’s really important to us that we have a visceral connection to those consumers and don’t get lost in the management of the business objectives. Especially as you become larger, can be easy to do and lose sight of the real people who are trying to buy cars and get outta debt and buy homes and fund their education, etc.

Heather: Anecdotally, is there one that sticks out to you?

Jeff: Oh, they all stick out to me. I don’t wanna quote one, but there’s just so many people who didn’t realize they were getting into credit card debt or bought their first car and couldn’t believe how expensive it was, but needed it and then couldn’t believe how much lower rate they were able to get. And so all of those, it really drives home for you. One of the things that I think we try and keep in mind, which is how fundamental access to credit really is to people and our economy. We often say that access to credit is really access to opportunity, access to mobility, whether it’s sending your kids to a good school or buying the car that gets you to work or buying a house for your family. Access to credit is what unlocks opportunity for so, so many people. And remembering that that’s what you are helping people achieve is really important. We think of ourselves as a mission-oriented company and that really helps us keep grounded in how what we’re doing is connected to that mission.

Heather: Incredible. I spoke to another startup a few weeks back and they were talking about incredibly, like, microlending, like, $20 loans, so to speak, in other countries and talking about how important it is for someone to be able to buy a bunch of bananas in their local town and then travel to the main city and be able to sell those bananas for triple what they purchase them for and make an income for themselves and for their families that way. And I know that’s not necessarily the case here in the United States, but thinking about it on such a intimate and small level I think really helps, for me, anyway, emotionally connect to the importance of access to credit.

Jeff: Yeah. It’s easy to lose sight of that, particularly, it’s one of the great ironies of the credit space that those who have the most access to credit are typically those who don’t need it, and those who need it most have the least access. And so often those of us who are fortunate to have been successful lose sight of the importance of credit to people in so many ways because it’s not as critical to your regular functioning. So it is really helpful to keep connected to the reality of people who are using your service and to make sure that you’re really solving a need for them, that you’re really providing a value, and I think both of those things are really important and something we try and keep everybody in the company really attached to

Heather: As a payments-focused podcast, I would be remiss to not ask about the payment processing aspect of Upstart’s business model. Can you talk to me a little bit about how it was designed and what benefits it brings to the clients and also how it functions for you? I mean, obviously, we’ve got the underwriting portion of the lending, but inevitably, money needs to exchange hands. So can you talk to me about that?

Jeff: Money’s gotta move.

Heather: Yeah, it’s gotta move.

Jeff: Unfortunately, we’re pretty boring when it comes to money movement. So we mostly are processing ACH and automatic repayments. The vast majority of our borrowers get themselves set on an automated schedule. And, you know, I won’t say we see it as a sign of success when nobody logs into their servicing portal, but on some level when somebody sets up automatic payments and never comes to change it, that’s a win for you. And so the majority of our borrowers do pay that way and that keeps it pretty easy for us. So it works well because it’s kind of silent, but I will say it’s an area that we are evaluating because, obviously, the current rails have their issues, right? It’s kind of amazing in 2022 to think about the how long it can take for an ACH payment to be returned as not valid.

Maybe that seems kind of crazy that we don’t have something more real-time. So we’re always looking at that area as, you know, a place that, like, is it time to make investments and improvements? I think every startup has this challenge of like things you would like to improve, and then that list is always way longer than the things we have time to actually improve, and you have to go through the prioritization of where are we gonna put our resources? And we’ve really felt like putting our resources on underwriting and onboarding simplification are the places we bring the most value and that’s really where we focused.

Heather: So what’s next for Upstart, if that’s where your focus currently is? Do you have that sort of what’s on the horizon just past it?

Jeff: Well, I would just say we are new to the game of having more than one credit product available for consumers, right? We were just a personal unsecured lending company for a very long time and really working with just one bank partner for a very long time, and we’re expanding rapidly on both fronts. So we’re working with more than 70 banking and credit union institutions now and partnering with more all the time. And we’re also quickly moving as we said into the auto retail and the auto refinance and the small-dollar lending, and those are all pretty nascent products for us. So I think what’s next to me is we really started with a small segment of the market. I mean, if you think of unsecured lending as a portion of the overall credit market for consumers, it’s not the biggest part. So as we look at how we go and bring our technologies and those same benefits to consumers across the credit spectrum and working with lots of financial institutions to be able to reach their customer and geographical basis with those products, that’s really a couple year vision, which is about as far out as I can really envision things.

