Lock also discussed Upstart’s "T-Prime" program, which helps credit unions target super-prime borrowers, improving loan quality and member acquisition. As credit unions look ahead, Lock emphasized the importance of digital transformation and AI-based lending solutions to enhance efficiency and attract new members.

CU Times: How do you view the current lending environment?

Lock: If you think about the short-term historical environment where, in the pandemic when default rates dropped and we had this glut of money, everybody needed lending. Then you went through ‘23 and ‘24, including SVB [Silicon Valley Bank] failures and so forth. You suddenly went from a glut of deposits to liquidity challenges. So generally in 2024, we saw people pulling back from lending. And as they move into 2025, at least the business plan was to return to more robust lending.

The challenge is when you turn lending off organically, it’s hard to get it back going. And I think we're probably moving in an environment where people need more third-party lending. I would expect in Q1, by the time we see all the results, that people will be behind their lending goals. I think people are also a bit surprised - and I'm a bit surprised - by what the macro environment looks like. I think most credit unions put their budgets together in the Fall and I think we expected maybe more interest rate cuts, maybe more taming of inflation. So now we have more sticky inflation, and rates are higher for longer. And of course, now we have the ‘tariff issue’ which is I think causing everybody to reevaluate what the macro picture is going to look like.

CU Times: Are credit unions uniquely positioned to meet consumer needs right now? If they are, how so?

Lock: I personally think they are, and it has to do with their juxtaposition versus banks. So what you're seeing in banks is that it's increasingly difficult for large banks to make money and to grow in consumer lending and therefore they're traditionally stronger in commercial lending. They're now spending a lot of their time in investments. But credit unions are particularly well poised. They are very interested in consumer lending. They have a lower cost of capital. Generally a lower cost base. What we bring to this environment and what we hope to do is to extend the leadership position of credit unions here by bringing AI-based technology to that world. So if you've got credit unions who are very good and interested in consumer lending, low cost of capital, but what they're going to need is modern-age technology including AI-based lending models in order to lend to more people and to drive costs down.

CU Times: Can you name some challenges credit unions are having in growing their loan portfolios and even their membership?

Lock: One of the challenges, once you kind of turn lending off for a little while, you've said ‘no’ to a bunch of people. Turning it back on is not so easy. The second thing is, I think it's a macro thing. It is a very, very noisy consumer world we live in. So getting noticed in this environment is harder and harder. And I think credit unions have traditionally always said, ‘Hey, we're the best kept secret!’ Well, that's not an awesome thing in a very noisy world.

Credit unions have an excellent consumer mindset, very good products, but are not as well known in the marketplace and potentially are not the greatest marketers in the world. I think most CEOs are going to say, ‘Hey, we don't attract the best marketing talent’ and I think those are the challenges. And hopefully Upstart, not only in our underwriting models and in our verification models can help here, but we can also help find increasingly digital American consumers for credit unions.

CU Times: Can you explain what Upstart’s ‘T-Prime’ is?

Lock: This is a product that is focused on the super-prime segment of personal loans. So, in the history of Upstart, we often played in the near-prime space. We’re really good at using AI to find borrowers who were near-prime, 680-type credit scores who were actually low chances of defaulting. But in this environment, credit unions are looking for more and more super-prime customers; not only to loan money to them with lower default rates and lower CECL charges, but when they want to convert that person to being a full-time member, it's obviously better to have somebody with a better credit history. And so we introduced a product called ‘T-Prime’ last July. It is the fastest growing product that we've ever had at Upstart and very popular with credit unions right now.

CU Times: What advantages do credit unions have by targeting super-prime members?

Lock: First of all, as CECL got introduced to this environment, making loans with riskier loans with higher default rates, which has traditionally been a strength of credit unions, is now not as economically advantaged when you have to take the losses all up front. So therefore, being in the super-prime space makes a lot of financial sense. The second thing, increasingly credit unions look to use lending as a wedge to get new members.

And then lastly, the fintech space, and particularly companies like SoFi and Chime – they're after all the credit union customers. So if you don't get in that space right now, SoFi is doing about $5 billion a year in personal loans. And then using that to convert those borrowers over and take the depository relationship. So all those things are important for credit unions to be focused on the space and they certainly don't want the neobanks to end up taking the credit union share.

CU Times: Do you have a T-Prime success story?

Lock: We have 30 credit unions on the platform, on T-Prime. Our largest credit union customer, Alliant, who was really the foundational partner for us on the T-Prime program, they've been very successful with it, both in terms of loan volume and in terms of credit performance.

CU Times: What does active member cross-selling mean for credit union relationship building?

Lock: What our credit unions have said to us is as Upstart sources and funnels loans to them, they also want the member and they want them to be an active member, right? Like, they buy a second product from them, use their credit card, and of course, eventually move over their depository relationship and have them be the primary financial institution. So what we did is we went and talked to about five credit unions of our 80 doing this extremely well. We documented their best practices about how they were converting those people over, and then applied some of our technology to it.

