Zest AI can help you recession-proof your business by decreasing defaults, increasing yield, and improving resource efficiency

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For many consumers and lenders alike, the question of an upcoming recession is not if, but when.

We’ve been hearing it in the news. We’ve been closely monitoring economists, our own organizations, dotting our i’s and crossing our t’s. We were told there will be a recession in six months, six months ago, and we’re being told the same now.

What if we told you that no matter what the future holds, we’ve got your back?

In 2022, Zest AI partnered with the Harris Poll to ask consumers of all ages and backgrounds how they feel about their credit, current lending practices, and the financial institutions they would like to do business with. Nearly 80 percent of respondents said they were fearful of a recession in the near future.

And who can blame them? Consumers have felt the monetary squeeze for years now at this point, from the impact of the COVID-19 pandemic, rising interest rates, home prices, inflation, and supply chain issues — meaning even household items like eggs and medications have been impacted.

Yet, even with these anxieties looming over their heads, people still feel optimistic about their credit unions. More findings from the Harris Poll revealed:

• 85 percent of credit union members believe their credit union cares about them.
• 82 percent of credit union members think their credit union cares about their family’s financial well-being.
• 85 percent of credit union members confirm their credit union supports them with useful products and services during harsh economic climates – nine points higher than the average response, which included members of national, regional, community, and online-only banks.
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These survey results ring loud and clear — members trust their credit union to help them navigate recessions. With AI-automated underwriting, credit unions can further solidify that trust by providing immediate decisions and support in any economic climate.

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Automated credit underwriting can decrease defaults

Zest AI built a time machine. Using a model trained with data from 2005 and 2006, we tested how Zest would perform against the industry scoring model used during the Great Recession, from 2007-2009.

Through this time machine experiment, we found that Zest AI’s technology is roughly one-third more accurate at predicting delinquencies across consumer loan portfolios than traditional scoring methods. If lenders had been able to choose Zest’s technology in 2008 (a pretty important excuse being that we were founded in 2009), they would have faced fewer delinquencies in personal loans, auto loans, and credit cards than if they had chosen to work with industry scores.

More accurate insights allows more members a fair shot, meaning that someone who desperately needs a loan to afford groceries can get one. You might still say no (or yes!) to riskier members, but this time, you’ll know who is actually risky. Knowledge is power here — you can make a fully educated decision when lending, ensured that it’s the right decision for everyone.

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Automated credit underwriting can increase yield, even during recessions

During recessions, credit unions tend to pull back and only lend to their A-tier members. This makes sense because the industry score was the only method credit unions could rely on and it didn’t give much hope to those in the other credit tiers. Now, we know that better methods exist. We also know the industry score is not as accurate as AI-automated underwriting at predicting members’ level of risk, especially during uncertain times. In previous recessions, credit unions leant to A-tier members who, in reality, actually carried a high level of risk and defaulted on a loan, but denied B and C-tier members who would have paid their loans consistently.

Credit unions and members both lost. Credit unions lent out and lost money, and members couldn’t get the loans they needed.

Increasing your yield means credit unions have more money to lend to members when they need it most. With Zest AI, you can keep your risk levels the same and still increase approvals by 20-25 percent. So when your yield improves,  you can confidently say yes to more members. You can bring more people in the boat and keep yourself afloat.

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Automated credit underwriting can improve resource efficiency 

With a resource efficiency gain of 67 percent, loan officers are freed up to devote more time and resources to better serving members.

Remember those A-tier members who, in reality, carried a high level of risk? The industry score hasn’t given them a fair shot either. Those members, who never needed assistance before, now need it more than ever. That’s where your loan officer can fill in the gaps and get each member back on track.

As we’ve concluded before, 85 percent of credit union members believe their credit union cares about them. Why? Time and time again, it’s the personable approach, flexibility, and heart that encourages members to keep coming back to their credit unions. When your loan officers can provide an instant decision, they gain time to open up discussions, offer advice, and create an even stronger connection with their members.

Efficiency is not only good for business, it’s good for members, too. More time and resources means an increase in the amount of decisions made each day, and the opportunity to make good on the trust credit unions have built.

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We’ve got your back, so you can have your members’ backs 

At Zest AI, you’ll often hear us saying that automated credit underwriting will delight your members. This is a statement that can still be true — instant decisioning creates an incredible member experience — even during a harsh economic climate. But as a credit union leader, you know that your work can be even more impactful, especially when members need you most. During an economic downturn, credit unions can be the difference for a family that otherwise would miss mortgage payments, falling further into a cycle of debt and financial instability.

Zest AI is here to make that crucial support smarter, more inclusive, and more efficient. Make faster decisions, expand access, and create happier members — any time, anywhere.

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Aaron Long — Head of Business Development

Aaron is a native of St. Louis MO and currently resides in Atlanta, GA with his two teenagers. He believes people are the core of every business and if you invest in them, you are investing in the long-term success of your company. Aaron has spent over twenty years leading teams that are motivated to win together and partnering with clients to ensure their success.