Leaders in Lending
Leaders in Lending

Episode 49 · 6 months ago

How to Approve More Borrowers & Lower the Cost of Lending with AI

ABOUT THIS EPISODE

With the help of AI technology, the subjectivity with approving or denying borrowers for credit has been removed and replaced this with objective reasons that every person can work to improve if necessary.  

In this episode, Margie Click, CEO & President at Agriculture Federal Credit Union, explains how lending has changed and how AI can help institutions lend more inclusively while minimizing risk.

We discuss:

  • The 4 Cs of lending & creditworthiness
  • Finding the right fintech partner
  • Seizing the opportunity in unsecured loans
  • The evolution of fraud

To hear more from Leaders in Lending, check us out on Apple Podcasts, Spotify, or on our website.

Listening on a desktop & can’t see the links? Just search for Leaders in Lending on your favorite podcast player.

There's individuals that are getting a better price loans that they would have been if they would have come in house in the traditional sense, or they would have been denied. You are listening to leaders and lending from upstart, a podcast dedicated to helping consumer lenders grow their programs and improve their product offerings. Each week here, decision makers in the finance industry offer insights into the future of the lending industry, Best Practices around digital transformation. In more let's get into the show. Welcome to leaders and lending. I'm your host, Jeff Keltner. This week's episode features my conversation with Margie Click, the CEO of agfed Credit Union. This was really interesting conversation. We started with some of Margie's history in the industry, the forces of credit as she was taught them when she first started in the business, how that's kind of evolved, both in terms of how we think about credit worthiness of people in Evaluating Credit Applications, but also, I think importantly, the kinds of products consumers are looking for and how they're looking for them. She also talks about kind of the FINTECH partnerships, why they're important for institutions like hers, how to find the right partner, what to be looking for, for the right fentype. Part of that can help you meet your objectives, and we really did delop into a little bit of ai and how it's kind of enhanced. Capabilities are really almost inevitable, I think, in the way she describes them, because of their impact on the business, but also can be beneficial to consumers and institution tuitions, and I think that's a really interesting so it's a really fascinating conversation looking at the history of the banking industry at large over a pretty good period of time and I think it everyone has a little something to learn from marges experience. So please enjoy this conversation with Margie Click, the CEO of AG Fed Credit Union. Margie, welcome to the podcast and thanks so much for taking the time to join us well here. Thank you for asking me. Yeah, I'm looking forward to the conversation. Before we dive into some of the specific topics, I want to ask how did you get into the credit union...

...space, the banking space? Like, I don't think most of us grow up thinking I'm going to be a banking executive when I grow up. What was what was your journey to this place did how did you kind of end up here? Well, I ended up at and one of those very old tender stories. I started as a teller many years ago. HMM. So at that time in the sagans alone to I come from the banking industry. Started as a teller and a savings alone. That's like you seen the whole spectrum of the business then. Yeah, trust me, a lot of history and I ended up I was always some the coincidentally, always on the automation part operation side, and I worked, ended up working propriser number of years. I was a conversion alost and studied systems and everything, and then David's alone basically hired me and move me out here until they went under. That's when all the states and ones went under. HMM, and I came I worked for Regulatory Agency for a short bit and then I came here to this credit use, the first and only credit union I've been with, because I reminded me at the time that it was in the early s of the old savings alans before they got deregulated. So it was exciting so to see the development in the growth. We were only about sixty million then. Now we're close to four hundred. Wow, that's a lot of growth. Yeah, it is, but it's been fun and it's more been organic growth, you know, and it's a crill. I've loved what I do. Well, you were telling me from your background the old four seas of lending, and I know the four piece of marketing, but I guess I'm so new to the lending industry I don't know the four seas of lending, which kind of the historical way we looked at in evaluating credit. Tell me a little bit about the four season lending, the four seas of lending, and that's what used to learn and they in school was as far as credit collateral, character,...

