Silicon Valley is the world's most developed fintech center and also the centre of business model innovation. In July this year, we went to Silicon Valley to conduct field research on more than a dozen fintech startups founded during 2015 and 2016, and brought back special reports for you to analyze the latest developments in the global fintech industry.
Company Details
Company Name: Upgrade
Founded: 2016
Headquarters: San Francisco, California
Founders: Renaud Laplanche (Co-Founder and CEO), Jeff Bogan (Co-Founder and CEO) Rajan Arora (Director, QA)
Funding Round: Angel + Convertible Note
Funding Amount: $60M
Category: Robo advisory lending company
Business: Upgrade is an online lending platform that helps lenders find long-term, more secure and more affordable credit products by providing free credit monitoring services and automatic post-loan repayment services.
Renaud Laplanche, co-founder of the company, was also the founder of Lending Club. Due to a critical disclosure problem, Laplanche left LendingClub in 2016. Recently, Laplanche returned to the field of lending, dedicated to creating new lending experiences and serving people with real borrowing demands.
In April 2017, Upgrade secured US$60 million in A-round funding which was provided by Apoletto Asia, CreditEase, FirstMark, Matt Turck, Noah Holdings, Ribbit Capital, Sands Capital Ventures, Silicon Valley Bank, Union Square Ventures, Uprising Ventures, Vy Capital, in which $48 million of equity financing and $12 million of convertible bonds. Of these investors in Upgrade, Sands Capital Ventures, Silicon Valley Bank and Union Square Ventures have also invested in Lending Club.
Business Model
Upgrade provides for loans up to $50,000 with low fixed rates, affordable monthly payments and no prepayment fees. Platform application is simple and quick; users only need a few seconds for the platform to complete the decision, which does not affect their personal credit scores.
Users can make repayment in 36 or 60 months. After they accept the loan offer, the fund will be transferred within a day of clearing any necessary verification. Users can sign up for automatic payments and customize their own due date. In the future, Upgrade will put more tools online to help users better understand and monitor their credit, thus increasing user stickiness, retention rate and recovery rate.
All loans on the platform are made by WebBank. Traditional P2P platforms hold part of the loans and sell the rest of them to investors. At Upgrade, loans all come from institutional investors, which is different from Lending Club. In the future, Upgrade will borrow new loans to stimulate asset securitization projects.
The platform says it uses blockchain technology to help with compliance and internal management and creates timestamp-based, non-modifiable transaction records. Blockchain technology is a potentially powerful tool for loan approval in the field of online lending.
The users will first obtain the credit score, which will be used to determine the amount of personal loans, interest rates and so on. The current requirement for the applicant's personal credit score is 620+, which will be gradually reduced in the future.
Depending on the customer, Loans made through Upgrade attract an annualized interest rate of between of 5.66%-35.97%. All loans attract a 1% to 5% origination fee, which is deducted from the loan proceeds. Actual loan rates depends on credit score, credit usage history, loan term and other factors. Late payments or subsequent charges and fees may increase the cost of users' fixed rate loan. From the time of approval, funds should be available for the borrower within four business days.
Innovation
Compared to traditional lenders in the U.S., Upgrade uses comprehensive assessment of location information and cash flow information, along with bank account information, credit history, credit score, loan income ratio, browsing information and electricity and water payment information. The location information reflects the borrower's geographical location, and to a certain extent, reflects the borrower's economic position. And, although the cash flow information is ignored by traditional risk control, it can be used as a strong forecast indicator to judge the borrower's earning and spending habits.
In terms of repayment collection Upgrade analyzes the borrower's actual reason for default of payment, for example, external factors such as disaster, short-term lack of liquidity or long-term income reduction. The platform takes different collection strategies for different reasons and makes flexible adjustment of borrowing terms, such as reducing the amount to be paid so as to stimulate the borrower to pay overdue loans.
Development
The platform plans to introduce online credit monitoring, credit reminders and loan education. In addition to applications for credit card balance repayments, Upgrade plans to introduce home equity loans, credit cards, auto loans and other products, and plans to lend more than US $1 billion each year.
Q&A
Below is our interview with Richard Lewis, CRO of Upgrade:
Q: What's the main purpose of borrowers?
A: At present most of the borrowers borrow to pay for credit card loans. Most people have long-term history of credit cards, which means that quality of our borrowers is relatively high.
Q: Are Upgrade's investors all institutional investors? Are there any requirements for the investors?
A: At present, Upgrade's investors are all institutional investors. We also lend our own funds to our users, but in contrast to other lending platforms, our institutional investors don't invest in specific loan: they invest in specific kind of assets. The credit rating is classified into three types: A, B, C. Investors tend to invest in A-class loans, which are top-quality and attract the lowest interest rates.
Q: Upgrade has similar business model with Lending Club and Credit Karma, so which credit score do you use?
A: We use the vatagescore, which is a free credit score jointly launched by three major credit bureaus in the U.S. In fact, there are more than 50 kinds of credit scores in the US. We use the credit score to allow users to know the changes in his/her credit score so as to improve the stickiness of users and increase the probability of repeated lending.
Q: How often do you check the location information?
A: At present, we collect the location information only when the borrower applies for the loan. In the future, we may increase the frequency of collection.