And we now have this program and a playbook which we're about to release in about a month. To credit unions, we'll be able to say, ‘Hey, if I'm sending you 2,000 members a month or 2,000 members a year, how can you convert 20-30% of those over to a more active member?’ And I'm very excited about this because credit unions are having problems getting new members. And the way we, in credit union land, have traditionally gone after getting new members is we try to go after the depository relationship right away and we sponsor the little league team we like. Right? But that isn't the pain point for many American consumers! They're not sitting around going, ‘Yeah, I think I would like to move my checking account.’ Because they don't have any dissatisfaction.

But when you take a personal loan from a credit union through Upstart, you're often reevaluating your financial life and you say, ‘You know, I'm paying off my credit cards.’ And if a credit union is going to say, ‘Yes, but you probably should have a better savings account. You shouldn't have a high fee checking account. You shouldn't have a credit card that has high fees and low rewards.’ It's actually an excellent time for somebody who's taking a personal loan to actually try to convert those people over.

Lastly, we're introducing some technology. It's not quite as hard using technology to convert the depository account as we all think it is. I think the popular view in the credit union and banking business is: ‘No. It's so hard to move your depository account!’ Well, by using technology, you can actually within six clicks, set up a checking account because you already have a share account.

So you can set up a checking account, you can move your paycheck over, and you can move all your bill pay over in a matter of clicks. If you can do all that and make it less painful, that predominantly overcomes the reason that people think they won't switch. And the final thing I'll say is I think it's hard for boomers to move their checking account, and some of that's just psychological. It is not hard for Gen Z and their mindset would be credit unions have better products in many cases. I think we could help credit unions get younger members too.

CU Times: Why do you believe the personal loan through Upstart is such a prime opportunity for credit unions?

Lock: Well, first of all the personal loan, to a certain extent, is a bit of the poor stepsister or poor stepchild. It's among the smallest lending categories, although a growing lending category. The actual fact is personal loans are loved by consumers for debt consolidation for unexpected payments. And in a world where the vast majority of Americans live paycheck to paycheck, it's an absolutely essential product. So if you want to make consumers happy, you should be in this category. And then Upstart tends to do personal loans better, faster and cheaper than everybody else.

By using AI-based technology, we can approve more people. We can approve you really quickly and so we instantaneously approve you and we can put the money in the bank account the next business day. So when a credit union signs up for Upstart, they get a very happy customer; getting a product that generally isn't available in the same way from that perspective. And when you have a happy customer who has come over to buy one of your products, it's a lot easier to try to sell them more products.

CU Times: Why is your T-Prime product and HELOCs such a strong connection?

Lock: In the rate environment that we are in now, and also given the housing market, people are definitely staying in their houses for longer. New home sales are down because nobody wants to take a mortgage out. But at this rate, with the run up in housing prices, there are a lot of Americans with home equity.

You need money for debt consolidation, unexpected expenses, medical debt and it makes sense to tap into that home equity rather than to take a personal unsecured loan, which is going to be more expensive. So that’s the thing that makes sense. And so what we've done by offering both products is we can we take a single application and say you need some money for whatever your needs are. We're going to take that [application] and we're going to ask you some questions. And if you have home equity, you'd be much better with a home equity product than you would be in a personal loan product because you're going to save 200, 300, maybe 500 basis points on that. So they really should be almost sister-like products. To that extent, I think we are going to see the HELOC category being a very robust growth area. I can tell by talking to people here. Simply because people are staying in their houses much longer and not trading up. And I would expect that to be a multi-year trend.

CU Times: I want to nail down why home-equity lending might be a lower risk avenue for credit unions. Can you speak to that?

Lock: I think every CFO here at this conference is more comfortable with secured lending than they are with unsecured lending in this environment. And, you remember, many credit unions have almost record levels of credit card portfolios. They’re very high as Americans have spent and spent. So the idea of then complementing a high credit card portfolio with a secured asset with of course, the default rates on the HELOC product being much lower because people are afraid to default on it. If you default on your car, well, you're going to lose your car, but if you default on your home that’s another kettle of fish. So the default rates are very low. For almost every credit union here, if you said, ‘What kind of members would I want?’ They would say, I would like homeowners. They tend to be the type of member that can be more productive for a credit union rather than renters.

CU Times: A big credit union issue and topic is AI. How is Upstart approaching AI?

Lock: The wave of AI that we have seen, we're really just at the beginning stages of this thing, and it's accelerating. I can't say it enough to people that the amount the world and the business world is going to change by the application of AI. And the thing that Upstart does, which is apply AI to consumer lending, is we're only at the beginning stages of that. And of course, I used to say in 10 years from now, all consumer lending will be done with AI-based models because they're much more accurate. Right now, I'm starting to think it's in three years because the curve is happening and happening so quickly.

So at Upstart we have now introduced new models in each of the last quarter that have improved accuracy by greater rates than we have in the entire 13-year history of the company, simply because of the hardware, the new sets of algorithms, the new data that's available. So we're actually seeing accelerated rates of accuracy. And we would expect that to continue to the point of if you're not using machine learning and AI models to do consumer lending, you're going to be very far behind.