AI Showing Us the Next Frontier of Credit Union Lending
By Seth Brickman, CEO, QCash
July 6, 2023
So unless you have been living secluded in a secluded cabin in Antarctica for a few years, artificial intelligence (AI) has become a practical, everyday digital resource available in many consumer-facing business applications.
It seems as though AI can do nearly anything: composing essays nearly instantaneously like ChatGPT, formulate a picture, face recognition, and even better – evaluate credit risk. Even at this early stage in its evolution AI is proving to be quite powerful, enabling ever more powerful computer networks to become more affordable and making information so much more accessible. But don’t you worry – a Terminator-level, T-800-generation android or SkyNet computer network is not in the cards for this world and will stay a brilliant, if nerve-wracking, piece of genre-defining science fiction moviemaking.
Without a doubt, AI and machine learning will dramatically alter nearly every industry. But for the credit union mission, lending offers a distinctive opportunity to disrupt the entire lifecycle and improve the experience for members and credit unions alike. AI can expand upon member application approvals while lowering cooperative losses and fraud rates. Such improvements result in strong growth and a better bottom line.
A number of studies by the Digital Banking Report found that executives believe AI offers a legitimately competitive advantage. A McKinsey global survey from 2021 centering on AI discovered that the number of companies reporting AI adoption had increased to 56 percent. In short, your financial services competition is ramping up.
Powered by clear yet compound equations, AI can be easily described as tools that help people perform their jobs better than existing processes while helping us fulfill our goals with much greater speed and accuracy. So, how could AI and machine learning significantly help your credit union? We listed some of those areas below, with a little help from CUInsight.
Credit Underwriting and Decisioning
Let’s just say faster credit decisioning is being made whole a lot faster with the use of AI. QCash’s digital small-dollar lending AI decisioning engine allows a 360-degree evaluation of a member’s relationship with the respective credit union. This tells a more complete story about the member’s relationship with the cooperative and their dependability to repay. Even with all that work to do, QCash enables applications to be approved and the loan amount deposited in the applicant’s account within 60 seconds.
AI also allows for credit union leaders to approve more applicants without actually increasing risk of loan loss. According to a research paper by Harvard, the authors determined when studying known metrics for borrowers’ creditworthiness like traditional credit score and current income, such metrics may not paint a full canvas of creditworthiness in the future. Predictive models have the ability to assess factors beyond credit scores while exposing “hidden prime borrowers,” or creditworthy loan borrowers who remain unidentifiable by traditional, or one-dimensional, methods like FICO scores. Essentially, AI enables credit unions to borrow money more inclusively.
Cooperatives can put AI and machine learning to good use in identifying high-risk applications that can be instantaneously approved without the risk of increasing fraud. This opportunity can be accomplished using predictive models that employ third-party tools and data sources.
So how can financial institutions turning to AI reverse past discrimination and, instead, offer a more inclusive financial economy? In Harvard Business Review’s work with financial service companies, they found the key lies in partnering with (or building) AI-driven systems specifically designed to encourage less historical accuracy and greater equity. That system means training and testing those systems not simply on the loans that have been approved in the past, but also on how the money should have been lent in a more equitable world.
Attaining and maintaining your credit union’s membership is centered around providing the best offer or product to the member at the correct time. By assessing a lending borrower’s transaction, credit history, or perhaps even in-branch attendance, AI and machine learning algorithms can put forth the optimal product or creditworthiness or even the time to offer such a product to the borrower to ensure the highest probability of engagement, success or even opportunities for credit-building.
By using AI and machine learning, cooperative executives and department leaders can predict with much greater and ever-improving accuracy who will show up as delinquent, or accurately target messaging that can warn borrowers at risk of defaulting on their loan agreement. By using the contemporary tools now available to hold a better idea who is more likely to default using AI, credit union staff can better specify their messaging and points of emphasis. This fintech will help those credit union leaders to prioritize borrowers who are more at-risk as opposed to those who are lower risk.
Considering AI and Machine Learning Rapidly and Thoughtfully
Digital lending accessibility and experience is now par for the course in today’s financial services industry. Credit unions now have the capacity, agility and availability to employ fintech partners like QCash to leverage the rapid and thoughtful adoption of AI. Even as credit unions typically have smaller budgets than profit-focused banks, partnering with malleable but established fintechs provide member-focused credit unions the potential to rival even the biggest financial institutions in the U.S.
But in order to find success using AI and machine learning, credit unions need to wisely consider the challenges they have chosen to solve for their members and be creative in the ways they handle the risks they want to take on.
There are so many industries that will benefit from Ai and machine learning, but lending is near or at the top of that list. The cooperatives that can find their way and implement this fintech into their cores early and with the right partner will witness monumental triumphs in the form of financial inclusion, increased memberships and credit union satisfaction scores and testimonials for years to come.
Connect with QCash to learn more.
QCash Financial offers relationship-based small-dollar loans. The CUSO’s lending platform enables credit unions to help their members responsibly when they face financial challenges from unexpected life events. From application to account funding, the process is complete in under 60 seconds, no credit check required, and completely digital, needing no effort from staff. When life happens, be there for your members anytime, anywhere and from any device.
Ready to level-up your members’ experience? Consider Life Event, Specialty, and Financial First Responder Loan programs, all using QCash’s patented relational underwriting.