...which known which is now known as capital, which is cash, and capacity. Capacity. Yeah, capacity, me, how much you make characters. This was the this was the criteria upon which you evaluated loan applications of forces correct and you used to credit report and you just scan through it. And then back in the S it was they introduced for space, price seating credit scory. So that's in a manuals or is sense's when they started pricing to the credit scory. They old I'm not sure you ever heard of reks Johnson in the londing industry, consumer lending. So that was he introduced that tear and mentioned many of his lending schools. So interesting. It's fascinating thing about lending. It in a day before the credit score was the way we primarily thought about credit worthiness, back when you had to do it a little bit more by hand, and in those days they would look at the person facetoface. It was depending. I mean I don't want to date myself, but if you were married and didn't have a job, you wouldn't get alone. HMM, that proved you will get a credit card, you know. So there was a lot of different criterias of that was done. That was not part of your character. They were probably varied quite a bit from loan officer to lone officer in terms of how they applied the four season. That probably not as consistent and uniform as we would we would hope for lending a come. Absolutely I know for a fact it was not. Yeah, it's fascinating think back back to such days having seen that changeing. Obviously it's a different approach. How do you think about the shifts and how we're valuating credit worthiness, moving to credit scores and in other ways of looking at assessing credit worthiness. Oh, I actually think that in some respects it's improving. It's not only more efficient, but I think in a sense it can be considered...

...much more fair. Just sitting down and when they added the credit scores to the credit burols and you were pricing, it was much easier to explain to an individual that show them the report and show them this is why. And just like a auto insurance if you got into an accident, you made a mistake at you got to pay for it, but you can, you know, build yourself back up and rebuild it and, you know, reprice bat down. So again, that was still manual, but that was with the credit score. So I feel as if it actually removes some of the subjectivity that I don't think right. Like it's it removes the fact that, okay, this person is isn't dressed properly, but could be a millionaire. I mean, for lack of better thing, a simple example. Yeah, very simple. I think it makes it much quicker. It's prices it better and I think in some respects, at least what I've seen thus far, there's individuals that are getting better price loans that they would have been if they would have come in house in the traditional sense, or they would have been denied, and yet they get the loan elsewhere. Yeah, that's the thing I always try and keep in mind when I think about the specifically a but any kind of kind of advanced analytics, when you think about credit underwriting, is so many more people are are good credit risks than look that way. I mean, you know, you look at a subprime pool of loans and the vast majority those people actually will repay loans, will not default, and so you know there's lots of good borrowers. And so whenever you can make a model that's more accurate, and may feel like a business reason like it's more I get more more yields or whatever, really a more accurate model will approve more people in lower the rates for an average consumer because most people are credit worthy and it's better able to identify them in that that's ultimately good for consumers.

If we can go into a world where we're proving more people and lowering the cost of borrowing, that feels like ultimately what we really should be striving for as an industry. I agree. And as well as what's the good part about it as well is that it also brings the reward. I mean the pretty union industry is about help, helping people. That I think the more people you're able to help and the more loans you get to do, you also make enough money that you can support to sustain whatever individuals were unable to. And it goes back into the whole capital one when they first introduced the massive credit cards at everyone that they were not. Now there go. Yeah, yeah, yeah, that's it's so true. If you can make the business more sustainable, you can. You can reinvest those profits into the right the other programs. So talk a little bit about fintech partnerships. I mean I know you guys have kind of walked down that path and and your you know, I think by you're on description of a conservative approach to a lot of the banking space, and FANTAC is maybe not a conservative way to go. So I'm curious how you think about finding the right partners, the right areas for partnership and evaluating where you want to make that kind of partnership versus, you know, staying away from a space or building something a house. Well, I think that for the past, it would say past twelve to eighteen months, covid change would you see in every article, everywhere. COVID change everybody's life and change the approach to everything. And you no longer could sit there and be pure, you know, paralysis by analysis, sit there and wait for things to happen. You had didn't have a choice. We had to make quick way. You had to make some quick decisions, and that there was a point. It was a point in the past, past year, that I said either you're going to fight the change or you're going to embrace it and run with it. And we made the decision to...

