With Open Banking introduced in the UK over 5 years ago, we look back on the challenges and lessons learned, as well as opportunities for lenders going forward.
We are just over 5 years on since the introduction of Open Banking in the UK. Over that time Vestigo have worked with numerous lenders that utilise Open Banking in their decisioning, advising and supporting them with their Open Banking strategies. In this article we will look back on how we have seen lenders use Open Banking, the challenges and lessons learned, and the opportunities going forward.
In the early years of Open Banking, adoption was low, while now most lenders we work with use Open Banking in some form. Similarly, we have seen the use cases evolve over the years, which we will discuss further.
One of the key advantages of Open Banking is that it enables lenders to make faster and more reliable responsible lending decisions compared to relying solely on more traditional data sources. This is now more important than ever for lenders given the new Consumer Duty puts a greater focus on good customer outcomes, which we believe includes accurate affordability assessments.
Despite the clear advantages Open Banking offers, we have also seen challenges along the way.
We are now starting to see lenders utilising Open Banking data for uses over and above assessing affordability, allowing them to leverage the full potential of this data source. Some areas where we expect to see Open Banking grow further are:
We recently worked with an established lender who were an early Open Banking adopter. They have built up their Open Banking data over the years and wanted to understand what further value it could bring for credit risk decisioning
Numerous data sources were accessed, extracted, and combined, including application form information, credit bureau feeds, and Open Banking data. The data was cleansed and checked for its accuracy and appropriateness
Several model options were investigated from Logistic Regression to more complex models such as Neural Networks and Random Forests
The model parameters were fine-tuned and optimised. Strategy analysis was carried out to determine different cut-offs impact on the lender’s profitability
The biggest takeaway from this project was that Open Banking data added significant uplift to existing credit scorecard models when used alongside established credit bureau data points. Using only Open Banking data in the model resulted in a much weaker model compared to using only credit bureau data, although model performance still predicted risk relatively well. The real value however, was in using the two sources of data in tandem.
Many of the Open Banking features that entered the model are ones you would logically expect to predict risk, but crucially are not easily identifiable through traditional data points alone. Some of the most important Open Banking features in our final model were:
Open Banking data complements existing data sources and adds significant additional value. It enables faster customer journeys with less operational overhead whilst also giving a more accurate and up to date view of customers money management resulting in improved credit risk decisioning.
At Vestigo, we believe that Open Banking should be one of the core tools in any lender’s arsenal. Lenders that are not currently using Open Banking are lagging their peers and missing out on significant value benefits. While for those that are already using Open Banking, we expect them to further develop, embed, and optimise their Open Banking strategies.
If you are interested in finding out how Vestigo could help your business make the most out of Open Banking data, please get in touch.
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