Applying AI to SMB Lending – The Foundation

Artificial Intelligence (AI) is a much talked about phenomenon these days.  Our sense is that for most people it is still a fairly abstract or esoteric idea.  We thought we would spend some time breaking it down, specifically as it relates to small business lending.

Let’s start with a primer

Artificial Intelligence is the science of making things smart.  It is human intelligence exhibited by machines – and involves getting computers to do human tasks.

There are a number of sub domains of AI which are relevant to this discussion:

• Machine learning is a branch of, or an approach to, achieving artificial intelligence. It involves teaching machines to recognize patterns by example and from experience – rather than programming them with specific rules.
• Deep learning is a subset of machine learning in which artificial neural networks learn from large amounts of data. This allows machines to solve complex problems when using a data set that is very diverse and unstructured.
• Natural Language Processing is a branch of artificial intelligence that deals with the interaction between computers and humans using natural language. It is a blend of linguistics, computer science, and machine learning that enables computers to process, analyze and make sense of large amounts of text data.

For a tangible “real-life” example, think about driving.  Our navigation or mapping apps using machine learning to detect and predict traffic patterns to recommend the fastest route.  Autonomous vehicles are using deep learning to enable cars to perform the inherently complex and highly contextual task of driving – to recognize lanes, other vehicles, red lights, pedestrians, dogs, ice on the road, etc.  Natural language processing enables us to make handsfree calls and provide other similar voice activated instructions to our vehicles.

Getting Started – Framing the Business Problem

In our experience, it is critical to start with a tightly defined business problem and objective.  Starting with a broad objective to make your business smarter or more profitable using AI is doomed to fail.

Some common mistakes we see:

• The “Answer in Search of a Problem”: How can we use AI in our business?
• The “Proverbial Question”: Can we use AI to make small business lending more profitable?
• The “Moonshot”: Can we use AI to completely automate small business lending?

At JUDI, we’ve set out to achieve two specific outcomes in relation to small business lending with AI:

1. Reduce the time required to approve a loan to under ten minutes (from days or weeks); and
2. Enable automated real-time loan and portfolio monitoring (to augment or replace clunky manual annual review processes).

By achieving these two specific objectives, we have unlocked higher order strategic objectives for our customers – driving efficiency, improving employee and customer experience, and reducing loss rates.  Lending more with lower risk.