Open banking can pave the way to slicker and safer lending.
As a key driver for economic performance, it’s understandable that the rigorous framework supporting banking and lending hasn’t let up much over the years. The stern hand of the lender is seldom prized open to do business recklessly. However, a sharp increase in both commercial competitors and availability of scaleable financial technology has driven change in the industry, whereby the leading competitors are now looking to accelerate their decision-making processes.
Industry insiders of late have been excitedly touting Open Banking as the solution to much of the long-winded decision-making processes; but what exactly is Open Banking, and to what extent can it really make a difference in the industry?
Open banking: what it is and what it means for lenders
Well, Open Banking is a secure way for financial service providers to uniformly access a potential customer’s financial information. (1) The system works by sharing financial information electronically, securely via application programming interfaces (APIs) with program and app developers. FCA authorised third parties or financial organisations can share select information on an individual in this way so as to drive a better deal for all parties, to improve application and processing speeds, and to phase out less secure ways of obtaining financial data across organisations.
This all sounds great, but seeing as we live in the age of heightened sensitivity about data sharing, should people be worried about a privacy risk through Open Banking? In short, no. Open Banking is actually more secure than prior methods of app based data sharing, like screen scraping. Open Banking does rely on sharing data, but the specifics of which data is transferred on the API, and those who will be able to access it, are still determined by the user. The industry is more highly regulated than ever, and any would-be customer will need to opt-in to data sharing on any platform they wish to utilise. That information would then be subjected to robust security measures and encryption to ensure that it doesn’t fall into the wrong hands.
Benefits for both business and consumer
Often, enhancements of this kind are driven either to improve the experience of the customer, or the supplier. In the case of Open Banking, both parties can benefit.
Despite only emerging in the last few years, the customers transacting with companies in the lending market are already beginning to reap the rewards of Open Banking. Light touches to simplify the online experience have been emerging with industry leaders introducing features like live chat, and co-browsing, but Open Banking takes things one step further in terms of a more unified approach.
The key to it is that it reduces the amount of sharing of physical documents and manual bank statements from potential customer to lender. The traditional means of this is time consuming and much more susceptible to human error. By being able to verify data at the source, a significant repetitive task is lifted from the customer and the lender, while also mitigating the risk of incomplete or inaccurate data. This quicker route to market is beneficial for the lender from an operational standpoint, and better for customers in terms of overall experience.
Essentially, the playing field is levelled by Open Banking. The data is opened up to levy the traditional incumbent lenders with the same expectation and innovation level as the new market disruptors.
Bee Eye’s VP of Sales, Yosef Kaplan put it well when he said, “with open banking, a bank which is tasked with making a credit risk decision now has a treasure trove of data and analytics open to it.” The traditional problems of more established lenders, as well as new market disruptors are both eased, which will ultimately strengthen the industry.
The larger, traditional lenders have had the benefit of a lot of historical data, but have lacked the slick processing power and innovative adaptation of data that usually comes with start-up new market disruptors. The new players in the market, until this point, have often struggled with the opposite problem, in that they could move quickly on product and proposition, but were somewhat exposed financially due to the lack of historical data available to them.
The largest blocker to lenders both old and new can be removed via the integration and adaptation of Open Banking. This is a real shot in the arm for an industry which is coming in for more and more scrutiny from a regulatory standpoint. The offerings of lenders can now be validated across the board, negating the high stakes approach which can cause market uncertainty.
It really is an exciting time to operate in the financial services industry, with so much innovation coming from fintech advances, and so much more possibility laid before it. Only the tip of the iceberg is visible in terms of what Open Banking can do for financial services, but a continued focus on innovations of this kind will absolutely drive higher standards for everyone connected to it.
A data driven analytical approach is the single greatest enabler for innovation; so all eyes will be on the players in this market to see who will make the next great leap of progress to strengthen the industry.
Ready to capitalise on Open Banking opportunities?
Professionals in the lending industry and beyond can partner with Ibby to get the most out of the latest advances in technology, including instant messaging and co-browsing software with integrated open banking functionality.