...embrace it. And then we started looking at different fin text or companies that call themselves in text that really aren't, or companies that don't call themselves in text but they are who really are. Yeah, and trying to find out what made us feel comfortable. I mean, we go through, as I mentioned, or they were very we're known as being very conservative, very very conservative, and you practically have to be stellar to get an unsecure loan with us. That's we've if anything, we've gotten criticized as our denial rate of insecure loans. So, anyway, going through and doing the due diligence and finding out the relationships in the analysis that the Fintech has gone through and the detail process and procedures, what they go through for themselves and not necessarily just to make the deal. We had. Ones will just make the deal, you know, the more question, to ask, more question, to ask more. They didn't want you with basically what it was. We ask a lot of questions and I can remember one company basically telling us that we're just too much, we're just too much to be different. I mean, they didn't want to deal. And then when I was dealing with and it's Carl but up starting, he he was selective and he was interviewing us as we were interviewing making sure it was a good partnership. And I guess when I do my interview for hiring people, that's how I like to do it, is make sure it's a good partnership. It's not just that I like you, but that you like how we do things and operate so that way you can be a sucute success. And that's what I guess set up start against...

...the other and today's which I won't name the names, and naturally I look as a bend or relationship as well. I mean because you're trusting these vendors and they're representing new and I had my whole executive chain going through the process and we thought, because pricing is always, you know, you do, always are trying to get more from but we are here to make money and but go. And it was no push. was so hard. So we just made we thought to ourselves, we can couldn't do what they do. We couldn't, we would fall on our face. And we quickly made that decision and every step of the way how impressed in my vp of risk and compliant she we went through everything and I have never seen a company as well organized and top notch, and I mean that very sincerely. I talk to marketing for I mean that and everything that they do, and I'm afraid to say that because I'm afraid something to go. But Anyway, are you call us back and let us know, but I'm confident. But I love the point you're making, which is really interesting, in the evaluation, which is not just like hand someone answer the question. Will they right engage of that, but also I think there's a degree with what you're describing. Is like, does it feel like they're figuring it out when you ask and getting an answer, does it feel like something they thought about and if have actually, you know, put some effort into preparing, because that's a very different thing. So I'm going it goes. Oh, that's a really good question about how we comply with that regulatlet they go ask somebody what we think, versus saying yeah, we've here's a documentation on how we think about that and what we do. and well, that's a level of preparation. That's different. Oh, I have never seen it with any of thender actually, I mean I they've probably gotten better because regulatory people, but no, it's just it's...

...all right there. You guys. You know how you strive for an employee to know the answer to the question before you ask a question. That's what my MVP, ift always tells me that he wants to know the question before I ask him. That's his goal and that's you. But you guys, really you did that go that's been our objective for a while to know what's going to get asked to be ready for it. Yeah, that's but that says a lot and I don't think you can't take that for granted, because not every other. There's very few people that are across that have done that, very few companies, I should say. There's some advice for any FINTECH listeners. Know the questions you're going to get asked to be ready for him before you're ask that's I don't. Yeah. Well, I actually there's some other partnerships we have because that are interested in what we're doing with you guys, because they're like because they know where the doubt and Timisos of the world and they are, which I guess, and I jumping all over the place, so you can fully bare, but that's okay. And the regulatory agencies, and I'm thinking the Nicelf, they should be jumping all over. There's some other relationships that are very similar to the h you're more of a sophisticated AI, where there's other ones that are not quite as sophisticate, if it's the same thing. HMM. So, anyway. Anyway, well, I want to kind of explore me. You guys got into personal loans with us and we're working together there, but I know you started off in some sort of like improvement space, kind of like thinking your way into the unsecured space. Would love to understand your thinking behind that and why you think there is? I think in the old school for these days unsecured loans we're not a thing that was looked kindly upon as a reasonable risk for institutions to take. Why do you think that shifting and how did you guys think about changing the mindset? But getting into, you know, a category of learning that wasn't...

