ZestFinance Inc., a Burbank-based credit technology company doing business as Zest AI, has raised $15 million in new capital from software-focused venture firm Insight Venture Management. 

The new funds are the first investment since Zest retooled its business model roughly three years ago, according to a company spokesperson.

Zest began life just over a decade ago as a consumer lending company. Over the years, it gradually shifted to licensing its underwriting services to other lenders, eventually dropping its own lending business altogether. 

Today the company supports credit underwriting for approximately 30 banks, credit unions and other corporations, including Fortune 500 companies such as Discover Financial Services, according to Zest Vice President of Communications Bruce Upbin

A key pillar of Zest’s offering is what it calls “de-biasing.” The company claims its credit underwriting approach is fairer than traditional methods and makes it more likely that groups such as women and people of color will be approved for loans. It does this, according to Zest, without adding additional risk to lenders’ portfolios.

“We think you can have it both ways,” Upbin said. “Banks wouldn’t be using this if it didn’t make more money.”

Upbin said the company’s key to achieving this lofty goal is a focus on machine learning. It uses a process called “adversarial de-biasing,”

he said, to fine-tune lenders’ underwriting models and iron out inbuilt biases.
Upbin compared the approach to the 1972 video game “Pong,” in which two players reflect a ball back and forth across a TV screen.

“We have a model that is only built to tell if someone is going to default,” he said. “We then have a second model that looks at if that judgement is biased. If it is, it sends it back.”

Through a series of minute adjustments in the weighting of credit factors, these algorithms eventually refine a company’s underwriting model to compensate for biases that might rule out deserving borrowers, according to Upbin. 

Zest is confident that the process can help address centuries-old inequities in the industry.

A significant portion of the company’s new funding will go to activities aimed at educating regulators and policymakers on the importance and feasibility of fairer lending standards, according to Upbin.

The balance of the $15 million, he said, will go to endeavors such as growing the company’s client base and fine-tuning its technology. 

“Our goal is to convince people that machine learning is real and that the biggest players (in lending) are on board,” Upbin said

ZestFinance Inc.

CEO: Mike de Vere
BUSINESS: Credit technology
FUNDING TO DATE: $97 million
NOTABLE: Zest began as an online lender before transitioning to providing credit underwriting technology to other businesses.

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