ZestCash Offers Up Technology for Identifying If You’re Credit Worthy

Douglas Merrill, Google’s former chief information officer, has spent the past two and a half years applying technology to underwriting, with the goal of offering lower-cost loans for the millions of people with poor credit scores.

Now he’s ready to help other financial institutions do the same.

Merrill’s startup, ZestCash, is letting credit card providers and other specialty lenders access its underwriting engine, which uses tens of thousands of variables to determine a borrower’s credit worthiness.

It won’t be easy. FICO, a credit score developed by the company formerly known as Fair Isaac Corp., is the standard that banks have used for more than 40 years. And they’ve shown little appetite to go anywhere near the subprime category because of the lingering stigma it represents following the financial crisis.

ZestCash is not to be deterred. It’s one of several startups creating software that’s designed to better identify loan candidates, especially those with black marks on their credit score. These new algorithms use a vast array of online data that provide more up-to-date information than FICO scores, giving lenders more insight into whether borrowers will pay them back. FICO has previously said it’s working to develop a new type of credit-risk score that relies on a broader range of data.

Los Angeles-based ZestCash says it has upgraded its technology, which can now identify 25 percent more loan-worthy Americans than before. The new credit system is called Hollerith, named after Herman Hollerith, a statistician who died in 1929.

ZestCash’s 75 employees, mostly mathematicians and data scientists, developed the software so they could provide cheaper sources of capital for people who have most often turned to storefront payday lenders. That’s still where the company is focused, though Merrill said he’s in talks with  other lenders that are willing to pay for ZestCash’s technology. They could either run Hollerith alongside their existing underwriting system or replace it altogether, he said.

And Merrill expects the software to keep getting smarter as ZestCash’s customer base grows.

“We’re just scratching the surface,” he said.

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