...really in the old days, considered good, or at least not not good to have it a very large scale within the institution. Well, what we did was, and that's very true, it was not a good thing. If you need to just unsecured loan in a debt contellidation lean. Well, we in a through a partnership with another quo. So we began to do some home improvement loans and they're insure by insurance company whatever and they are in large clones. Well, our experience was the losses. They were ensured. So we really didn't hur any losses, maybe one. And if you go back into just a few years ago home equity loans and people used to get the large loans for whether it was for a wedding or home improvement or whatever the case was. Sure people used to get taxed it right off and that's why they went that way and they went through the process which generally took the crasils and placed on your house and it takes a long period of time to underwrite it, a lot of paperwork, just like little mortgage, and then they took that benefit away or you have to prove the benefit more so I think it's time progressed and it's people became more and more impatient and waiting things. It's much easier to ask for a personal one. You pay it back and there's no difference and their Christ close to the same. Yeah, it's like there's a little difference, but I certainly see now that consumers are kind of gone. If it's going to take sixty days, and I know appraisals right now or a real pain point in the industry because appraisers are kind of short supply. The real timeline, like you know, if it's extra ten bucks a month and I can get it tomorrow, it's opposed to a month and a half from now. Like most consumers value that time pretty value pretty highly. Right now. Oh, absolutely they do. And the with interest or it's going up and stuff. That's where the parts and is getting close.

But they know, I agree with you, and people are don't have the patients to wait. They want it, they want it done within twenty four, forty eight hours and they don't like to be asked a lot of questions. Yeah, whereas you have your underwriting which most of those questions that you get asked are done in an automated fashion. They don't have to bother with that. They don't care. Yeah, and they're happy to give you a bit of information to make that easier. We were talking about, though, also how there is still a need for while we're aiming for friction lesson instantaneous approvals, that it's kind of not a real a reasonable goal. To get to a hundred percent zero touch lending is probably not the goal. Tell me a little b about what you're thinking on that, because it feels like, I guess, from a pure technologist point of you guy, that's right, no people anymore. We get up. We got them all in all cases, but that's probably not ultimately the answer. No, but the one thing, and again this is another thing that impressed us with the organization, with Upstar, was that you still need some human interaction at some point or some cases, and there's some that because of your prodsters are always trying to play with the systems or whatever the case may be. Your individuals asking question. You may need some human interaction. So I don't think people will go away totally, but I don't I think it's more the exception and I think sometimes a periodic manual review also helps the people in the technology are you to see what's covered in what isn't covered and what they may see do not see, although I do think that you're going to be able to get alone through your mobile phone with the favorite print without question. Well, particular, this is where I think financial institutions that have customer relationships have such an advantage, because if I've never seen you before, it's very hard to take your finger print and give you a loan. But if I've worked with you for a...

...while, you've got your bank to put you to your direct deposit coming into my account, you've had a loan, like all of a sudden it becomes really easy to go yeah, you mean coming in, yeah, I'm give me your fingerprint, like I feel pretty good about my ability to understand your risk. And and that's really a place where financial institutions that build over time relationships that are recurring with the customer, really have an advantage to simplify and an automate those processes in a way that you know if you're walking into a bank or Credit Union for the first time, that's that's really hard to do. We got to get comfortable that we know something about you and that's not as easy for the first time. No, no, don't know what's not it's interesting to to watch the evolution of fraud and the do you guys have, you know, concerns that you're worried about, as frousters are becoming, I think, more targeted and I persistent, if you will, in their attempts. is they're kind of like, kind of like arms right. They're ratching up their level of sophistication and attacks on institutions. At the same time we're ratching up our capabilities to fend off or identify such attacks. No, now, I agree it and as well as again, that's part of the manual intervention. I think that we have found some things, and I know that you guys had said that early on in the early launch, that used to be called what they call loan stacking. After period of time, you guys identified that's what you have to play it. So it who knows what it will be? Yeah, the next time, who, whether it's with you or even with the individuals. And we've seen we just got recently hit, so the navy and pen egent with people just with the stolen identities with Yep, yeah, Oh, the information more than they ever did before that. The systems weren't catching so we had a quickly in the two weeks, had to add another piece to stop. Yeah, we've had the same thing where we see people with all the right information, even bank accounts opened in the name, you know, and they're finding specific you know, if I...

