MAJOR peer-to-peer lenders are beginning to get their propositions in order as the Open Banking customer data sharing initiative goes live on Saturday.
Under the new rules, the nine banks with the largest market share are required to adopt and maintain common API (application programming interface) standards through which they will share data with other providers and third parties such as P2P lenders.
Zopa has already disclosed that it will build its own Open Banking infrastructure and is advertising for a technology-focused product manager to lead the charge.
However, Lending Works revealed it is in talks with a third-party provider to give it access to APIs.
“We have engaged a third-party provider to access the APIs on our behalf and will look to go live imminently,” Nick Harding, chief executive of Lending Works, told Peer2Peer Finance News.
“There isn’t much work involved for us as we are not building the infrastructure but our existing guys will focus on it.”
Other major lenders such as RateSetter and Funding Circle are believed to be monitoring developments in this area.
“Open Banking has the potential to completely transform competition and customer choice in financial services by levelling the playing field between banks and challengers,” a spokesman for Funding Circle said.
“It will take time however for the impact to be fully realised by customers. The work to standardise and categorise the data from across the banks will take time, and only once that has happened can innovative solutions be developed and launched.”
Other P2P lenders such as Growth Street have also shown an interest in accessing the APIs. The business lender was part of innovation charity Nesta’s Open Up challenge to develop apps and tools for small firms to make use of Open Banking.
Open Banking is a UK regulatory initiative that mirrors the Payment Services Directive II in the EU. Both sets of legislation aim to create more competition in the banking industry and encourage innovation.
The first set of APIs are due to go live to third parties on 13 January, with a managed roll-out that will complete in March 2018.
But just four of the UK’s nine largest banks have confirmed they will meet the 13 January deadline for complying with Open Banking regulations.
AIB Group, Danske, Lloyds Banking Group and Nationwide told Peer2Peer Finance News that they will be ready for the launch date.
The other five banks – Bank of Ireland, Barclays, HSBC, RBS and Santander – told the Competition and Markets Authority (CMA) last month they would not be able to release all the data needed in time and have been given extensions.
There have also been concerns expressed about how safe Open Banking will be and the vulnerability to hackers.
Stuart Law, founder of Assetz Capital, says the initiative should be given a chance.
“I’m surprised at the negativity surrounding the security of open banking before it has even launched,” he said.
“While there are a number of theoretical vulnerabilities with open banking, there are higher known risks involved in existing online banking, where, for example, human error leaves us open to losing money through accidentally typing an incorrect account number. Overall, security measures in place with open banking should mean that users’ finances will be more secure.”
He said there were plenty of benefits for lenders and borrowers.
“For business and consumer lending, the ability of third parties to be permitted to see bank accounts – with the user’s permission – will mostly benefit the creditworthy,” Law added.
“Without this access, lenders have to continue to rely upon other means of understanding whether a borrower has a good credit rating, which are not always completely accurate. With full transparency on their banking data, there will be a much clearer view of who may pose a high risk and who is likely to become a reliable borrower.”