Heather: I noticed earlier in our conversation you were talking about how when Upstart first got into this that the din of people aren’t gonna want this, this isn’t gonna work, that buzz around it and then that major shift of people saying, “Nope, I wanna be a part of this.” Can you tell me about your I wanna shift to your podcast a little bit. If you could give us the name of it and when you started, and then talk to me a little bit about what you’ve learned from that experience? How the conversation has shifted.

Jeff: Yeah, so the podcast is called “Leaders In Lending.” I didn’t name it, but I think it’s a pretty good name. And we try to talk to, not surprisingly, leaders in lending, but I will say I was worried when the team said, “Hey, let’s start a podcast that’s speaking a lot to consumer lending and banking executives.” And I said, “Well, we’re gonna have the same conversation like 50 times and people are gonna be bored.” It’s about a year old, and I’ve been really surprised to see how many little pockets of innovation are happening at even small financial institutions around the country. And then maybe one of the most interesting things is we talk obviously a lot about digitization, a lot about improvements in underwriting, different asset classes for consumer, but the interest in really cutting edge conversations whether they be AI, fairness in AI and bias in AI.

Or I had a couple conversations this week on the podcast about crypto, and, you know, I kind of went, “Well, I came outta some of those conversations and I just thought, “That’s gonna be way too, like, technical for the audience,” right? It was like we didn’t do the 101, we did the 401 and not that anybody wants that, and we get this really amazing feedback that people are really engaged with the really cutting-edge stuff that’s happening. It may not be what they’re doing day-to-day at, you know, a community bank or whatever, but they’re really engaged with those topics, which makes it a lot of fun because I get to go a little farther afield and find guests right on the edge of what’s possible and what’s coming in areas like digital assets or areas like AI applied to different parts of the financial services lifecycle, and that makes it a lot of fun. And people are really enjoying those episodes that I thought were maybe too technical, maybe too far out there, maybe too long-term versus near-term opportunities, and they’ve really engaged with it, which made a lot of fun for me.

Heather: I feel like I’ve had an incredibly similar experience. There’s only so much that we can…and I don’t mean to dog on payments, I am a payments lover through and through, but the conversation, I’ve definitely had moments where I thought, “Oh, I already know where this might go.” And it does continue to surprise me as well. It’s incredible to see the disruption and innovation that’s happening in payments alone. And I’m just so grateful that I get to sit and stay curious with people and hear about all the different incredible ways that people are innovating.

Jeff: Yeah, maybe one of the things I’d answer your question, what have I learned, like, podcast host was never on my to-do list or [inaudible 00:21:23.280] plan, and yet I now would tell people, like, “If there was a space I was really interested in and didn’t know that well, I would start a podcast and just start inviting interesting people.” You learn so much from the conversations and it’s a fascinating way to dig into a space. And my guests often are nervous about not having interesting perspectives, and I have yet to find one that doesn’t. But I often tell them, like, “We only need one topic or two, but, you know, you don’t need to talk about everything you do in the lending space. Let’s pick one thing you do that’s different, or one place you think the industry’s wrong, or that your colleagues just don’t get what’s coming and let’s dive deep on that.” And that’s usually really interesting if you start following up and asking questions and diving into, even if they’re saying, “Hey, we’re very normal in mortgage.” Like, “Okay, well, tell me where you’re not normal.” “Well, we did this one interesting thing with community loans.” “Well, tell me about that.” And you find really interesting topics that way and everybody’s got an interesting story to tell. I kind of feel like it’s my job to find it and I enjoy doing it.

Heather: I love that. To wrap this up today, I wanna go all the way back to the beginning. You were talking about selling mainframe computers at IBM, then you spend time at Google, now you’re at Upstart. If somebody is looking to get into…they’re listening today and looking to get into a similar career path as the one that you took or just interested in diving deeper into what it means to be a part of fintech, what advice would you give them?

