Open banking technology is finding quick adoption and as per a new report published by Credit Kudos, it’s expected to grow further. The report by the open banking credit reference agency notes that around one in four lenders, which is around 26 percent, are now using open banking technology. Additionally, 51 percent of lenders who haven’t used open banking yet are planning on implementing it in the future.
For the uninitiated, open banking refers to the concept of enabling flow of financial data in a controlled manner so that it can be shared in a secure manner with third parties. It makes use of open APIs, which third parties such as fintechs can make use of, to provide additional services. Open banking also enables banks and financial institutions to expand their portfolio of services and product offerings.
Coming back to Credit Kudos’ report, it notes that about nine in ten (87%) lenders say they plan to adopt open banking within the next two years. This translates to 70 percent of lenders, seven in ten, employing open banking by 2023. The report takes into account the COVID-19 pandemic’s push on lenders to adopt newer technologies, which would enable them to make sound lending decisions by taking affordability and creditworthiness into consideration.
The pandemic forced 78 percent of lenders to change their rules regarding who they lend credit to in the pandemic, the report states. It further notes that around 46 percent of these lenders responded saying they changed their policies as it was “too difficult to verify borrowers’ income, for reasons including furlough and redundancies.”
The report further mentions that over a third or 36 percent of lenders changed their lending rules to avoid those deemed ‘higher risk’ customers during the pandemic’s uncertainty. This is said to lead such lenders to miss out on business and 30 percent of those who changed lending policies during COVID-19 experienced a loss of revenue from new customers.
As per the report, 34 percent of lenders who changed their lending policies during the pandemic experienced an increased need to adopt new technologies. Around 30 percent of them felt the need for new data sources and around half or 47 percent 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.
Open banking, as mentioned earlier, is finding accelerated adoption in the finance industry. Many companies such as Monzo, Revolut and others offer services based on open banking. Such companies implement the Open Banking API to make their products more useful and offer better choices to their consumers.
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