Open banking is set to play “a really big role” in affordability assessments carried out by lenders, according to speakers at the Open Banking Expo last week.
The observation came just one day after the Financial Conduct Authority (FCA) published its new Consumer Duty rules in the UK, which require financial services firms, including peer-to-peer lenders, to set higher standards in terms of consumer protection.
Speakers on the ‘Consumer Duty, open banking and the rising cost of living’ panel in association with Equifax on 28 July, said open banking’s increased role would “complement” existing credit bureau data.
However, open banking will “fill in a lot of the gaps for those thin file customers,” according to Steve Petrie, director of compliance and financial crime at Equifax.
“The FCA has also been clear that open banking alone won’t work for them,” he added.
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The FCA wants to see more automation and innovation in affordability models, but it will also expect lenders to “be looking a bit broader as well,” according to Petrie.
“Open banking itself isn’t going to contain information for affordability checks that credit files will,” he said, pointing to County Court judgments as an example.
Also on the panel was co-founder and chief technology officer at Plend, James Pursaill. “We use open banking data as a complement and a counterweight to either where the bureau data is missing or thin, or where the applicant’s problems were further back in history than we can see from the open banking data,” he said.
“The great thing about open banking data is it’s accurate to the very day that someone applies for the loan. The up-to-date nature of open banking is partly what makes it really powerful.”
Open banking enables the lender to “better meet the needs of individual customers and our target customer group,” according to Andrew Wayland, chief marketing director at Everyday Loans, which offers loans to consumers not served by mainstream credit.
“We’ve always utilised ONS data and bank statements to underwrite our customers, but the introduction of open banking to this process has fundamentally improved it,” Wayland said.
He went on to explain that 90 per cent of Everyday Loans’ monthly loan volume is now “being booked through an open banking journey”.
The FCA first unveiled its plans for the Consumer Duty in late 2021, as part of its efforts to boost consumer protections in financial services following a raft of scandals including the collapse of mini-bond provider London Capital & Finance. The regulator is giving firms 12 months to implement the new rules.