Jeff: Oh God, that’s a…one of my favorite graduation speeches of all time was Steve Jobs. It’s maybe a little cliche in Silicon Valley to say that, but he had this quote where he said, “You can only live your life or your career forward, but you can only understand it looking backwards.” And my advice to anybody who’s looking for a career path like mine is find the opportunities that feel a little outside your comfort zone that…I didn’t have a path. Like, I wanna do X and then Y and then Z and then W, and then I’ll be a VP or whatever. I just kinda said, “Hey, what’s the next interesting opportunity where I feel like I’m gonna learn a lot from doing it?” And every job I’ve taken, I felt a little bit like, “I can’t quite believe they’re letting me take this role. Like, I don’t quite feel qualified. Like, I think I could figure it out, but I don’t feel like I’m really already there.”

And I think that’s kind of perfect point where you work hard to figure it out and you learn a lot from the experience. That’s always what I’ve looked for and been open to finding and maybe not the traditional thing I was looking for, right? Like be open to the opportunities as they come. And then my advice on how to learn the fintech or any space is my wife is a doctor, and in medical school, they had a saying, “See one, do one, teach one.” And I think if you really wanna understand a space, you can’t just read about it, you gotta find a way to engage in it, to do it. That’s why I still write code on occasion and I’ve written some machine learning models because I just needed to, like…I didn’t understand it until I do it.

And then if you really wanna understand something, you never understand it until you teach it. So if you wanna start understanding a space well, try to read about it, try to really interact with it, and then try and explain it to somebody who’s not an insider. And if you can do that, then you’ll learn a space pretty well. When you can explain it to somebody, then you have a pretty good handle on it. And I’ve always found that to be a good approach to learning a new space and getting engaged and trying to understand it better.

Heather: That’s incredible advice. And I think especially because as you move through the teaching process, in order to distill a concept, you almost have to reorganize it and distill it for yourself. So that’s…

Jeff: Totally.

Heather: Yes, yes, yes, yes, yes.

Jeff: Amazing how many times you’re like, “I know this really well.” And so you teach it to somebody, and they ask you a question, you go, “I have no idea. I better go figure that out.” And so you do learn so much from teaching ideas to people. I think it’s a very valuable thing. So I do it all the time. My wife is…unfortunately for her subject to that process, sometimes my dad as well when I’m just, “I’m gonna try and explain this to you and you see if it makes sense.” He goes, “Tell me about crypto, Jeff.” I go, “Okay, we’ll see if I understand it yet.” And then I usually find that I don’t understand it as well as I thought and then I have to go back and research to answer his questions, but that’s helpful for him and for me and I enjoy it.

Heather: Jeff, thank you so much for taking the time today to join us. If folks wanna get in touch with you or if they want to learn more about Upstart, where should they go?

Jeff: Well, you can always go to upstart.com to learn more about Upstart. I gave this advice on an earlier podcast. I think it’s good. If you really wanna understand Upstart, the best thing to read is actually the founder’s letter in our S1 from when we went public. It is a really foundational piece and, well, I think stand the test of time to being a great description of our business and how it works. And if you wanna find me, I’m on all the social media, but I only looked at LinkedIn, so that’s the easiest place to find me and I’m pretty responsive. I don’t think I’m hard to find at this point on there.

Heather: Thanks so much for joining us.

Jeff: Thanks for having me, Heather. I appreciate it.

Heather: If you enjoyed this episode and wanna hear more, head on over to soarpay.com/podcast to subscribe on your podcast listening platform of choice. That’s S-O-A-R-P-A-Y.com/podcast.

Industry Spotlight

Upstart

Upstart is a leading AI lending marketplace partnering with banks and credit unions to expand access to affordable credit. As we transitioned to being a public company, we’re now poised to leverage our domain expertise and revolutionize every aspect of lending and credit risk evaluation. We’ve recently expanded our offerings to include automobile refinancing and we plan to take on more verticals as the business grows.

By leveraging Upstart’s AI marketplace, Upstart-powered banks and credit unions can have higher approval rates and lower loss rates, while simultaneously delivering the exceptional digital-first lending experience their customers demand. Upstart’s patent-pending marketplace is the first to receive a no-action letter from the Consumer Financial Protection Bureau related to fair lending. Upstart not only supports a large remote workforce, but also has offices in San Mateo, CA; Columbus, OH; and Austin, TX.

Most Upstarters join us because they connect with our mission of enabling access to effortless credit based on true risk. If you are energized by the impact you can make at Upstart, we’d love to hear from you!