One in four lenders currently use open banking technology but a report published by Credit Kudos suggests adoption will significantly increase over the next two years.
The open banking credit reference agency’s report finds that 51% of lenders who haven’t used open banking yet are planning on implementing it in the future.
Open banking is a technology that provides financial data securely to third parties. Using APIs, consumers can make their financial data available to multiple providers to make use of additional services. Open banking also enables banks and financial institutions to expand their portfolio of services and product offerings.
Many digital banks such as Monzo and Revolut offer services based on open banking.
Credit Kudos’ report notes that 87% of lenders that said they plan to adopt open banking in the future are looking to do so within the next two years. This translates to 70% of lenders employing open banking by 2023.
The report said the Covid-19 pandemic pushed more lenders to embrace open banking adoption to make improved lending decisions. It found the pandemic forced 78% of lenders to change their rules regarding who they lend credit to in the pandemic.
It further notes that around 46% of these lenders responded saying they changed their policies as it was “too difficult to verify borrowers’ income, for reasons including furlough and redundancies”.
Over a third, or 36%, of lenders changed their lending rules to avoid those deemed “higher risk” customers during the pandemic’s uncertainty. Credit Kudos said this caused lenders to miss out on business, with 30% of those who changed lending policies during Covid-19 experiencing a loss of revenue from new customers.
As per the report, 34% of lenders who changed their lending policies during the pandemic experienced an increased need to adopt new technologies. Around 30% of them felt the need for new data sources and nearly half of all lenders surveyed reported that open banking could be helpful for them in saving time and cutting the cost of credit decisioning in the future.
“The seismic shock of the pandemic has forced a period of refocusing among lenders on the need for better sources of data, and greater technology integration to help them leverage newer data to enable better decisioning,” said Freddy Kelly, CEO of Credit Kudos. “Open banking technology is helping lenders to move beyond the limitations of traditional credit data and open the door to better financial behavioural data, all of which creates more rounded assessments, increased acceptances and reduced defaults.”
Stuart Mogg, associate partner, corporate finance, EY, said: “Periods of volatility such as this is when Open Banking insights become even more valuable for lenders, going beyond traditional credit bureau data to give a real-time feel of consumer and SME behaviours.”
The post Open banking adoption among lenders to hit 70% by 2023 – report appeared first on UKTN (UK Tech News).
