30 second summary:
- Open banking allows lenders to see their banking operations when they apply
- Applicants must register in order to share this data
- Lenders will be able to make better credit decisions and provide more targeted products to consumers
- Open banking is revolutionary, and while it is available for loans, it could also be used for mortgages
- There are questions about security and whether applicants even register.
Open banking is an exciting and innovative development in the field of consumer finance. Open banking technology enables lenders to view their customers’ bank statements and transactions, enabling them to make informed decisions about whether to offer them a credit card, loan, or financial product.
As of January 2021, the FCA and CMA have been encouraging private lenders to use open banking as part of their application and subscription process.
Content created in collaboration with Tudor Lodge Consultant.
Open banking can help identify spending patterns, and this can mark customers as high risk
Open banking data can help lenders identify spending patterns or transactions that could determine whether the borrower is potentially high or low risk.
Certainly, warning signs can appear with several gambling transactions – and this has not been accessible or recognizable in the years of processing online loan applications.
When lenders can analyze the data more effectively, they can more accurately evaluate and evaluate customers and their needs. So we could be approaching an era where financial products are more tailored and tailored.
In the early days, the question arises as to the potential value of open banking and whether it really is the future of finance. It is currently used by private and guarantors in the UK but could later be expanded to other products such as mortgages and credit cards.
Despite its advantages, one of the main problems is that prospective applicants and borrowers must choose to give lenders access to their bank accounts and this is not always done.
Open Banking offers better control under a single administrator
Nadeem Siam, founder of Lending Alternative, Fund Ourselves, commented: “Open banking has many advantages and can certainly be tailored to the needs of the client.”
“With Open Banking, adapting to the needs of each person becomes easier. Everything is easier thanks to the infinity of APIs and better software. All you need is access to technology. The time required is reduced and the operation is automated. In one place, the banks have control over the various services, loans, transfers, etc., and therefore there is greater control under a single administrator.
“However, open banking has its disadvantages. Due to the fear of disclosing personal data and not fully understanding how it works, customers lack credibility towards Open Banking. The fintech option is more attractive when the services are diverse and appear more and more around the world. They are easy, quick and cheaper. “
“Open banking enables a centralized service,” explains David Beard from Lending Expert.
“Banks can keep full control of the various services their customers need, including advice, transfers, financing and credit. The banking information can be summarized in a single dashboard so that banks can offer complete solutions for the financial needs of their customers. Thus everything is done under a clear, uniform administration. “
Open banking can help lenders make more informed decisions – however, it may not always be available
Pheabs’ Dan Kettle affirms, “Open banking is certainly revolutionary when it comes to underwriting credit. Previously, we made hundreds of automated rules and decisions to determine which customers could get the best credit. While we try to make the best decision possible, these have never been fully verified and you were still taking some risk. “
“With Open Banking, we can now see the exact banking transactions that customers have been doing over the past few weeks and months. Especially if there has been repeated gambling or other costly loans in the past, these will set off warning flags in our system, and we know we should be more careful with these types of customers – possibly refusing or charging a higher interest rate.
Before, we would have had to make assumptions about these kinds of things and if we were wrong the customer would have defaulted and we would have borrowed someone and tried to raise funds. “
“Open banking may not always be available,” argues Richard Dent of Finger Finance.
“The applicant will still have to log in every time to share their data, and many cautious customers will not want to. It also raises concerns about the security and privacy of very personal data. If someone hacks into a lender’s system, they will get far more data than ever before, and with cyberattacks on the rise, it’s not as easy as it seems. “
Daniel Tannenbaum is the founder of Tudor Lodge Consultants and works with Groupon, Savills Property. He also works as an advisor to Lord Alan Sugar.