Open Banking offers great insight into an applicant’s disposable income, but it’s not a total solution. Julian Graham-Rack, CEO of ‘Personalized Lending Journeys’ Platform Provider, PrinSIX explains where Open Banking fits in the lending world.
Why the interest in Open Banking?
There is no doubt that Open Banking offers a rich insight into potential customers’ financial position that conventional credit reference data cannot. Its ability to deliver accurate insights into income and expenses allows for a deeper understanding of an applicant’s disposable income. Open Banking service providers like AccountScore, Credit Kudos and Openwork are delivering increasingly actionable insights through improving categorization and analysis.
Beyond affordability Open Banking insight help identify potential vulnerability, the most obvious being gambling behavior. It’s not surprising therefore that there’s escalating interest by lenders in this emerging data source. With credit files incomplete because of the FCA’s COVID requirement to stop reporting, and a continually growing focus by the regulator on all forms of vulnerability, the benefits to lending decisions are clear.
Realizing these benefits without damaging commercial consequences is difficult; because of its impact on journey conversion; i.e. how to use the data effectively in decisioning strategies and the effort to implement an on-going need for change.
Getting the Balance Right
A key goal of any lender is to ensure that they get as many ‘good’ applicants through the onboarding journey. The more that are lost along the way reduces marketing efficiency, loan volumes and revenue. Conversion is king, but Open Banking has a strongly negative effect. While some customer cohorts may engage with Open Banking, a large population is rejecters, having not yet accepted this new world. Lenders must therefore only use Open Banking journeys for applicants where it’s absolutely necessary, and where journey engagement is predicted as high. Other applicants need different journeys, or they will be lost.
Open Banking and Onboarding Journeys
Using Open Banking data in onboarding journeys requires a very different approach to using credit reference data, because unlike credit histories there is no retro data to use to build strategies. As a result, decision science teams have to build their strategies in real time, in live. It requires advanced split testing, thorough outcome tracking, and fast model refinement.
And finally, both journey optimisation and decisioning optimisation will drive lenders to have to continually and iteratively change their onboarding systems, which will require significant ongoing technical resource to implement.
For these reasons, the old way of onboarding, with fixed forms and predefined onboarding journeys are simply inadequate in an Open Banking world. An Open Banking world demands agile, adaptive, and dynamic onboarding journeys. Journeys that deploy Open Banking intelligently targeted where it adds value but not where it impacts performance. Journeys that can be tested easily analysed and refined quickly. Onboarding that is configured, not coded. These qualities are at the heart of PrinSIX, a platform that we’ve created to deliver personalised lending journeys to consumers that also balances the risks attached to lending; thereby installing the technology and processes to repeatedly getting the balance right.
The general consensus across the lending industry is that Open Banking will ultimately be game-changing for the industry. It’s likely to be absolutely necessary for the future of lending, where greater understanding of an applicant’s disposable income will be needed to fine-tune lending.
Given that the level of adoption by consumers, Open Banking remains in its infancy and still has a long way to go before it becomes the norm. That said, lenders that embrace a balanced approach, and apply the use of Open Banking when it’s appropriate, can look forward to early-stage rewards from embracing this new way of working and the new possibilities afforded by Open Banking data.
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About the Author
Ian Tomlin is a management consultant and writer on the subject of enterprise computing and organizational design. He serves on the USTECH GLOBAL European Management Team. Ian has written several books on the subject of digital transformation, cloud computing, social operating systems, codeless applications development, business intelligence, data science, office security, customer data platforms, vendor management systems, Managed Service Provisioning (MSP), customer experience, and organizational design. He can be reached via LinkedIn or Twitter.
Add Customers Without Adding Risk
PrinSIX offers a services-led digital platform that uses real-time analytical learning ‘at the speed of digital’ to orchestrate unique customer onboarding journeys, one decision stage at a time. PrinSIX meets the needs of lenders, regulators and customers fully and simultaneously; equipping lenders to maximize customer experience and lending while minimizing cost and risk; with a major concern being regulatory compliance—an existential threat.
For more information, please visit www.prinSIX.com.