By John San Filippo
In what is a recurring feature, Finopotamus, in cooperation with NACUSO, profiles credit union service organizations (CUSOs) that offer innovative technology combined with the credit union ethos of people helping people. This is the last of four installments on the CUSO of the Year winners announced at the recent NACUSO Network conference. The four winners were:
Zest AI – New CUSO of the Year
LenderClose – Contemporary CUSO of the Year (recognizes CUSOs with a fintech business model, including non-credit union investors)
Prodigy – Traditional CUSO of the Year (formerly CUSO of the Year before other designations were added)
Member Driven Technology – Distinguished Service CUSO of the Year (recognizes long-term, consistent commitment to the credit union industry)
According to Zest AI’s Chief Operating Officer Dan Chiazza, the company got its start in 2009 when two technology veterans – one from Google and one from Capital One – decided that some of the artificial intelligence (AI) concepts that were used to keep Google running could be leveraged for better loan underwriting. The problem was that at that time, AI was still largely untested in financial services and, therefore, major lenders were unwilling to sign on. Thus was born Zest Cash, a direct-to-consumer lender that relied on the company’s own AI-driven underwriting engine.
The Leap to B2B
“The idea was to prove that the concept could work,” Chiazza told Finopotamus. “We took a lot of those years to develop the software, to perfect the software, and especially to make sure it would stand up to regulatory standards.” He said that by 2018, the company was ready to bring its product to market, but Zest AI initially only targeted larger banks and other similar sized financial organizations.
“When you're talking about things like AI and lending, you're not going to go knock on a credit union door in 2018,” said Chiazza. “Even the bigger banks were a little bit skittish at the time. But we had some early success through some relationships. For example, Discover was a customer that signed on pretty early. Freddie Mac signed on shortly after that.” He said that credit unions didn’t appear on Zest’s radar until 2019.
It was in that year that Zest AI formed a relationship with VyStar Credit Union through its Chief Lending Officer, Jenny Vipperman. “Jenny invested her trust in us as a technology partner, and eventually invested the credit union’s money in us as an investment. Jenny's now part of our board,” explained Chiazza. “That's how we became a CUSO.” He said Zest’s CUSO status became official in 2021.
Pivoting to Credit Unions
“VyStar was our first credit union customer, and as far as I know, the first credit union to implement AI in lending,” noted Chiazza. “The relationship got pretty deep, pretty quickly, just because we had a whole team on it. We had good chemistry with them in terms of what they were trying to accomplish.”
Despite a substantial credit union investment and its new status as a CUSO, Zest AI’s decision to focus almost exclusively on credit unions came later. “Learning about credit unions and working with credit unions and getting to understand them better drove that decision,” said Chiazza. “When you line up credit unions, their member base, and their mission versus banks, it just made a lot of sense based on where our business is going. We made a decision fairly recently to focus almost exclusively on credit unions.”
He continued, “What it comes down to is that credit unions are a much better cultural fit for Zest and the way we do business.”
Getting It Right
Chiazza acknowledged that Zest AI now faces a number of competitors. He said that credit unions considering AI-based lending should consider three important factors in selecting a partner. The first is a strong focus on compliance. “We've spent many years making sure that our software can stand up to any of the regulatory bodies in Washington,” he said. “We are very serious about that.”
Second, credit unions should look for a partner that offers custom-tailored AI models based both on industry and geography. “Our models are tailored to the customers that we serve. It's not just a general model,” explained Chiazza. “A credit union in California, for example, is going to have different members, and therefore different underwriting criteria, than a credit union in New York.”
Third and perhaps most important, Chiazza said to search for an AI lending partner that looks beyond just delivering software and truly wants to help the credit union succeed. “We have a dedicated customer success team that's assigned to every single customer we serve,” said Chiazza. “They're there to answer questions. They're there to help think through how to best utilize the system. They’re there to share our expertise and things that we're seeing in the market.”
According to Chiazza, Zest AI and credit unions are a perfect match. “Our primary focus is on fairness and inclusivity,” he concluded, “just like credit unions.”