...ask for a smaller loan and I have this kind of in, you know, these kind of things, I'm more likely to get through an automated and and to your point, I think it's really important to have a very tight integration. One of the reasons we haven't done a lot of outsourcing of staff on our operation side is like being able to learn quickly on the product and automation side what we're seeing in the manual review side and have that be a give and take is really valuable because you you might see this where you identify want and you go high. I wonder if there's others like that. How can we find it? In? It really is. It's a very tight feedback loop to effectively fine and stop those kinds of attacks. Oh yeah, definitely. We were just recently. That nothing to do with upstart we just were having. We were it was a group of us so getting together and trying to find what the people were doing. But it took all of us and then we found a whole huge group shut down the systems that net. Joking me, I said, well, that's where the manual intervention helps you. Yeah, it says a number of times we found, you know, some fraud attack from a human on our side who was reviewing something and said this is weird, and then called another person and we started reviewing data and saying, Hey, like, who else looks like this? What are the signals we might be able to find to see if there's other attempts at this kind of thing? It's it's a really valuable thing. That's it'll be a long time because you're your adversary is changing their tactics. It's not easy to identify that in an automated way when they're coming with different approaches every time. Absolutely so. I think I've asked most of the questions I had on my list. was there anything else that was on your list that you expected or wanted to talk about while we while we had you here? No, I'm just anxious to see you can say it. What do you think the next friend is going to be? What do I think the next train is going to be? A that's a tough one. Your header on the other side. Now you're flipping the microphone around on me. Yeah, yeah, you're a different generation than I am. I well, I just had a guess.

Who is telling me about tick Tock and how is orders learning about financial products from Tick Tock? And I was I'm not even on tick tocks off. I'm behind the trends. Now I will, but I still think that you're the fingerprint example. Is Right, that the trend is going to be towards utilization of AI or better automation technologies to reduce friction for as many customers as possible, and my real belief is that those institutions that are able to deliberate their data and relationships to be ahead of that curve are going to win, and those that aren't. You know, I hear these kind of concerns around open banking and I think it's interested. Will worried about. Well, now my day that by transaction data can be visible to a to some other bank, and like that puts me at risk. And I go well, like how would you rate, from zero to a hundred, your utilization of that data today to give better credit decisions of better experiences to your customer? Like like at twenty. I go well, why don't you work on going from twenty to a hundred? And you'll have some stupid like you know, take advantage of that data. Those who can make that data into a really strategic acid and leverage it that way, I think are going to have a lot of opportunity. And I think it's said, but I think that that kind of frictionals experience is coming and you got to find ways, either builder or partner, to deliver. Yeah, I think it's happening quicker than oh OK, yeah, will it help? But Technology Change, in my experience, happens very slowly than all at once. You know it kind of it kind of feels forever away, forever a way, forever way, and then like and it's here and all of a sudden it's you know it's happening yesterday. So I think we might be at one of those inflection points where you know it's going from we know it should be possible to Oh my God, it's like it's actually happening really rapidly and the next five or ten years will get a time of rapid change also. Well, Martie, I have three questions I ask everybody at the end of this podcast. I'm a throw them at you now and we'll see what you got. The first one is what's the best priests of career advice you've ever gotten? Goes Way back when I...

...first started it in turn and told me don't always go for what your passion is rather than go for the title or the money. HMM, and do try to do the best at whatever that is. In the rest will can and it did for me anyway. So I was that was that. And always be honest and take keep integrity, always beyond keep integrity. I love you. You're almost quoting a lincoln here. Whatever you choose to be be a good one. Yeah, I tell that's my tat simple, practical person. We just got to get that one through my kids, as I don't really care what you want to be, but like whatever it's going to be, like work card it, being good at it. Yeah, I'll succeed whatever it is right. Yeah, well, my kids are still young, so I got to like it's a little more drilling into one twenty three. So that's what I can hurt. That's right, good advice. So your question. What's the best piece of advice you've gotten about consumer lending, your consumer banking and your you've had a number of different institutions from which to take advice. It sounds like probably the best advice is really more of the recent advice. As far as the way the picture was drawn back in the old days, it wasn't necessarily the fair, the right way to approach it and I think there was a lot of opportunities that were most along the way through every consumer letting in general. Saying with our running new interest in general, and I think ash I need I say this sincerely, is I'm I think that we would, I make sious to see the results because if there're anything like the first few weeks have been, we would have given a lot more loans of to a lot more people than we would have had in our traditional method, and I'm proud of that and that's great. That, yeah, that's that's what gets us out of bed every morning, is making sure we're...

