THE POTENTIAL of Open Banking is both huge and largely untapped so the onus is on peer-to-peer lenders to capitalise on it in order to attract new customers, give more services to existing customers and grow their businesses.
The Open Banking data-sharing initiative mandates high street banks to share anonymised customer data with approved third parties.
According to a report from big four accountancy firm PwC, Open Banking could add up to £7.2bn to in value to the financial services industry over the next four years.
However, recent YouGov research found that only 28 per cent of UK adults were aware of Open Banking, meaning that almost three-quarters of the population still don’t understand the benefits and opportunities of this new form of financial management.
For P2P platforms, this presents a huge opportunity to educate the public and raise awareness of both Open Banking and the fintech sector at large.
PwC’s report found that that the use of application programming interfaces (API) for account aggregation, better financial management, credit scoring and integrated lending could all be key to getting the most out of Open Banking. And luckily, these are all services that are already being offered by the UK’s P2P sector.
Here we look at five key ways in which the P2P sector can capitalise on the opportunities of Open Banking.
1. Convenience and speed
Open Banking infrastructure can automate the process of applying for credit by removing the need to manually fill out forms and upload documents.
Several platforms are already making great use of this feature. For instance, consumer lender Lending Works has recently partnered with credit reference start-up Credit Kudos to streamline its loan application process.
Credit Kudos will have access to a borrower’s credit history so that income and credit worthiness can be demonstrated instantly, making it easier and faster to apply and be accepted for loans with Lending Works.
In another example, Zopa has launched an income verification tool that can automatically pull in data from the person’s bank, removing the need to upload documents manually.
Open Banking can help provide transparency in both business and consumer lending because it gives third parties the ability – with the user’s permission – to see bank accounts.
According to Stuart Law, founder of Assetz Capital, this will mostly benefit the creditworthy.
“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,” said Law.
“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.”
3. Better tools for lenders
There will be a significant business opportunities on the borrower side, according to David Bradley-Ward, chief executive of Ablrate. He claims that Open Banking will allow lenders to automate some of the functions that are manual at present.
“We already provide credit data to lenders on all our borrowers, which is updated monthly via API,” said Bradley-Ward.
“This allows lenders to have current credit data as well as historical data to aid their decisions when trading loans.
“To get even more granular would be great for lenders who trade loans on our secondary market, but it will also be a valuable credit monitoring tool.”
4. Marketplace integration
Open Banking allows banks, P2P lenders and other financial institutions to work together to give borrowers better access to finance.
The recent partnership between mobile-only Starling Bank and Growth Street allows the bank’s customers, with a GrowthLine product, to view real-time information on their facility within the Starling app.
It is Growth Street’s first marketplace integration, and represents the first live use of Growth Street’s third-party API.
“We want to make business finance easier and faster than ever before, and giving users access to crucial information in real time is a great step towards that goal,” said Greg Carter, Growth Street’s chief executive.
5. Tailored products and services
Customers who manage their finances through Open Banking will be able to access more genuinely personalised products and services.
Applications such as money management apps will allow users to have all of their different accounts and products – including savings and credit cards – in one place.
And these are just a few examples of technology bringing ease, choice and control to consumers.
The momentum is building behind Open Banking and it is up to P2P lenders to reassure consumers that they maintain control of their own data so the platforms can make the most of the opportunity to improve their customers’ financial lives.