Underwriting software provider Zest AI has raised $18 million in a funding round led by VyStar Credit Union and the First National Bank of Omaha, the firm announced last week.

Zest builds underwriting models powered by artificial intelligence (AI) and counts organizations like the Federal Home Loan Mortgage Corporation (Freddie Mac) and credit card provider Discover among its clients. Its models generate up to 20% increases in approval rates with no added risk, and up to 50% reductions in charge-offs by using more data and the advanced math of machine learning (ML), according to the firm.

“The funds raised will be invested across the board toward expanding our capabilities to serve more clients,” Mike de Vere, chief executive at Zest AI, told Bank Automation News.  Based in Burbank, California, Zest was started in 2009. He added that the funds will be put toward data science and engineering to build new ways to accelerate and automate model development and deployment, expand the firm’s product team into a new SaaS version of the Zest offering and expand the firm’s marketing activity.

The credit union started using Zest’s underwriting models in November 2019, and the models helped the $10.8 billion VyStar expand its credit portfolio by an estimated $40 million while increasing approvals for women by roughly 25%, according to a case study Zest shared with BAN.

“We look forward to seeing some cost savings associated with greater automation, but what really excites us is the opportunity to offer instant decisions, better pricing, and personalized service to our 675,000 members,” Chief Lending Officer Jenny Vipperman told BAN. Vipperman is joining the Zest Board of Directors.

While the software provider has worked with larger institutions like Freddie Mac and Discover in the past, it is currently focused on expanding its reach among credit unions. “Credit unions, except for the very biggest of them, lack substantive data science and ML engineering resources to develop these better models internally, so they’ve been faster to partner with vendors like Zest,” de Vere said.

He added that although Zest is engaged at various stages of the sales process with lenders of all sizes, “including a handful of top 10 U.S. financial institutions,” the size of larger institutions makes them slower on the uptake. “With big banks, there’s a lot more tire-kicking to ensure that a vendor such as Zest can truly deliver and perform better than what internal teams might come up with,” de Vere added.

Zest has now raised a total of $98 million in funding from diverse investors including Chinese tech giant Baidu, Northgate Capital, Insight Partners and Vystar Credit Union, according to the company.