Opening up banking data in lending in 2020

This month marks the two year anniversary of open banking. How has the much-lauded legislation impacted the financial services industry and how can it benefit lenders?

Open banking was first launched in the UK in January 2018. It received much attention from the financial community and media, with many heralding it as a game-changing driver for fintech disruption.

A reminder of what it actually is. By allowing regulated companies to securely analyse their bank data, open banking offers people and small businesses the chance to receive personalised, tailored support and products that increases access to capital and allows them to better manage their money.

The associated regulation (PSD2) requires UK-regulated banks to share their customers’ financial data – with their permission of course - with third party providers through the use of APIs. This makes it much easier for fintechs and other third party providers to develop new products and services, and for customers to access financial services. It creates a more competitive market.

As open banking celebrates its second anniversary, it’s fair to say that it’s yet to fully live up to the high expectations placed upon it. But this will change rapidly. According to predictions by PWC, 64% of adults will use open banking technology in some way by 2022.

The industry is warming up to open banking. Last year, Imran Gulamhuseinwala, implementation trustee of the Open Banking Implementation Entity (OBIE), told Finextra that: “Two years ago, open banking was regarded by many as a typical compliance exercise championed only by a handful of fintechs - more tech spend driven by compliance rather than business case or customer need. This is no longer the case. Banks have very firmly moved from viewing open banking as a compliance exercise to an opportunity to compete and innovate.”

Shortly after these comments, Nationwide picked seven fintech startups to take part in its £3 million challenge to develop open banking-based apps and services that help financially vulnerable people. The Open Up 2020 Challenge, run by Nesta Challenges in partnership with the OBIE, also kicked off, with 15 finalists who have already received £50,000 in funding in addition to non-financial support to help them further develop their product.

And this week it was announced that Visa will acquire Plaid, a fintech that connects payment apps like Venmo and Square Cash to users’ bank accounts to transfer funds, for $5.3 billion. With this clever acquisition, Visa gets access to a growing base of customers that it can sell additional services to. Open banking in action.

A boost for lenders

By using open banking data, lenders now have the ability to quickly and more efficiently evaluate loan applications. The comprehensive transaction history available through open banking can be drawn upon to perform KYC/AML, affordability checks, verify income, and increase the number of borrowers eligible for loans.

Rather than having to collect copies of bank statements and other paperwork to verify income, banks and other financial institutions can move this process completely online, speeding up the time between application and acceptance.

ezbob offers an open platform that enables financial institutions to build, launch and operate financial products for their customers, drawing on today’s data-rich open banking environment.

We provide the only bank-grade A-Z automated, paperless solution for SME lending that covers the entire user journey as well as all aspects of compliance, risk and decisioning. The ezbob solution aggregates information from over 40 different data service providers and presents better data that leads to better risk management. This includes the ability to provide loans based on non-traditional online data, such as Amazon, e-bay or PayPal activity. Decisions and offers are done within minutes and the money is transferred within hours without any human intervention.

Talk to us today to find out how open banking can benefit your business activities.