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No. of Recommendations: 10
Upstart AI - The core principles are the same as Crowdstrike, build an AI system that gets better over time. Now let's look at key factors - this'll be a fairly straightforward model (relatively speaking). More data is good and the model can learn new patterns / behaviors, but there's a point of diminishing returns (unlike security threats, the various flavors you could have here are limited). On domain expertise, no doubt you'll have underwriters with in depth understanding of the personal credit market and they bring a level of sophistication to the model with their knowledge. But it wouldn't be that hard for even a layman to quickly grasp the key factors that influence small personal loans. More importantly, most of their customers being banks will already have this expertise. In my opinion, it'll only take a small team to build this model. Most banks already have their own machine learning teams (especially the big ones) and they might quickly come to the same conclusion. Upstart's AI definitely has a legup in that it'll learn from data from multiple banks, but that advantage (as it relates to model performance) doesn't provide a large enough moat. To summarize, it's not clear to me there are significant barriers to entry purely from a technical / AI standpoint here.

Hope this helps.


This represents a commonsense view point which struck me as valid upon first exposure. What I find hard to reconcile with this is the frequently expressed views of the CEO of Upstart. Specifically:

Existing methods for evaluating loan risk are worse than poor. e.g.FICO not reliable as a predictor.

In general the banking industry can't seem to deploy sufficient talent to devise a better system.

Upstart's AI models are barely 10% of the way on the path to "the best" predictive model.

Increasing data collection for changing conditions over many sources of information and applying this to personal and other kinds of lending will result in continued rapid growth as projected in Upstart guidance for the coming year.

And finally their revenue generation ability seems to point to a demand for what they are selling.

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