Open Banking is a paperless way to allow authorised third party providers access to your financial information if you have online or mobile banking.
Whilst it sounds all very Orwellian, there is nothing to fear! The fundamental idea behind it is that we each use our own data for our own benefit.
There is already a raft of apps on the market for personal use, to track spending on utilities much quicker than we might with spreadsheets in order that we may make better decisions about providers and get better deals. It could also give you a more detailed understanding of your accounts, and help you find new ways to make the most of your money.
This barely scratches the surface of Open Banking’s possibilities, so let us look at how it could improve customer experience when sourcing finance for your business.
Whether sourcing an asset backed loan or applying for a mortgage we are all familiar with the usual information requests from potential funders. Lenders need to assess your financial performance and cashflow, and for a business this is usually done with year-end accounts, management information and bank statements.
Accounts may tell us turnover and profit and enable a lender to work out various ratios, but the best way to understand how a business’s cashflow is operating is with recent bank statements. All of us at some point have either slavishly photocopied the last twelve months’ statements or been sent scanned copies that are upside down or illegible. Gathering meaningful data manually from statements with high volume transactions can be time-consuming, is subject to human error and subjectivity and this is without considering that a business may run multiple bank accounts. In all manual assessment of bank statements is inefficient for the process of underwriting, which directly affects the customer experience.
Here’s where Open Banking can make a dramatic difference. Further to obtaining your permission, an API (application programming interface, if you want its full name) will pull the information directly from your bank account, and automated analysis can be done however the lender chooses to examine the information. It can group existing spend on loans and other types of finance, check regularity of payments and any returned items, calculate how much you are spending overall and whether a new/replacement facility is affordable. However, the lender chooses to carve that information to help its decision making can be done efficiently and objectively, as well as thoroughly.
The positives are many:
- A link for the customer to click to give permission is all that is needed
- It can improve financial decision making
- It can significantly speed up turnaround times in handling applications
- AI means that human intervention can be done by exception, allowing underwriters the time to concentrate on deals that require it, rather than on the ‘tick and turn’ ones
All the above streamlines the customer experience, from the ease of giving your authority to having a decision back far quicker than expected, and perhaps being afforded better rates than originally quoted.
From a socially responsible point of view, it helps to fulfil ESG aims: hard copy statements can be avoided preventing the need for paper usage, printing and carbon footprint for delivery.
What about whether your bank would allow it? What about security? I hear you ask. Briefly, all UK regulated banks must let you share your financial information with authorised providers if they have your consent. A third party may access the information on a read-only basis, they cannot instigate any activity. Moreover, you can be selective in which accounts a lender may view: they can only access the accounts you give permission for: it is not an all-or-nothing position.
There is plenty of information online about the wealth of opportunities Open Banking affords, as well as security afforded here .
The team at ABL is keen to work with funders who use technology to your advantage and would encourage you to embrace Open Banking if you are raising finance. It is not Big Brother, it’s an extremely useful tool.
We are currently trailing Open Banking for a major UK lender, and are the only finance intermediate nationwide to be doing so.