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Upstart’s Loan Conversion Rate Jumps 24% After Calculation Modification

Artificial intelligence (AI) lending platform now excludes certain loan applications from key metric calculation.

February 21, 2022

In the quarter since it first revealed it had been targeted by a coordinated fraud attack, Upstart Holdings (UPST), a cloud-based lending platform that uses AI to automate loan approvals, is reporting a significant increase in its loan conversion rate. We first highlighted the matter in a New Risk Alert last year, when Upstart announced it was changing the way it calculates its loan conversion rate, or the number of loans issued divided by the total number of loan applications received:

“Until June 30, 2021, Conversion Rate considered all rate inquiries received on our platform. In the third quarter of 2021, we modified our calculation of Conversion Rate to remove what we believe to be fraudulent loan requests from the total number of rate inquiries received to better reflect actual borrower behavior.”

Shrinking the denominator in the calculation has resulted in a higher conversion rate. In its latest 10-K, Upstart reported a conversion rate of 23.7%. In a footnote, the company said the prior methodology— which did not exclude estimated fraudulent loan requests— would have resulted in a 2021 conversion rate of 19.1%. The calculation modification lifted the rate 24%.

Expect an even larger lift, all else being equal, once the new calculation method laps its third quarter 2021 launch and is used for an entire year. In Q3 2021, the change increased Upstart’s conversion rate 70.3% to 23%. In the last 9-months, the change increased Upstart’s conversion rate 31.6% to 23.3%.


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