The use of artificial intelligence (AI) and machine learning (ML) isn’t some futuristic idea. It’s here now and being used to make good banks better — whether to eliminate discrimination in lending decisions, add stability to existing screening systems or drive loan growth and profits.
“It’s not an idea, it’s not a postulate. It is a fact — and we can prove it,” Zest AI CEO Mike de Vere told PYMNTS in a recent interview. “We have demonstrated that for our customers across all of our machine-learning models, you can have your cake and eat it, too.”
In this case, the “cake” is the improved performance and economics that many banks experience when they update systems that in some cases have been in place since the 1950s. “On average, our customers will see a 20 percent lift in approvals and a 30 percent reduction in charge-offs just by deploying better math,” de Vere said.
$15M In New Funding
Those are the kind of numbers that explain why Zest received a $15 million investment last week from software developer Insight Partners.
De Vere said part of the proceeds will fund a technology push to further develop software and make it more broadly available. The rest will go toward developing partnerships with governments and regulators “to raise the bar” when it comes to modern, unbiased lending.
Ensuring Inclusive Banking
De Vere said one key thing AI and ML can do is help remove bias based on race, gender, age or other factors from the credit-approval process.
He said everyone in banking — from small credit unions to giant U.S. or European banks — “is talking about inclusivity. … It’s hot right now.”
While governments and regulators are partly responsible for the current bias-fighting trend, de Vere said the real push is coming from the banks themselves.
“More and more companies are actually just doing the right thing and doing it because they want the opportunity to do well by doing good,” he said.
The COVID-19 Catalyst
And while de Vere said that the pandemic’s first few weeks were terrifying for his company after shutdowns began in March, “something crazy” quickly started to happen.
As he explains it, COVID-19’s unprecedented turmoil caused banks to reprioritize the use of AI/ML in lending, rushing toward anything that could provide stability.
De Vere said that when he’d ask banks the “why are you suddenly doing this now?” question, “I was almost selling against myself. The fact is, they had a belief that by deploying machine-learning underwriting that they’d be able to create a more durable lending system that could weather the storm.”
De Vere added that one thing about using ML in banking decisions is that it can adjust to changing conditions. “The time for machine-learning underwriting is now, especially with the uncertainty of COVID and the uncertainty of next year’s economic environment.”
ML Is ‘Where It’s At’
De Vere said when he shows would-be clients that his company’s ML software package offers a 10- to 50-times return on investment, “it becomes a very easy pill to swallow.”
And as a bonus, the software can remove any bias in lending. “They’re able [to] say: ‘I’m going to get to be more fair in the marketplace and lead other banks in that area,’ ” he said. “It’s pretty much a no-brainer.”
De Vere said that when he sits down with large banks that might have 1,000 data scientists, “we’re all talking to each other and everyone knows that machine learning is where it’s at.”
Even so, he acknowledges that banks have a reputation for being slow to change, as well as deep organizations that require many different stakeholders on board — including legal, compliance and business/credit risk.
De Vere added that even small, independent lenders present their own challenges to essentially the same set of problems. However, he said firms get comfortable with the technology once they see that they can access, build and deploy AI/ML underwriting models that meet all compliance and regulatory hurdles.
“That’s our future,” de Vere said.
The Gold Standard of Inclusive Lending
De Vere isn’t bashful when it comes to talking about Zest AI, its mission and product/market fit.
“We are the gold standard in this,” he said, noting the company’s mission is to expand and make credit fair, transparent and even for everyone.
De Vere said that between regulatory forces impacting banks on one side and FinTech innovations pushing things on the other, banks are making societal improvements in lending whether they expected to or not.
“The fact is, we can do better,” he said. “We really can do better.”