The Fatal Flaw in Upstart CEO’s Vision for AI Underwriting in MCA: A response to Upstart’s view of AI in underwriting

This industry critique examines the tension between AI-driven automation and human judgment in high-risk lending. For retailers and operators, this debate matters because it directly impacts your approval rates and the stability of your financing partners. The core argument is that while AI excels at processing massive datasets, it struggles with 'black swan' events and the nuances of small business behavior that a human underwriter might catch. If you rely on lenders who use 100% automated AI models, you may experience 'model drift.' This is where an algorithm starts approving risky customers or rejecting good ones because it lacks real-world context. This can lead to sudden spikes in defaults that might cause a lender to pull out of your industry overnight. The author argues that for specialty financing like Merchant Cash Advances (MCA), a 'human-in-the-loop' approach is safer than pure AI. For your business, this means the most reliable financing partners are likely those using AI to speed up the process while keeping experts involved to handle complex cases. Don't be swayed by the 'pure AI' marketing without asking how the lender handles unpredictable market shifts.

Source: deBanked

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