Prospects for Open Banking

David Firth, head of product for TransUnion Open Banking, talks
to CCRMagazine about what lies ahead.

How will Open Banking bring new data to the industry?

Open Banking paves the way for a data revolution, allowing consumers to quickly and securely share their banking information with accredited third parties. This new data will have a significant impact on how consumers apply for financial products in the future, and how businesses use this data to offer improved services and carry out more detailed affordability and creditworthiness assessments, ensuring that products are appropriate and sustainable.

Consumers can now login directly with their bank to grant consent for FCA-registered third parties to access their financial information. This information is in a digital format, rather than a printed or a PDF statement, and, therefore, can be automatically categorised, so that creditworthiness and affordability assessments are much quicker, or even automated.

As Open Banking becomes more widely adopted across the lending industry, we may see it start to become commonplace during those customer journeys that do not fit the norm, such as consumers with a thin credit file, where a decision cannot be made using the standard lending policies. In the future, we may also see Open Banking form a core part of the standard application process because the data can be used to better ensure products are suitable and sustainable for consumers.

What technical innovations will be needed to allow that to happen?

Open Banking relies heavily on governance and standards that are coordinated by the Open Banking Implementation Entity (OBIE), which has been a significant programme of collaborative work across banks and third parties.

Beyond the industry standards, there are a number of technical innovations that are required to ensure Open Banking can be used to its full potential. Key to this is the creation of a streamlined consumer journey and experience that guides users through the consent, bank authentication, and authorisation journey. The fundamental next step is where the industry will see a focus of innovation over the coming years, focusing on how the consumer’s data is processed to ensure accuracy and depths of insight.

The data returned through Open Banking is in a machine readable, but raw format. It must be categorised so we can understand what each line of data means in as much detail as is necessary. Once understood, it must then be reviewed against affordability and creditworthiness rules set to help inform a lending decision. This must all be done within a number of seconds, and with utmost accuracy to ensure a fair and suitable outcome is reached.

Which sectors have been the quickest to adapt to the new possibilities and why?

As is often the case, it is not necessarily a specific sector that is moving faster, but rather fast technology adopters across a number of sectors. These fast movers will tend to be the more cutting-edge companies who prioritise new technology developments and want to utilise them as soon as possible, to realise the range of benefits they bring.

Our experience shows that, unsurprisingly, the lending industry and surrounding sectors have a keen interest in Open Banking. This was confirmed in the research we conducted with Forrester Consulting which showed that eight out of 10 financial firms are either adopting or planning to adopt Open Banking, or are interested in doing so. We expect 2019 to be a transformational year for Open Banking as many more companies adopt and trial new services.

What do the customers think of this, and how should the industry seek to educate them?

Open Banking is largely unknown to consumers at the moment, as our own consumer poll illustrated, with one in four saying they had not heard of it. This is not overly surprising. Consumers are often unaware of the underlying technology or services that are powering their experiences or journeys. They do, however, respond to adopting new services if the benefits and value exchange are clear, so there needs to be greater awareness of these.

There are substantial benefits for firms in adopting Open Banking, due to processing efficiencies or better decisioning, but there are also a range of consumer benefits. These include quicker application journeys and the availability of a wider selection of products and services. The benefits realised by both consumers and businesses will see a gradual adoption of Open Banking, and it will become a mainstream process in the years to come, assuming that the benefits exchange remains the focus.