Ready for AI? Why Credit Unions Should Consider a Nuanced Approach

Open Lending Gradient Background
Open Lending Gradient Background

Artificial Intelligence and predictive analytics could transform every industry — and that’s not just a convenient talking point. In their 2021 Global Survey on AI, McKinsey & Company found 56% of respondents implemented AI into their business operations, up from 50% in 2020.

When you consider one of the biggest advantages of AI — its ability to reduce errors and increase accuracy and precision — it seems like an obvious extension of financial services. But a more personalized, human approach is one of the reasons many people prefer credit unions over larger banks. With a thoughtful and nuanced approach to AI adoption, credit unions can reap the benefits of the technology while maintaining a unique connection with their members.

Where AI Works for Credit Unions

Credit unions, like all financial institutions, are flush with data. AI can chip away at these large data sets and create a clearer, more insightful membership overview. Armed with this information, credit unions can gain a deeper understanding of who a member is, what products they’ve used in the past, what they’re likely to engage with and how to interact with them.

And for many members, their preferred interaction has shifted to digital. Out of necessity during the pandemic, both members and branches began to increasingly value chatbots and other automated services. In fact, 30% of credit unions invested in or deployed chatbots in 2022, and 25% plan to do the same this year, according to a recent Cornerstone Advisors report.

Streamlining common inquiries and offering round-the-clock support benefits members just as much as staff, allowing them to devote more time and care to complex member concerns. This dedicated level of service remains a top competitive advantage for credit unions against big banks. But perhaps one of the most significant impacts AI can have on credit unions is within the lending sphere and its ability to make the process more secure and equitable.

More Loans and Less Risk: No Longer Mutually Exclusive

Advanced technology and products, such as our Lenders Protection program, help credit unions make lending decisions faster and approve more loans without increasing default risks. A Harvard Business School paper, “Invisible Primes: Fintech Lending with Alternative Data,” reveals that by analyzing only standard creditworthiness metrics, lenders don’t have a broad enough picture of a potential borrower.

For example, alternative data can identify individuals with low credit scores and short credit histories who are also less likely to default. These “invisible primes,” as the authors call them, would most likely be rejected or receive higher interest rates if analyzed according to standard metrics. Further, the paper surmised that funding loans to these borrowers leads to better economic outcomes for them and the lender. And our latest research found that when financial institutions provide loans to near or non-prime borrowers, those same individuals are more likely to become lifelong customers and return for additional services.

See more findings from our U.S. Vehicle Accessibility Index 2023.

Our Lenders Protection program looks beyond the typical lending guidelines to identify creditworthy borrowers. These individuals are often excluded based on traditional credit assessments but present an opportunity for credit unions to lend more inclusively. With AI and advanced analytics, credit unions can reshape the narrow lending process without opening themselves to greater risk. AI democratizes the lending space, forcing us to challenge and dispute the idea that greater loan volume equals greater volatility.

Proceed Thoughtfully and Humanly

The financial services industry seeks to avoid risk, which explains why it has historically been slower to adopt advanced technologies than other sectors. But when it comes to AI and automated technology, credit unions don’t need to view AI adoption as an existential decision. Instead, these advancements should be an extension of the personal and superior service credit unions are already plauded for.

In 2020, people looked to credit unions as an anchor amid uncertainty and fear. That trust remains. Implementing AI and automated processing shouldn’t leave a credit union unrecognizable; it should enhance it. At Open Lending, this is what we aim to accomplish. The auto lending process should be accurate, secure and human.

We’ve spent over two decades helping credit unions navigate digitization and transform their auto lending process. How can we help you? Use our Opportunity Calculator to see the growth you can expect from our Lenders Protection program.


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