AI as an Extension of the Lending Process, Not a Replacement

Open Lending Gradient Background
Open Lending Gradient Background

“Everything in moderation” is more commonly used to advise people on how to approach dieting and healthy living. But the same guidance can also apply to technology and digitization, specifically when adopting artificial intelligence-backed solutions. Before jumping into the AI pool with both feet, it’s important to understand the full spectrum of the technology’s abilities, especially its limitations.

The Promise of AI in Lending

Because it’s so rich in data, the lending sector is primed to reap the benefits of AI. In a world where data is gold, AI is a critical tool for mining and extrapolating its value. Advanced technologies and AI have also made financial services even more competitive, with new entrants determined to weld the power of AI differently and more effectively to draw customers away from traditional institutions and improve predictions related to loan portfolio success

At the end of 2021, 75% of businesses had used AI and machine learning, with 80% feeling confident using advanced analytics and AI in credit risk decisioning, according to Experian.

A primary benefit of implementing AI in the lending process is that it makes for a more frictionless experience for both parties. AI can also expand a lender’s borrowing segment and reduce human error and bias. For example, AI can help lenders sift through their mass amounts of data to find customers who may not have the best credit scores but are still creditworthy when you consider federated data. Humans could also do this, but the time it would take and the results of these efforts would be dismal compared to the insights AI solutions can provide about customers. With AI, lenders can also manage their portfolios better because they have a clearer, more accurate depiction of their customer base.

Companies and financial institutions alike know AI can help automate and streamline processes. But AI can provide value at every stage of the lending cycle and make the process more inclusive to underserved populations. Credit scores don’t tell the full story of an inexperienced borrower, for example, who doesn’t have a long credit history. AI can look at an individual’s complete profile and payment history to and provide a fairer, more accurate description of a person’s creditworthiness.

Viewing AI With a Critical Eye

When selecting an AI solution, don’t assume all options are similar. Some may not be capable of providing the depth and breadth of data you’re looking for to determine creditworthiness. And no one, or no thing can predict the future. Lenders shouldn’t assume that AI is fail proof.

At Open Lending, we’ve long recognized the opportunity and need for auto lenders to serve more individuals in the near-prime borrower category. Today, diversifying your loan portfolio and broadening your borrower base is more important than ever. Tapping into the near-prime segment and implementing tools like Open Lending’s Lenders Protection Program bolsters your resiliency amid volatile market shifts.

With Lenders Protection, you remain in control of lending decisions and can configure your specific costs and desired ROA into the system. Using advanced analytics, Lenders Protection identifies qualified candidates who may have gone overlooked.

Financial institutions should consider AI tools and solutions with the same discernment necessary to make any large investment or hiring decision. It’s wise to have a healthy skepticism when evaluating AI and other advanced technologies. While AI certainly makes the auto lending process more inclusive and accurate, it can’t and shouldn’t become a lender’s sole solution.

Over the past two decades, Open Lending has helped lenders navigate digital transformation and advance their auto lending process. See how we can help you today and check out our Opportunity Calculator to see the growth you can expect from our Lenders Protection Program.


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