Open banking: is this technology the future of finance?

30-second summary:

  • Open banking allows loan providers to view their bank transactions when they request it
  • Applicants must agree to share this data
  • Lenders will be able to make better lending decisions and deliver better targeted products to consumers
  • Open banking is revolutionary and while it is available for loans, it could also be used for mortgages
  • There are security concerns and whether applicants will register in the first place.

Open banking is an exciting and innovative development in the field of consumer credit. Thanks to open banking Technology, lenders can view their customers’ bank statements and transactions and use them to make informed decisions about whether to offer them a credit card, loan or financial product.

Since January 2021, the FCA and CMA have encouraged personal lenders to use open banking as part of their application and subscription process.

Content created in partnership with Consultant Tudor Lodge.

Open banking can help identify spending patterns and this can flag customers as high risk

Data from open banking can help lenders identify spending patterns or transactions that could determine whether the borrower is potentially high or low risk.

Certainly, in the case of having multiple gaming transactions, warning signs can be issued – and this is something that had not previously been accessible or detected in the years and years of processing claims. online loan.

In fact, if lenders can analyze data more effectively, they can more accurately score and assess customers and their needs. We could therefore move towards an era where financial products are more tailor-made and adapted.

While still in its infancy, the question arises of the potential value of open banking and whether this is the future of finance. It is currently used by personal lenders and guarantors in the UK, but could eventually be extended to other products such as mortgages and credit cards.

Despite its advantages, one of the main issues is that applicants and potential borrowers must choose to give lenders access to their bank accounts, which is not always adopted.

Open banking offers better control under a single administrator

Nadeem Siam, founder of the alternative loan, Finance yourself commented: “Open banking has many advantages and it can certainly be tailored to the needs of the customer.

“Adapting to individual needs becomes easier with Open Banking, thanks to the infinite number of APIs and better software, everything is simpler. All you need is access to the technology. Time spent is reduced and operations are automated. In one place, banks control various services, loans, transfers, etc. and, therefore, there is greater control under a single administrator.

“However, open banking has its drawbacks. There has been a lack of credibility on the part of clients vis-à-vis Open Banking due to fear of sharing personal data, and not fully understanding how it works. The fintech option is more attractive where the services are diversified and where more and more people are emerging. They are simple, fast and more cost effective.

“Open Banking enables a centralized service,” explains David Beard of Loan expert.

“Banks are in a position to have full control over the various services their customers require, including advice, transfers, financing and loans. Banking data can be accumulated on a single dashboard, which means that banks are able to offer comprehensive solutions to their clients’ financial needs. As such, everything is done under a single, clear administration. “

Open banking can help lenders make more informed decisions, but it’s not always available

Dan’s Kettle Pheabs confirms “Open banking is certainly a revolution in terms of credit underwriting. We used to apply hundreds of rules and automated decisions to determine which client is best to lend to and while we try to make the best decision possible these could never be fully verified and you always take a certain level. risk.

“But with the bank open, we can now see the exact banking transactions that customers have made over the past few weeks and months. In particular, if there is a history of repeated gambling or taking out other high cost loans, these will raise red flags on our system and we know we should be more careful with this type of customer. – perhaps by declining them or charging a higher rate.

Previously we should have been guessing about this sort of thing and if we got it wrong the customer would be in arrears and we would lend to someone and have a hard time collecting.

“Open Banking may not always be available,” argues Richard Dent of Finger funding.

“The requester will still have to choose to share their data every time and many prudent 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 get a lot more data than ever before and with the proliferation of cyber attacks it’s not as easy as it looks.

Daniel Tannenbaum is the founder of Tudor Lodge Consultants.

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