By John San Filippo
On August 17, 2022, artificial intelligence (AI)-based loan decisioning provider Zest AI announced a formal partnership with Equifax. According to the announcement, this relationship allows credit unions to directly access AI underwriting models using Zest AI's software alongside the Equifax consumer credit report, similar to how credit unions currently access national credit scores. This connectivity will allow credit unions to choose AI-powered underwriting, automating most of their lending decisions without any IT modernization projects.
“As credit unions strive to be even more responsive to their members, Equifax and Zest AI’s partnership gives them the ability to automate more inclusive lending outcomes and expand credit access, so that they can continue community-focused services their members expect," Zest Senior Vice President of Partnerships Jose Valentin said in the announcement. “Credit unions are leading the charge among financial institutions to further financial inclusion and bring greater transparency and innovation to lending. Zest AI is excited to partner with Equifax to help them do just that.”
Finopotamus spoke with Valentin to add clarity to the announcement.
How Is This Different?
“Whenever a credit union member is being evaluated for credit, there is typically a credit report pulled and that credit report has quite a bit of information in it,” said Valentin. “It has a national score. It has information about trade lines, inquiries, public records. But what happens in the underwriting process is that all of the information in that report about how that consumer interacts in the financial system is largely ignored.” He compared that approach to underwriting to a low-resolution printer.
“When we were looking at printers 20 years ago, we’d ask, what's the dots per inch? Today we don’t even talk about printer resolution because the technology is so much better,” said Valentin. “But in credit decisioning, resolution has been poor for a very long time. Credit union members have largely been reduced to three or four data points.”
Valentin challenged anyone to describe their favorite person in three or four words. “You'd probably be like, man, I wish I had a few more words,” he noted. “I've got a lot more to say about this human that I love.” He added that credit unions using legacy underwriting are in a similar position.
“Credit unions really do want an opportunity to give more members access to credit, but they can only do that with a higher resolution picture,” noted Valentin. He said this is especially true in the post-Covid environment when many, if not most, member interactions are not in person.
“Members want instant decisions,” explained Valentin. “They need the financial products when they need them. So at Zest, we’re acting as an enabler to let that credit union increase the resolution with which they evaluate their members for credit, by consuming more of the data that’s available about them.” He added that a human underwriter couldn’t evaluate that massive volume of data even if they wanted to, whereas the Zest AI system can render a decision in a fraction of a second.
Better Data, Better Integration
“We're able to empower the credit union to use more data and Equifax has lots of data assets to bring to bear on a credit risk decision,” said Valentin. “Secondly, and I think most importantly, is the ability to minimize the friction with which credit unions can improve their decisioning.” He said that when considering a major upgrade to their lending systems, credit unions are often faced with large IT projects, but such is not the case here, especially if the credit union already uses Equifax as its credit bureau.
“When making improvements in credit decisioning, there’s usually going to be infrastructure and systems questions involved,” said Valentin. “In partnership with Equifax, we're able to help the credit union use more data and better math to make a better decision, and also avoid the systems integration problems that come with improving the member experience. Equifax is able to deliver the inputs from Zest into that decisioning process directly through the current report that the credit union is already purchasing. The credit union can then ingest that into decisioning in a seamless fashion, without having to go through an infrastructure modernization or an IT project.”
Asked by Finopotamus whether this partnership changes anything for credit unions that are already customers of both Zest AI and Equifax, Valentin said it depends on the nature of the existing integration. “If a Zest customer is already live with one of our loan origination system [LOS] partners, they already have a decisioning process in place,” he said. “They probably will not move to this new ecosystem. This is a new option for incoming credit unions. [This partnership] makes underwriting LOS agnostic.” He stressed that the Zest AI platform can integrate with any credit union environment, regardless of LOS or which credit bureau the institution chooses to work with.
What Comes Next?
Valentin said that while the partnership with Equifax is the first of its kind, credit unions should expect more partnerships and more innovation from Zest AI.
“There's a lot more to come from our perspective,” added Valentin. “We will continue to build partnerships that make it easier for credit unions to make better decisions, to be more inclusive in their lending practices, and to say yes to more members. I definitely want this [partnership announcement] to have its moment in the spotlight, but there's more to come.”
Valentin distilled the Zest AI mission to one simple credo: “More data and better math will generally yield a better decision.”