After three years developing an automotive lending startup, co-founders Andres Klaric and Marc Escapa recognized in 2023 that large language models held the potential to modernize an even more critical component: the loan origination system (LOS), the foundational platform of the lending industry.

Frustrated by the constraints of older software, Klaric, originally from Bolivia, and Escapa, an immigrant from Spain, shifted their company's focus to create Fuse, an AI-native loan origination system. This past Monday, Fuse revealed it secured a $25 million Series A funding round. The investment was led by Footwork, with participation from Primary Venture Partners, NextView Ventures, and Commerce Ventures.

A loan origination system acts as the central record-keeping platform for lenders, overseeing the complete loan process from the initial application and underwriting stages to final approval and the disbursement of funds. According to Klaric, traditional systems often require up to a year for integration and typically involve costly, multi-year contracts.

Fuse asserts that by utilizing artificial intelligence, its automated agents can assist lenders in handling greater volumes of loans, automating underwriting tasks, and substantially lowering operational expenses. The company, which already serves more than 100 customers, aims to simplify the switch for credit unions by providing the first 50 qualifying institutions complimentary access to its platform until their existing contracts with legacy LOS providers conclude.

To facilitate this offer, the startup has designated $5 million for what it terms a 'rescue fund.' Klaric emphasizes that "it's not just a marketing gimmick," clarifying that because legacy software expenses are so significant, many credit unions cannot financially justify breaking their current agreements to change providers. "We know the credit unions are really hurting and want to adopt AI, but have no idea how to do it," he stated.

Basu Trivedi drew a parallel between an LOS and enterprise systems like an ERP or CRM, highlighting its equal importance to a credit union's daily functions. He noted that historically, replacing one LOS with another has been an exceptionally challenging undertaking.

Nevertheless, similar to many startups introducing AI-driven enterprise platforms, the founders assure that Fuse can be implemented relatively swiftly. Among the established LOS platforms Fuse seeks to challenge are the publicly traded company nCino and the private-equity-owned firm MeridianLink.

Unsurprisingly, Fuse is not alone in building an AI-enhanced loan origination system. Its rivals include companies like Casca and Glide.

Klaric expresses a firm conviction in the mission of aiding credit unions to cut costs, largely because these institutions primarily serve the American middle class. "Credit unions and smaller financial institutions have everything required to win. They have the local presence, the local focus, great member experience. They even have branches in very good locations. The only thing is they don’t really have is the right technology," he explained.