Open banking can kick-start lending during the coronavirus crisis, an expert at Equifax has claimed.
Robert McKechnie, open banking expert at the consumer credit reporting agency, said that the data-sharing initiative could help give lenders support financially vulnerable people, restore confidence in credit assessments in these unprecedented times and help companies with their digital onboarding processes.
Open banking – which mirrors PSD2 in the EU – mandates high street banks to share anonymised customer data with approved third parties to boost competition in financial services and improve the consumer’s experience.
“Across the UK the impact on personal finances has been severe, with over four million people taking emergency payment freezes and nine million on furlough,” said McKechnie.
“Sadly, over the next few months many will suffer further income shocks, and inevitably fall into arrears. During this period, Open Banking, and its use of up-to-date bank transaction data, will be integral in giving lenders an extremely accurate and detailed picture of a consumer’s finances. This allows them to make more informed decisions around credit and affordability, and identify financially vulnerable people who need support.
“Once the economy starts to recover, the extra level of real-time data and insight Open Banking offers will be vital to restore lenders’ confidence and reinvigorate the supply of credit for businesses and individuals. This will have a positive knock-on effect, expediting the return of normal levels of business and consumer spending, and stimulating the economy.”
The open banking expert added that the initiative would be particularly helpful in the new environment of less face-to-face contact, as it improves automated, digital verification rates for identity, income and expenditure and helps combat the risk of fraud.
“Open banking is gaining momentum by the month and we are entering a new, more mature phase of its development,” McKechnie said. “Lenders have built out customer journeys, integrated technical aspects, tested, learnt and gained confidence in the new open banking approach. The initial labour and capital investment is bearing fruit and we expect the uptake in open banking to continue to grow throughout 2020.”
A number of peer-to-peer lenders have tapped into the opportunities presented by open banking. Most recently, ArchOver announced that it had partnered with analytics firm AccountScore to provide open banking data for use in its credit and monitoring teams.
For more on the ways that P2P lenders can benefit from open banking, make sure to read the August issue of Peer2Peer Finance News, out soon.