AI-assisted lending could boost small banks. But regulatory fear stifles innovation
For community banks and credit unions, artificial intelligence-powered lending is becoming more than a nice-to-have capability. But worries about regulators' reactions to the technology has held back seven out of ten smaller institutions, says new research from Cornerstone Advisors.
So much about artificial intelligence over the last two years has focused on GenAI that more “classic” uses of AI in credit analysis and credit management have been neglected. New research from Cornerstone Advisors indicates that the need for increasing efficiency and the potential for reducing losses will drive more community banks and credit unions to adopt AI lending tools in the year ahead. But regulatory headwinds must also be accounted for.
This rising interest in automating credit decision making and loan management — in a part of the industry that once took pride in every credit decision being a handcrafted matter — reflects the changing economics of the field. It also reflects the evolution of competition in both business and consumer lending, where fintechs engaged borrowers with automated credit decisions rendered quickly 24/7.
“It’s amazing — and not in a positive way — that financial institutions use of technology for lending is lacking,” writes Ron Shevlin, Cornerstone’s chief research officer, in the firm’s report. Cornerstone benchmark data indicates that institutions using AI tools can more than triple the credit analysis handled per underwriting full-time-equivalent employee.
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