...providing a product that helps people say yes, more people know, and that's yeah, that's what I you're doing, what I love. That's the old way is not always the best way. I think that's a I think it's sometimes this change comes rapidly, there can be a nostalgia for the old and in a way that forgets to like there, that wasn't, that wasn't. And I know, and I'm old fashioned, so I guess I'm complying. This more exciting, exhilarating, so and I just think it's better. It's better for everybody, so the consumer as well as the financial institution. And my laugh crustion for you. What is one bold prediction about the future can be banking doesn't have to be oh about the future. Well, it's easy to make predictions about the past. We got to got to make some of them works. Yeah, I know, my only but this said, I don't know if this is a prediction or a fear. I didn't you know, you get enjoy all the change of currency and the cryptic currency, and what's going to happen with all that that I guess I learned. I'm old enough to know never say never for anything. H But I just am afraid that the industry, the financial industry, is just not what I know to be and it, I guess it may be, doesn't need to be little bit deal my lifetime so that I just don't I think it's totally change. It is totally changing'all. I'll tell you. It's your point that the old ways are always the best. I also I watched the crypto stuff and I'm very fascinating. I think there's a lot of interesting stuff going on there, but you do see a very rapid learning of the old lessons in many cases. You saw this, you know, bug on open sea where arguably a Boug or not, but we're a bunch of n FT's were sold for well below what they were worth. And Look, well, if we're by bank, I would call them and they'd like we'd have a way to Remeet, you know, to fix this. Oh Hey, we might need a way to have a resolution of a dispute like this. And you know, the blockchain. There really isn't and so I think there's there's a very great...

...indivisions there, but it will be also jesting to see how that. I think sometimes that the new ways forget some of the lessons of the past that have very important things to teach us. Need to learn lessons of the past. That's what it's fits with. History teaches you. That's right, Margie. I appreciate your time today. This is a lot of fun and I appreciate your sharing your insights with our audience well. Thank you. I appreciate it, Jack, and would love to everybody. You too. Upstart partners with banks and credit unions to help grow their consumer loan portfolios and deliver a modern, all digital lending experience. As the average consumer becomes more digitally savvy, it only makes sense that their bank does to. UPSTARTS AI landing platform uses sophisticated machine learning models to more accurately identify risk and approve more applicants than traditional credit models. With fraud rates near zero. Upstarts all digital experience reduces manual processing for banks and offers a simple and convenient experience for consumers. Whether you're looking to grow and enhance your existing personal and auto learning programs or you're just getting started, upstart can help. Upstart offers an into in solution that can help you find more credit worthy borrowers within your risk profile, with all digital underwriting, onboarding, loan closing and servicing. It's all possible with upstart in your corner. Learn more about finding new borrowers, enhancing your credit decisioning process and growing your business by visiting UPSTARTCOM Ford Banks. That's UPSTARTCOM FORWARD DA banks. You've been listening to leaders and lending from upstart. Make sure you never miss an episode. Subscribe to leaders and lending in your favorite podcast player using apple podcast. Leave us a quick rating by tapping the number of stars you think the show deserves. Thanks for listening. Until next time. The views and opinions expressed by the host and guests on the leaders and lending podcast are their own and their participation in this podcast does not imply an endorsement of such views by their organization or themselves. The content provided is for informational purposes...

...only and the discussion between the host and guests should not be taken as financial advice by companies or individuals.

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