CCR2 Affordability, Vulnerability, and Open Banking
Open Banking: the Holy Grail?
There are many considerations on your path to making best use of Open Banking, but the journey is worth it
Mark Fiander VP marketing and customer experience, GAIN Credit
mark.fiander @
gaincredit.com
While some may find it hard to believe, given what can be seen as high APRs, making money in high cost short-term credit (HCSTC) can be challenging. Lending small sums over short periods reduces the opportunity to recover costs, be they bad debt, data, credit-reference-agency expenses, or just the bills incurred running a business. Recently, the Financial Conduct Authority
increased its focus on affordability in the HCSTC market. The increased number of complaints received by the Financial Ombudsman (in part fuelled by claims- management companies) has led many lenders to reconsider how they determine if customers can afford the loan they want.
Operational efficiency So, in a market that calls for operational efficiency as well as robust affordability decisions, while meeting consumers’ demand for fast decisions and rapid access to funds, does Open Banking offer the solution? GAIN Credit has always taken affordability seriously. We have always run affordability
checks, combining self-declared income and expenses with other data such as from credit bureaus and the Office of National Statistics. In 2018, we started using Open Banking
to understand loan affordability and to further enhance underwriting. Setting it up took around three months, but now the practice is providing insight into customer affordability, based on transactional-level data, in a highly automated fashion. We can make lending decisions with more
confidence than ever before, with even greater validation of income-and-expenditure numbers.
Remaining challenges But it is still early days and there are challenges. These include: l Consumer apprehension about sharing bank data – whilst customers can be reticent about providing hard copies of bank statements, sharing access to bank data online can be even more alarming. For years, the UK public were told, by banks and government, not to divulge banking details. It is crucial we overcome this perception
We can make lending decisions with more confidence than ever before, with even greater validation of income-and- expenditure numbers
barrier. We will need more education to convince customers it really is okay to share data, providing it is through a secure system such as Open Banking. l Bank enthusiasm about Open Banking – some banks have been at the forefront of the Open-Banking revolution, and quick to hone their customer journey; others still have a lot to do to make their journey customer friendly. Via our Lending Stream product, we see the customers of some banks being twice as successful at completing online-banking processes when compared to others. l Categorisation of expense – perhaps the key challenge for using transactional banking data to make underwriting decisions is the ability to categorise spend as ‘discretionary’ or ‘essential’. This is at the heart of deciding whether a loan is affordable or not. For example, a spend at Tesco could be for their value-range food, premium lager, or a second television; it is not an easy challenge. l Integrating transactional data into models – more data opens more questions. For example, without transactional data there is an inability to assess the level of gambling. With transactional data, a firm can identify a level, but then has to decide when there is evidence of a problem: £2 on the lottery may be okay, but £1,000 a week at Ladbrokes?
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www.CCRMagazine.com March 2019
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