In the ever-evolving landscape of the financial industry, one term has been generating a lot of buzz lately: open banking data. But amid the excitement, what’s the real story? Are lenders truly harnessing the potential of these new data sources? To delve deeper into this, we summarized for you a recent article by bankers lab with Amanda Relton, an Open Banking Expert, to gain insights into the practical applications and impact of open banking data.
Defining the Basics
Before we dive into the details, let’s clarify some key terms. Open banking refers to the secure sharing of financial data, offering a glimpse into transactions and cash flow. With customer permissioning becoming more prevalent, open banking data can be available even before formal regulatory regimes are in place. Additionally, alternative data encompasses non-bank sources like rental and utility payments.
So, how are lenders using open banking data? Amanda Relton highlights several compelling examples:
Streamlined Application Processes: Open banking data can furnish income proof, simplifying and expediting loan applications.
Comprehensive Financial Analysis: It allows for in-depth examination of cash flow and spending patterns, enabling better-informed lending decisions.
Real-Time Data Verification: Income and employment verification become more efficient and precise.
Enhanced Risk Assessment: A deeper understanding of savings and investment patterns enhances risk evaluation.
Tailored Loan Products: Lenders can offer personalized interest rates and loan amounts to better meet customers’ needs.
The Reality Check
Despite the hype, not all use cases have proven equally impactful. Amanda identifies Personal Financial Management (PFM) as a widely discussed but challenging area to commercialize. While PFM can empower individuals to manage their finances more effectively by providing a holistic view of their financial activities, the expectation of free or low-cost services poses a hurdle.
Impactful Lending Use Cases
However, certain lending use cases have demonstrated significant impact:
Account Aggregation: Consolidating all accounts into one view simplifies financial management.
Affordability Assessment: Automation of income and expense data collection streamlines credit decisions, promising a future where bank transaction data becomes the default option.
Collections and Hardship Assistance: Open banking aids in evaluating delinquent borrowers’ financial positions swiftly, reducing call times and stress for customers.
Getting Started with Open Banking Data
For lenders looking to embark on their open banking journey, Amanda suggests several key steps:
Familiarize Yourself with Transaction Data: Understanding transaction data is fundamental.
Leverage Data for Improved Credit Assessments: Explore ways to enhance credit assessments using this valuable resource.
Personalize Loan Products: Tailor loan products to better serve your customers.
Streamline Processes: Automate manual tasks to increase efficiency.
Enhance Customer Experience: Investing in a seamless customer experience is crucial.
The Importance of Customer Experience
One of the most significant pitfalls in adopting open banking data is neglecting the customer experience. Customer consent is a complex aspect of accessing this data, and a poor consent experience can deter customers. Ensuring a smooth onboarding process, including initial consent and ongoing management, is vital for success.
Enablers of Success
Successful leveraging of open banking data hinges on selecting the right approach for your business and choosing the right partners who understand your needs. Data quality, security, and connection stability are paramount.
As we weigh the hype against the reality of open banking data, it’s evident that some use cases hold tremendous potential, while others face challenges in commercialization. Account aggregation, affordability assessment, and collections assistance stand out as areas where open banking data is making a real impact. The key to unlocking this potential is a relentless focus on delivering a top-notch customer experience.
Curious to learn more about the world of open banking data and its practical applications? Dive deeper into the conversation with Amanda Relton, the Open Banking Expert, by reading the full article on here!