Open Banking: A Lending Transformation

Open Banking information is driving one of the biggest evolutions in decision making for consumer lending that has been seen in recent years. Vestigo have worked with several lenders to transform their processes, leveraging new, up-to-date Open Banking information to support responsible lending and effective customer management.

Up to Date Information for a Changing Environment

The core sources of data for consumer lending decisions have been relatively static for a long time; credit bureau files, customer supplied information and internal data where available. While these sources are still hugely valuable, there is growing access to a new perspective: Open Banking.

In the current rapidly changing environment, Open Banking has one key advantage; it is fully up to date. It provides a view of a customer’s bank account transactions today, allowing businesses to pick up financial shocks and payment information as they happen.

Open Banking data is highly orthogonal to credit bureau information, providing a genuinely different perspective on customers. This enables businesses to lend to customers they previously would have declined, such as thin-file cases. It also identifies other financial difficulties, such as gambling transactions or Debt Collection Agency payments, that may otherwise be missed with credit bureau data alone.

Accelerating and Deeper Integration

For many lenders, the initial use-case for Open Banking is to replace the manual collection of bank statements and payslips. For those customers happy to give consent, replacing this step with an Open Banking API significantly speeds up the process, improving both the customer journey and conversion rates. And customer familiarity and acceptance of Open Banking is growing rapidly, with consumers accepting the need for new processes in light of Covid-19.

Open Banking has in fact been a surprise beneficiary of the pandemic, with lenders accelerating their adoption of this tool in an environment where customer circumstances can be highly volatile. As the use of Open Banking matures, lenders are moving from a manual, portal-based ingestion of the data to integration directly into credit risk, affordability and customer management rules. More recently, we have seen several aggregators adding Open Banking to their customer journey, allowing lenders to leverage the data at the quotation stage, eliminating the potential confusion of a late stage rejection triggered by Open Banking.

Driving Continual Improvement

Open Banking remains in its infancy and there is a huge amount of untapped potential still to be explored. With the lack of any robust retrospective process, lenders will have to wait to observe actual account outcomes before really assessing the power of the data in decisioning. From a customer management perspective, businesses will be afforded a much deeper view of their customers’ circumstances, for both good and bad. There will be requirements on lenders to show that they are making effective use of this data from a TCF and responsibility perspective.

At Vestigo, we believe that Open Banking will become a major tool in any lender’s arsenal. Representing a genuine expansion of the consumer data universe, implementing this robustly alongside other credit risk and customer management tools will deliver significant value for any lending business.

If you are interested in finding out how Vestigo could help your business, please get in touch.